20FR12B/A 1 d822476d20fr12ba.htm AMENDMENT NO. 2 TO FORM 20-F Amendment No. 2 to Form 20-F
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Index to Financial Statements

As filed with the Securities and Exchange Commission on July 31, 2020

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM 20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

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

OR

 

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

OR

 

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

Commission File Number: 001-39368

 

 

Maxeon Solar Technologies, Ltd.

(Exact name of registrant as specified in its charter)

 

N/A

(Translation of Registrant’s name into English)

Singapore

(Jurisdiction of incorporation or organization)

8 Marina Boulevard #05-02

Marina Bay Financial Centre

018981, Singapore

(Address of principal executive office)

Jeffrey W. Waters

51 Rio Robles

San Jose, California 95134

(408) 240-5500

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

Copies to:

Randi C. Lesnick, Esq.

Bradley C. Brasser, Esq.

Jones Day

250 Vesey Street

New York, New York 10281

(212) 326-3452

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

Ordinary Shares, no par value   NASDAQ Global Select Market

Securities for which there is a reporting obligation pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Not applicable

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes      No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes      No  

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP       International Financial Reporting Standards as issued
by the International Accounting Standards Board
      Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17      Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

 

 


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                    , 2020

Dear SunPower Shareholder:

As I shared with you last April, SunPower is now in its 35th year of operation and with that comes a natural evolution of change for us. We are now about to embark on a new chapter, as announced on November 11, 2019—separating into two independent, industry-leading, publicly traded companies—SunPower Corporation and Maxeon Solar Technologies. The two new companies will benefit both from becoming independent of each other and utilizing their respective strengths and extensive experience across the solar value chain.

SunPower: Pure Play, Focused DG Energy Services Company Leveraging World’s Best Solar Platform

SunPower will continue as the leading North American distributed generation, storage and energy services company. We will leverage our strong dealer network, which is the largest residential and commercial franchise in the industry. I will continue to lead SunPower and the company will remain headquartered in Silicon Valley. Our focus will be on product innovation, downstream high-efficiency solar systems, and high-growth storage and energy services. We will also continue our commitment to American manufacturing by owning and operating our facility in Hillsboro, Oregon.

To maximize our outstanding research and development team, SunPower and Maxeon Solar will cooperate to develop and commercialize our next generation solar panel technologies, with early stage research conducted by SunPower and deployment-focused innovation and scale up carried out by Maxeon Solar.

Maxeon Solar: Advanced Technologies Deployed at Scale

SunPower Technologies business unit leader Jeff Waters will take on the role of CEO of Maxeon Solar. Maxeon Solar is set to be a leading global technology innovator, manufacturer and marketer of premium solar panels. Maxeon Solar will market its solar panels under the SunPower brand into the global solar power marketplace, and into the United States and Canada via a multi-year exclusive supply agreement to be entered into with SunPower at the time of separation. We believe Maxeon Solar will be positioned to expand on SunPower’s well-established market channels and to increase international sales in some of the fastest-growing solar markets outside of North America.

Investment to Accelerate Next Generation Solar Panel Technology

The planned separation was structured to facilitate an investment by Tianjin Zhonghuan Semiconductor Co., Ltd., a premier global supplier of silicon wafers and long-time partner of SunPower. TZS believes in SunPower’s technology and knows it well. In fact, SunPower and TZS have cooperated on seven joint ventures and joint development projects since 2012.

Separation Implementation

To implement the separation, SunPower will first transfer our solar cell and panel manufacturing facilities located in France, Malaysia, Mexico and the Philippines and technology and manufacturing upstream operations and international sales capability to Maxeon Solar. We will then subsequently distribute all of the Maxeon Solar ordinary shares held by SunPower to SunPower shareholders, pro rata to their respective SunPower holdings.

Each SunPower shareholder will receive one Maxeon Solar share for every eight SunPower shares they hold or have acquired and do not sell or otherwise dispose of prior to the close of business on August 17, 2020. The distribution generally should not be taxable to SunPower shareholders for Singapore withholding and income tax and for U.S. federal income tax purposes. An application will be made to list the Maxeon Solar shares on the NASDAQ Global Select Market under the symbol “MAXN.” Trading in Maxeon Solar shares is expected to begin on the NASDAQ on August 27, 2020.


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In connection with the distribution, on November 8, 2019, Maxeon Solar, SunPower and, for the limited purposes set forth therein, Total Solar INTL SAS (“Total”), an affiliate of Total S.A., and TZS entered into an investment agreement pursuant to which, immediately following the distribution and in exchange for a purchase price of $298 million, TZS will acquire, and Maxeon Solar will issue, additional Maxeon Solar shares representing approximately 28.848% of the total number of Maxeon Solar shares outstanding immediately following the distribution and investment. In connection with the TZS investment, Maxeon Solar, Total and TZS will enter into a shareholders agreement relating to certain rights and obligations of each of Total and TZS as a holder of Maxeon Solar shares. Maxeon Solar expects that the investment by TZS will finance continued scale-up of Maxeon 5 and 6 capacity (marketed in the United States as A-Series) and accelerate the development and commercialization of our next-generation Maxeon 7 panels. We believe this will allow Maxeon Solar to increase its distributed generation market share and accelerate profit growth.

You do not need to take any action to receive Maxeon Solar shares to which you are entitled as a SunPower shareholder, and you do not need to pay any consideration or surrender or exchange your SunPower shares.

We encourage you to read the enclosed Registration Statement on Form 20-F, which is being made available to all SunPower shareholders and is also publicly available. The Form 20-F describes the separation in more detail and contains important business and financial information about Maxeon Solar.

COVID-19 Pandemic

Given the global aspect of the COVID-19 pandemic, I want to briefly discuss how we have been managing through this. It has affected how our teams around the globe work and how we operate our company, including manufacturing, selling, installing and servicing. Our priority has been to enhance SunPower’s already stringent health and safety standards to protect our employees, customers and those in the communities we serve, while we thoughtfully manage market impacts. We’ve acted early to take prudent measures to contain costs and we are prepared to continue addressing this ever-evolving situation as warranted. Our actions, in addition to having the industry’s best technology and innovative product suite, will position SunPower, and ultimately Maxeon Solar, well for when the solar industry returns to strong growth.

Now is the Time for this Type of Transaction

The solar industry is at an inflection point. Forecasts by Bloomberg New Energy Finance estimate that global deployed capacity will reach more than 1,500 gigawatts in just five years and that solar will generate 40% of the world’s electricity by 2050.

We believe we now have the opportunity for our two powerhouse companies to fulfill and exceed those projections and continue to build long-term shareholder value. With two distinct publicly traded companies, we believe SunPower and Maxeon Solar will be better-positioned to capitalize on significant growth opportunities and focus resources on their respective businesses and strategic priorities.

We appreciate your investment in us, and your continuing support of SunPower, and look forward to your future support of both companies. Together, we can change the way our world is powered.

Sincerely,

Thomas H. Werner

Chief Executive Officer and Chairman of the Board

SunPower Corporation


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                    , 2020

Dear Maxeon Solar Shareholder:

It is my pleasure to welcome you as a shareholder of our new company, Maxeon Solar Technologies, Ltd. Built on decades of technological innovation and investment, we are a leading global technology innovator, manufacturer and marketer of premium solar panels.

As the industry evolves, we need to evolve with it. Solar equipment manufacturing will consolidate around a handful of leaders that compete on technological innovation and the lower costs that come with scale. Meanwhile, distributed generation has emerged as a fast-growing market that complements the utility-scale solar power plant market. Maxeon Solar addresses the distributed generation opportunity with one of the industry’s most powerful global go-to-market channels, positioning the company as a leader in the residential and commercial rooftop segments. In the large-scale and utility segment, our Huansheng Performance Line joint venture provides a very strong platform for us to scale our business in a highly capital efficient manner.

The spin-off of Maxeon Solar completes our efforts to align with these market trends. At our foundation is over three decades of Silicon-Valley based technology leadership, designing and manufacturing the world’s best solar panels—more power and unparalleled durability. For residential and commercial rooftop markets, our interdigitated back contact (IBC) Maxeon Line of panels consistently sets the industry standard for highest efficiency. For large-scale commercial and power plant markets, our Performance Line panels offer our customers performance advantages at competitive cost, and will enable us to drive growth and scale that benefit the entire company. As an independent company with significant new capital, Maxeon Solar can scale these panel technologies more quickly and expand our product offerings to include complementary technologies that will better monetize our channel relationships. Centering our operations in Asia will also enable us to drive costs lower, sustaining our competitiveness within the industry. Finally, while we will still benefit from our relationship with SunPower in both branding and US distribution, we will now have an increased focus on expanding sales opportunities around the world. Our team will leverage proven and growing sales and distribution channels supplying customers in more than 100 countries on six continents.

Our enclosed Registration Statement on Form 20-F covers the details of the transaction, and I encourage you to study it thoroughly. The key elements you need to know are these: upon closing, you will receive one Maxeon Solar share for every eight SunPower shares that you own upon the close of business on August 17, 2020. Immediately after the distribution, Maxeon Solar will issue new shares that will be purchased by our long-time partner, Tianjin Zhonghuan Semiconductor (TZS). TZS will invest $298 million in Maxeon Solar, substantially strengthening our balance sheet. After this capital injection, TZS will own approximately 28.848% of the outstanding Maxeon Solar shares. Maxeon Solar shares will be listed on the NASDAQ under the symbol “MAXN,” and trading in Maxeon Solar shares is expected to begin on the NASDAQ on August 27, 2020.

Our team is excited and energized by the growth we can realize with Maxeon Solar as an independent company, and the benefits it will bring to our investors, employees and the planet.

Sincerely,

Jeffrey W. Waters

Chief Executive Officer

Maxeon Solar Technologies, Ltd.


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TABLE OF CONTENTS

 

               Page  

Introduction and Use of Certain Terms

     iv  

Unaudited Pro Forma Combined Financial Information

     v  

Market Information

     v  

Unit of Power

     vi  

Special Note About Forward-Looking Statements

     vi  

Notice to Prospective Investors in Singapore

     vii  

Summary

     1  
PART I

 

Item 1.

   Identity of Directors, Senior Management and Advisers      22  
   1.A.    Directors and Senior Management      22  
   1.B.    Advisers      22  
   1.C.    Auditors      22  

Item 2.

   Offer Statistics and Expected Timetable      22  

Item 3.

   Key Information      22  
   3.A.    Selected Financial Data      22  
   3.B.    Capitalization and Indebtedness      33  
   3.C.    Reasons for the Offer and Use of Proceeds      34  
   3.D.    Risk Factors      35  

Item 4.

   Information on the Company      68  
   4.A.    History and Development of the Company      68  
   4.B.    Business Overview      76  
   4.C.    Organizational Structure      87  
   4.D.    Property, Plants and Equipment      87  
   4.E.    Unresolved Staff Comments      88  

Item 5.

   Operating and Financial Review and Prospects      89  
   5.A.    Operating Results      89  
   5.B.    Liquidity and Capital Resources      114  
   5.C.    Research and Development, Patents and Licenses, Etc      121  
   5.D.    Trend Information      121  
   5.E.    Off-Balance Sheet Arrangements      121  
   5.F.    Aggregate Contractual Obligations      121  

Item 6.

   Directors, Senior Management and Employees      123  
   6.A.    Directors and Senior Management      123  
   6.B.    Compensation      127  
   6.C.    Board Practices      127  
   6.D.    Employees      130  
   6.E.    Share Ownership      131  

 

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(continued)

 

               Page  

Item 7.

   Major Shareholders and Related Party Transactions      132  
   7.A.    Major Shareholders      132  
   7.B.    Related Party Transactions      133  
   7.C.    Interests of Experts and Counsel      161  

Item 8.

   Financial Information      162  
   8.A.    Combined Statements and Other Financial Information      162  
   8.B.    Significant Changes      162  

Item 9.

   The Offer and Listing      163  
   9.A.    Offer and Listing Details      163  
   9.B.    Plan of Distribution      163  
   9.C.    Markets      163  
   9.D.    Selling Shareholders      163  
   9.E.    Dilution      163  
   9.F.    Expenses of the Issue      163  

Item 10.

   Additional Information      164  
   10.A.    Share Capital      164  
   10.B.    Memorandum and Articles of Association      164  
   10.C.    Material Contracts      183  
   10.D.    Exchange Controls      183  
   10.E.    Taxation      183  
   10.F.    Dividends and Paying Agents      191  
   10.G.    Statements by Experts      191  
   10.H.    Documents on Display      192  
   10.I.    Subsidiary Information      192  

Item 11.

   Quantitative and Qualitative Disclosures About Market Risk      192  

Item 12.

   Description of Securities Other Than Equity Securities      192  
   12.A.    Debt Securities      192  
   12.B.    Warrants and Rights      192  
   12.C.    Other Securities      192  
   12.D.    American Depositary Shares      192  
PART II

 

Item 13.

   Defaults, Dividend Arrearages and Delinquencies      193  

Item 14.

   Material Modifications to the Rights of Security Holders and Use of Proceeds      193  

Item 15.

   Controls and Procedures      193  

 

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(continued)

 

               Page  
Item 16.    [Reserved]      193  
   16.A.    Audit Committee and Financial Expert      193  
   16.B.    Code of Ethics      193  
   16.C.    Principal Accountant Fees and Services      193  
   16.D.    Exemptions from the Listing Standards for Audit Committees      193  
   16.E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers      193  
   16.F.    Change in Registrant’s Certifying Accountant      193  
   16.G.    Corporate Governance      193  
   16.H.    Mine Safety Disclosure      193  
PART III

 

Item 17.

   Financial Statements      194  

Item 18.

   Financial Statements      194  

Item 19.

   Exhibits      194  

Index to Financial Statements

     F-1  

 

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INTRODUCTION AND USE OF CERTAIN TERMS

We have prepared this registration statement using a number of conventions, which you should consider when reading the information contained herein. We are registered with the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”) under the name “Maxeon Solar Technologies, Ltd.” In this registration statement, “we,” “us,” “our” and “Maxeon Solar” shall refer to Maxeon Solar Technologies, Ltd. or Maxeon Solar Technologies, Ltd. and the Maxeon Business (defined below) collectively, as the context may require.

We prepare combined financial statements expressed in U.S. dollars. Our combined financial statements responsive to Item 17 of this Form 20-F are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

We have prepared this registration statement to register our shares under the Securities Exchange Act of 1934 (the “Exchange Act”) in connection with the trading of our shares on the NASDAQ Global Select Market (“NASDAQ”). We were formed in the third quarter of 2019 under the name “Maxeon Solar Technologies, Pte. Ltd.” and in connection with the spin-off converted to a public company under the Companies Act, Chapter 50 of Singapore (the “Singapore Companies Act”) and changed our name to “Maxeon Solar Technologies, Ltd.” We are a holding company of businesses to be contributed to Maxeon Solar by our parent, SunPower Corporation (“SunPower”) in connection with a spin-off of the following businesses that are currently held by SunPower (collectively, the “Maxeon Business”):

 

   

SunPower’s non-U.S. manufacturing business, including solar cell and module manufacturing facilities located in France, Malaysia, Mexico and the Philippines;

 

   

SunPower’s international sales and distribution business outside of the 50 U.S. states, the District of Columbia and Canada;

 

   

a 20% interest in Huansheng Photovoltaic (Jiangsu) Co., Ltd. (formerly known as Dongfang Huansheng Photovoltaic (Jiangsu) Co., Ltd.) (“Huansheng”), a joint venture to manufacture Performance solar panels (the “Performance Line” or “P-Series”) in China;

 

   

an 80% interest in SunPower Systems International Limited, an international sales company based in Hong Kong;

 

   

a 25% interest in Huaxia CPV Power Co. Ltd., a joint venture to manufacture and deploy low-concentration photovoltaic concentrator technology in Inner Mongolia and other regions in China; and

 

   

an 8% interest in Deca Technologies Inc., a privately held intellectual property holding company with headquarters in Tempe, Arizona.

Additionally, this registration statement uses the following conventions:

 

   

“Internal Transactions” refers to the series of internal transactions SunPower will complete prior to the distribution, following which we will hold, directly or through our subsidiaries, the Maxeon Business. The Internal Transactions are described in more detail under “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us” or “Internal Transactions”;

 

   

“separation” shall refer to the transaction in which SunPower will contribute certain non-U.S. operations and assets of its SunPower Technologies business unit to us, including its interests in each of Maxeon Solar Pte. Ltd., SunPower Energy Corporation Limited, SunPower Corporation Limited, SunPower Manufacturing Corporation Limited, Huansheng Photovoltaic (Jiangsu) Co., Ltd., SunPower Solar Energy Technology (Tianjin) Co., Ltd., Huaxia CPV Power Co. Ltd., Hohhot Huanju New Energy Development Co., Ltd., SunPower Systems International Limited, SunPower Energy Solutions France SAS, SunPower Philippines Manufacturing Ltd., SunPower Malaysia Manufacturing Sdn. Bhd.,

 

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SunPower Solar Malaysia Sdn. Bhd., SunPower Corporation UK Limited, SunPower Systems Sarl, Deca Technologies Inc., SunPower Energy Systems Singapore Pte. Ltd., and SunPower Corporation Mexico S. de R.L. de C.V., as well as other intermediate holding companies and subsidiaries related to these entities;

 

   

“distribution” shall refer to the transaction in which SunPower will spin off Maxeon Solar through a pro rata distribution to SunPower shareholders of 100% of our shares held by SunPower;

 

   

“spin-off” refers collectively to the separation and the distribution; and

 

   

“investment” shall refer to the anticipated transaction in which, immediately after the distribution, Tianjin Zhonghuan Semiconductor Co., Ltd., a PRC joint stock limited company (“TZS”), will purchase from us, for $298.0 million, additional shares that will, in the aggregate, represent approximately 28.848% of our outstanding shares after giving effect to the spin-off and the investment.

Unless otherwise indicated or required by the context, in this registration statement, our disclosure assumes that the consummation of the spin-off has occurred. Although we will not acquire each of our businesses until shortly before the spin-off, the operating and other statistical information with respect to each of our businesses is presented as of December 29, 2019, unless otherwise indicated, as if we owned such businesses as of such date.

MAXEON is a registered trademark of Maxeon Solar or its subsidiaries in various jurisdictions including the United States, and SUNPOWER is a registered trademark of SunPower Corporation in the United States and a registered trademark of Maxeon Solar or our subsidiaries in various jurisdictions other than the United States.

A Notice of Internet Availability of Materials containing instructions describing how to access this Form 20-F was first mailed to SunPower shareholders on or about August 18, 2020.

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined financial information included in this Form 20-F is based on the combined financial statements of the Maxeon Business after giving effect to the spin-off and the investment and applying the estimates, assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined financial information. The historical column in the Unaudited Pro Forma Combined Statement of Operations for the year ended December 29, 2019 is derived from the Combined Statement of Operations of the Maxeon Business for the year ended December 29, 2019 included in this Form 20-F. The historical column in the Unaudited Pro Forma Condensed Combined Statement of Operations for the three months ended March 29, 2020 is derived from the Unaudited Condensed Combined Statement of Operations of the Maxeon Business for the three months ended March 29, 2020 included in this Form 20-F. The historical column in the Unaudited Pro Forma Condensed Combined Balance Sheet is derived from the Unaudited Condensed Combined Balance Sheet of the Maxeon Business as of March 29, 2020 included in this Form 20-F. The unaudited pro forma combined financial information was prepared by our management for illustrative purposes and is not intended to represent our combined financial position or combined results of operations of the Maxeon Business in future periods or what the financial position or the results of operations actually would have been had we completed the proposed spin-off and investment during the specified periods or as of the specified date.

MARKET INFORMATION

This Form 20-F contains certain industry and market data that were obtained from third-party sources, such as industry surveys and industry publications, including, but not limited to, publications by Wood MacKenzie, Institute of Electrical and Electronics Engineers (“IEEE”), PV Infolink and Bloomberg New Energy Finance. This Form 20-F also contains other industry and market data, including market sizing estimates, growth and other projections and information regarding our competitive position, prepared by our management on the basis of such industry sources and our management’s knowledge of and experience in the industry and markets in which we operate (including management’s estimates and assumptions relating to such industry and markets based on that knowledge). Our management has developed its knowledge of such industry and markets through its experience and participation in these markets.

 

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In addition, industry surveys and industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed and that any projections they contain are based on a number of significant assumptions. Forecasts, projections and other forward-looking information obtained from these sources involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section “Special Note About Forward-Looking Statements” below. You should not place undue reliance on these statements.

UNIT OF POWER

When referring to our solar power systems, our facilities’ manufacturing capacity and total sales in this Form 20-F, the unit of electricity in watts for kilowatts (“KW”), megawatts (“MW”) and gigawatts (“GW”) is direct current (“DC”), unless otherwise noted as alternating current (“AC”).

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Form 20-F contains certain “forward-looking statements” that involve risks and uncertainties. Forward-looking statements are statements that do not represent historical facts and the assumptions underlying such statements. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “potential,” “expect,” “intend,” “may,” “will,” “would,” “should,” “plan,” “predict,” “project,” “outlook” and similar expressions to identify forward-looking statements. Forward-looking statements in this Form 20-F include, but are not limited to: (a) our expectations regarding pricing trends, demand and growth projections; (b) anticipated product launch timing and our expectations regarding ramp, customer acceptance, upsell and expansion opportunities; (c) our expectations and plans for short- and long-term strategy, including our anticipated areas of focus and investment, market expansion, product and technology focus, and projected growth and profitability; (d) our upstream technology outlook, including anticipated fab utilization and expected ramp and production timelines for our Maxeon 5 and 6, next-generation Maxeon 7 and Performance Line solar panels, expected cost reduction, and future performance; (e) our strategic goals and plans, including partnership discussions with respect to our next generation technology, and our ability to achieve them; (f) our financial plans; (g) our expectation that the spin-off takes place as contemplated or at all; and (h) our expectations regarding the potential outcome, or financial or other impact on us or any of our businesses of the spin-off, or regarding potential future sales or earnings of us or any of our businesses or potential shareholder returns. You should not place undue reliance on these statements.

Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that: (i) any new products will be approved for sale in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such products will achieve any particular revenue levels; (ii) we will be able to realize any of the potential strategic benefits or opportunities as a result of the spin-off; (iii) shareholders will achieve any particular level of shareholder returns; (iv) we, or any of our businesses, will be commercially successful in the future, or achieve any particular credit rating or financial results; or (v) the spin-off will be successful.

In particular, our expectations could be affected by, among other things:

 

   

uncertainties regarding the impact of global economic conditions, particularly slowdowns, recessions, economic instability, political unrest, armed conflicts, natural disasters or outbreaks of disease, such as the existing COVID-19 pandemic, and the resulting impact on manufacturing and sales;

 

   

competition in the solar and general energy industry and downward pressure on selling prices and wholesale energy pricing;

 

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our liquidity and substantial indebtedness;

 

   

political and economic conditions and changes in public policy, including the imposition and applicability of tariffs;

 

   

regulatory changes, including changes in tax laws and other local, state, and federal laws and regulations applicable to our business, and the availability of economic incentives promoting use of solar energy;

 

   

the success of our ongoing research and development efforts and our ability to commercialize new products and services, including products and services developed through strategic partnerships;

 

   

fluctuations in our operating results;

 

   

appropriately sizing our manufacturing capacity and containing manufacturing and logistics difficulties that could arise;

 

   

challenges managing our acquisitions, joint ventures and partnerships, including our ability to successfully manage acquired assets and supplier relationships;

 

   

potential product recalls;

 

   

challenges in executing transactions key to our strategic plans;

 

   

the potential volatility in the price of our shares; and

 

   

uncertainties regarding future sales or dispositions of our shares.

Some of these factors are discussed in more detail in this Form 20-F, including under “Item 3. Key Information—3.D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Form 20-F as anticipated, believed, estimated or expected. We provide the information in this Form 20-F as of the date of its filing. We do not intend, and do not assume any obligation, to update any information or forward-looking statements set out in this Form 20-F as a result of new information, future events or otherwise.

NOTICE TO PROSPECTIVE INVESTORS IN SINGAPORE

The Form 20-F has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Form 20-F and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our shares may not be issued, circulated or distributed, nor may our shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than pursuant to, and in accordance with, the conditions of a prospectus registration exemption under Subdivision (4) of Division 1 of Part XIII of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”).

WAIVER OF SINGAPORE CODE ON TAKE-OVERS AND MERGERS

On January 30, 2020, the Securities Industry Council of Singapore waived the application of the Singapore Code on Take-overs and Mergers (the “Singapore Take-overs Code”) to us, subject to certain conditions. Pursuant to the waiver, for as long as we are not listed on a securities exchange in Singapore, and except in the case of a tender offer (within the meaning of U.S. securities laws) where the Tier 1 exemption set forth in Rule 14d-1(c) under the Exchange Act (the “Tier 1 Exemption”) is available and the offeror relies on the Tier 1 Exemption to avoid full compliance with the tender offer regulations promulgated under the Exchange Act, the Singapore Take-overs Code shall not apply to us. In connection with receipt of the waiver, the Board of Directors of SunPower (the “SunPower Board”) submitted to the Securities Industry Council of Singapore a written confirmation to the effect that it is in the interests of SunPower shareholders who will become holders of Maxeon Solar shares as a result of the spin-off that a waiver of the provisions of the Singapore Take-overs Code is obtained.

 

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SUMMARY

This summary highlights selected information from this Form 20-F and provides an overview of our company, our separation from SunPower and the distribution by SunPower of our shares to our shareholders. For a more complete understanding of our business and the spin-off, you should read this entire Form 20-F carefully, particularly the discussion under “Item 3. Key Information—3.D. Risk Factors” of this Form 20-F and our combined financial statements and the notes to those financial statements appearing elsewhere in this Form 20-F.

Overview

We are one of the world’s leading global manufacturers and marketers of premium solar power technology. We have developed and maintained this leadership position through decades of technological innovation and investment, in addition to the development of sales and distribution channels across six continents. Headquartered in Singapore, we manufacture our solar cells in Malaysia and the Philippines, assemble solar cells into panels in France, Mexico and China (through our joint venture, Huansheng), and sell our products across more than 100 countries.

Our solar cells and panels have the highest conversion efficiency in the industry, a measurement of the amount of sunlight converted by the solar cell into electricity. We achieve this performance through two product technologies: the “Maxeon Line,” which utilizes our interdigitated back contact (“IBC”) technology, and the “Performance Line,” which utilizes our shingled cell technology.

For the Maxeon Line, our technological advantage is the result of innovative device architecture and manufacturing which produces back-contact, back-junction cells that enable our panels to deliver more electricity, last longer and more effectively resist degradation. We believe that our technology allows us to deliver:

 

   

superior performance, with our technology having the ability to generate up to 35% more power using the same area of conventional solar cell;

 

   

superior energy yield per rated watt of power of up to 8% annually compared with conventional panels;

 

   

superior reliability, which results in the industry’s lowest degradation rate and up to 55% more energy in any given amount of roof space over the first 25 years of a system’s operation as compared to conventional panels;

 

   

solar systems that are designed to generate electricity over a system life typically exceeding 25 years and backed by a combined product and power warranty covering the same period; and

 

   

superior aesthetics, with our uniformly black surface design that eliminates highly visible reflective grid lines and metal interconnection ribbons.

For the Performance Line, our technological advantage is the result of a solar cell-shingling manufacturing process that enables our panels to deliver more electricity, have higher reliability and greater resilience to environmental effects as compared with the products of our competitors. We believe that our technology allows us to deliver:

 

   

high efficiency (20%) panels at a competitive price, utilizing conventional passivated emitter and rear cell (“PERC”) solar cells;

 

   

superior reliability, which results in the industry’s lowest degradation rate and up to 25% more energy in any given amount of roof space over the first 25 years of a system’s operation as compared to conventional panels; and



 

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patented string design which enhances energy yield, limits power loss due to shading and dirt build-up, enables closer row spacing and reduces installation cost.

Combined with our superior technology, we believe that our business is further differentiated from our competitors through our market expertise, differentiated brand, and global distribution channels that have resulted in us having strong market position across distributed generation markets globally. Our business and commercial differentiating factors include:

 

   

well-established supply chain and distribution channels derived from what we believe to be unmatched market experience and a long-standing leadership position;

 

   

long-term customer relationships in key markets and applications;

 

   

well established brand with a reputation for superior product quality and performance;

 

   

manufacturing facilities strategically located worldwide targeting cost reduction and logistics optimization throughout the supply chain;

 

   

deep global presence and exposure to some of the fastest growing distributed generation solar end markets in the world; and

 

   

strategic partnerships with companies that lead globally in areas such as distribution channel, supply chain and technological development.

With our Performance Line joint venture, Huansheng, we have a compelling product for the large commercial and power plant markets, and have been building our presence in these markets through a strong international presence, brand and reputation for quality and innovation.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic, which continues to spread globally and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders and business limitations and shutdowns. While we are unable to accurately predict the full impact that the COVID-19 pandemic will have on our operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our business and operations and could disrupt that of our customers, suppliers and other counterparties.

In an effort to protect the health and safety of our employees, we took proactive actions from the earliest signs of the outbreak to adopt social distancing policies at our locations around the world, including working from home and suspending employee travel. Further, we recently implemented a number of initiatives to proactively address financial and operational impacts of the COVID-19 pandemic and position us well for when the solar industry returns to strong growth. These actions include temporarily reducing the salaries of certain of our executive officers, temporarily implementing a four-day work week for a portion of our employees, subject to periodic reassessment, to address reduced demand and workloads, with exceptions for certain groups, including those supporting customer and asset services, as well as the temporary idling of our factories in France, Malaysia, Mexico and the Philippines, consistent with actions taken or recommended by governmental authorities. All of our factories have resumed production as of May 2020 in accordance with the relevant local restrictions and with additional safety measures to protect our employees.

We will continue to actively monitor the situation and may take further actions to alter our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as



 

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required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees and outlook.

Our Markets

Solar has become one of the fastest growing renewable energy sources over the last few decades. According to recent estimates from Wood MacKenzie, through effective investments and projects, the solar market has achieved more than 600 GW of global installed capacity as of 2019, representing an average compound annual growth rate of 40% since 2009, with significant acceleration in the most recent years.

As solar technology has developed, manufacturing costs have declined and performance has improved. Today, solar power, together with enhanced balance of system technology, has among the lowest levelized cost of energy (“LCOE”) of all major energy sources.

In the long term, this trend is expected to continue and even accelerate, according to Bloomberg New Energy Finance. By 2050, solar technology is expected to represent more than 40% of global electricity capacity, with a balanced distribution among key regions worldwide—a significant increase compared to its current penetration of approximately 5% of global capacity.

We believe the following factors have driven and will continue to drive demand in the global solar power industry, including demand for our products:

 

   

solar generation costs have fallen to the point where solar power is one of the lowest cost electricity sources on a LCOE basis in certain regions;

 

   

renewable energy is one of the most relevant topics and targets of government incentives and policies as a result of increased concerns regarding climate change;

 

   

solar power is at the center of public discussion, which helps to grow public awareness of its advantages, such as peak energy generation, significantly smaller fuel and supply chain risk, sustainability from an environmental perspective, scalability and reliability;

 

   

structural limitations for fossil fuel supply and issues around energy security increasing the long-term demand for alternative sources of energy;

 

   

significant secular increase in electricity demand; and

 

   

solar energy as a viable option to generate energy in developing countries, rural areas, and regions without indigenous fuel resources.

Our Business

Following the spin-off, we will be one of the world’s leading global manufacturers and marketers of premium solar technology. We have developed and maintained this leadership position through decades of technological innovation and investment, in addition to the development of sales and distribution channels supplying customers in more than 100 countries on six continents. We will own and operate solar cell and panel manufacturing facilities located in France, Malaysia, Mexico and the Philippines, as well as participate in a joint venture for panel manufacturing in China with TZS. During the fiscal year ended December 29, 2019, 23.9% of our sales (by megawatt) were to North America, 28.1% to EMEA, 42.8% to Asia Pacific and 5.2% to other markets. During the fiscal year ended December 30, 2018, 34.6% of our sales (by megawatt) were to North America, 35.8% to EMEA, 28.6% to Asia Pacific and 1.0% to other markets.

Our primary products are the Maxeon Line of IBC solar cells and panels, and the Performance Line (formerly, “P-Series”) of shingled solar cells and panels. We believe the Maxeon Line of solar panels are the



 

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highest-efficiency solar panels on the market with an aesthetically pleasing design, and the Performance Line of solar panels offer a high-value, cost-effective solution for large-scale applications compared to conventional solar panels. The Maxeon Line, which includes Maxeon 2 (marketed as E-Series in the United States), Maxeon 3 (marketed as X-Series in the United States) and Maxeon 5 (marketed as A-Series in the United States) solar panels, is primarily targeted at residential and small-scale commercial customers across the globe. The Performance Line was initially targeted at the large-scale commercial and utility-scale power plant markets, but has proven to be attractive to our customers in the distributed generation markets as well. During the fiscal year ended December 29, 2019, approximately 48.3% of our sales were products in our Maxeon Line and the other 51.7% were products in our Performance Line, with 63.4% of our total volume sold for distributed generation applications and approximately 36.6% for power plant applications. During the fiscal year ended December 30, 2018, approximately 73.8% of our sales were products in our Maxeon Line and the other 26.2% were products in our Performance Line, with 67.0% of our total volume sold for distributed generation applications and approximately 33.0% for power plant applications.

Our proprietary technology platforms, including the Maxeon Line and Performance Line, target distinct market segments, serving both the distributed generation and power plant markets. This ability to address the full market spectrum allows us to benefit from a range of diverse industry drivers and retain a balanced and diversified customer base.

We believe that our Maxeon Line of IBC technology stands apart from the competition in key metrics that our customers value, including efficiency, energy yield, reliability and aesthetics. We believe the combination of these characteristics enables the delivery of an unparalleled product and value proposition to our customers. Our Maxeon 3 and 5 panels deliver 55% more energy in any given amount of roof space over the first 25 years, as compared to conventional panels.

Our Performance Line technology is designed to deliver higher performance than using conventional panels. This is possible due to several patented features and improvements we have employed in our product. One of our main differentiators from the competition is our shingled design, which delivers approximately 5% higher efficiency than mono-PERC panels due to its reduced electrical resistance and more light absorption given the absence of reflective copper lines and less white space. In addition, our Performance Line’s robust shingled cells and advanced encapsulant are highly resistant to thermal stresses, humidity, and potential-induced degradation.

Our Strengths

We believe the following strengths of our business distinguish us from our competitors, enhance our leadership position in our industry and position us to capitalize on the expected continued growth in our market:

 

   

Leading provider of premium solar technology. Our established leadership position in solar technology is grounded in over 35 years of experience. Over that time, our solar technology has been awarded over 800 patents. We have also made substantial investments in research and development, having invested more than $462.0 million since 2007, which is more than any other crystalline panel manufacturer. Together, these factors have allowed us to create truly differentiated products which have maintained a 25% relative efficiency advantage over the industry average solar panel efficiency since 2012.

 

   

Established unique sales, marketing, and distribution channels in each of our key markets. We have built relationships with dealer/installers, distributors, and white label partners globally to ensure reliable distribution channels for our products. As examples, we have over 370 sales and installation partners in the Asia Pacific region, over 750 in the Europe, Middle East and Africa region, and 25 in Latin America. In North America, we have a two-year renewable exclusive contract with SunPower for our products to be used in its distributed generation business.



 

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Well-positioned to capture growth across solar markets. We believe solar growth will be driven by strong expansion in both distributed generation and power plant applications. Over the past three years we grew our total MW deployed by over 99% in EU distributed generation markets, and by a multiple of three in Australia. We also believe that our technology, with superior efficiency and lower degradation rates, provides significant advantages to customers in the distributed generation market.

 

   

Unique cutting edge innovative technology. Our Maxeon 3 and 5 panels have the highest cell efficiency among panels currently in commercial production. We also believe that our current technology stands apart from the competition on every meaningful performance metric, including efficiency, energy yield, reliability and aesthetics. Additionally, our Performance Line shingled cell technology delivers 13% more power compared to conventional panels, allowing us to achieve a diverse sales base across both distributed generation and the utility power plant markets.

 

   

Strategic partnerships with top tier companies worldwide. Our strategic relationship with SunPower provides valuable access to a leading solar distribution business in North America and a market-leading brand platform for international market growth. We have a historical supply relationship with Total S.A., who is active in the global downstream solar market, and who will be one of our major shareholders after the spin-off. We also seek to have strategic partnerships across the business chain, as exemplified by our relationship with TZS, which provides valuable connections in Asia’s supply chain and distribution channels, as well as research and development collaboration between companies pushing the technological frontier.

 

   

Unmatched investment in research and development, translating into next-generation leading products. Our superior technology has been key to our leadership position. Through efficient, disciplined and business-oriented investments, we were able to develop patent-protected technology which we expect to leverage in our next-generation products. Our Maxeon 7 panels are expected to achieve an even higher efficiency while allowing for reduced costs given its dramatically simplified process. We expect this next-generation solar panel to achieve superior performance at commodity costs, unlocking mass market adoption and commercialization through multiple pathways.

 

   

Recent revenue and earnings growth has driven improved financial returns. We have significantly increased our distributed generation sales over the last several years. This top line increase has been coupled with accelerated margin expansion through innovations in both our Maxeon and Performance Line technologies. Our larger operating scale and simpler manufacturing processes have driven this margin expansion.

 

   

Experienced management team. We have a strong and experienced management team. Our Chief Executive Officer, Jeff Waters, has served as Chief Executive Officer of SunPower’s SunPower Technologies business unit since January 2019 and has 15 years of experience as an executive in the technology industry. Our Chief Financial Officer, Joanne Solomon, is a seasoned executive with more than 30 years of experience and joined the company in January 2020 and most recently served since 2017 as Chief Financial Officer for Katerra Inc. Our Chief Legal Officer, Lindsey Wiedmann, has been with SunPower for a decade and will lead our global legal and sustainability teams. Our Chief Operations Officer, Markus Sickmoeller, is responsible for manufacturing, quality, supply chain, cell technology deployment and environment, health and safety globally after joining SunPower in late 2015 to start the Maxeon 3 cell factory in the Philippines. Peter Aschenbrenner, our Chief Strategy Officer, has more than 40 years of solar industry experience.

Our Strategy

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separate from SunPower into an independent publicly traded company. Upon consummation of the spin-off, our primary focus will include:

 

   

Increasing the production capacity of Maxeon 5 and 6. The brownfield build-out of Maxeon 5 and 6, leveraging existing facilities and operational expertise combined with increased scale and simplified process, is expected to deliver 50% reductions in capital intensity and factory space requirements as well as reduced cell conversion cost (as compared to the Maxeon 2 technology that it is replacing).

 

   

Maxeon 7 future opportunity. Maxeon 7, currently in development, has the potential to achieve further process simplification and reduction in capital expenditures and cell conversion cost.

 

   

Enhancing our access to the low-cost Asia-centric supply chain and expanding our global channels to market. We will have access to our strategic partner TZS’s knowledge of upstream supply markets and distribution channels in Asia. In addition, we will be able to leverage access to TZS’s silicon wafers to enhance our Performance Line and Maxeon Line technologies.

 

   

Optimizing our strategic supply relationships with SunPower and Huansheng. We believe that the maintenance and optimization of our current strategic supply relationships are crucial to support our current global leadership position along with maintaining our exposure to key and growing markets worldwide.

 

   

Leveraging our established distributed generation channels to drive continued growth. As a leading distributed generation player, we have a robust sales and marketing platform to access key markets around the world. The expansion of this network is a vital element for future growth.

 

   

Enhancing our financial performance through our superior technology, manufacturing processes and strategy. We believe we have the ability to translate our superior technology into strong financial returns as we couple our premium average selling prices with enhanced manufacturing processes and a scalable low-cost footprint, resulting in rapidly expanding margins and cash generation.

 

   

Increasing our capital efficiency and establishing direct access to capital markets. As part of the planned separation, we seek to enhance our capital efficiency, as well as improve strategic alignment with our stakeholders through direct access to capital markets. Initial funding of full technological transformation to Maxeon 5 and 6 is key to growing our market leading position.

With our corporate headquarters in Singapore and existing manufacturing facilities in Malaysia, the Philippines, and China (through our joint venture Huansheng), we believe our significant Asian presence will help strengthen relationships and sourcing arrangements across our supply chain as well as provide us access to the large Chinese solar market. Following the investment from TZS, we expect to increase our Performance Line capacity in the joint venture to eight gigawatts and convert our Fab 3 manufacturing facility from Maxeon 2 to Maxeon 5 and 6 manufacturing capacity. As of December 29, 2019, we had over 1.5 gigawatts of manufacturing capacity and contractual access to over 1.3 gigawatts of Performance Series supply from our Huansheng joint venture.

Reasons for the Spin-Off

We and SunPower believe that the spin-off will provide a number of benefits to our business, to the business of SunPower and to SunPower shareholders. While the planned separation was principally structured to facilitate the anticipated investment by TZS into the Maxeon Business, we also believe that, as two distinct publicly traded companies, SunPower and Maxeon Solar will be better positioned to capitalize on significant growth opportunities and focus resources on their respective businesses and strategic priorities. SunPower and the SunPower Board considered a wide variety of factors in their initial evaluation of the proposed spin-off, including the following anticipated benefits:

 

   

facilitation of TZS’s proposed investment into the Maxeon Business;



 

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accelerated scale-up of Maxeon 5 and 6 capacity due to the TZS investment, and resultant improved profitability;

 

   

accelerated development and commercialization of Maxeon 7 technology as a result of the investment and the Collaboration Agreement we plan to enter into with SunPower;

 

   

access to low-cost supply chain and equipment;

 

   

differentiated product platform and increased focus on established global channels;

 

   

strategic supply relationships with SunPower and TZS;

 

   

enhanced strategic and management focus;

 

   

more efficient allocation of capital due to increased business focus;

 

   

direct access to capital markets as a separate publicly traded company; and

 

   

more direct alignment of incentives with performance objectives.

Neither we nor SunPower can assure you that, following the spin-off, any of the benefits described above or otherwise described in this Form 20-F will be realized to the extent or at the time anticipated or at all. See also “Item 3. Key Information—3.D. Risk Factors.”

SunPower and the SunPower Board also considered a number of potentially negative factors in their initial evaluation of the potential spin-off, including the following:

 

   

disruptions to the business as a result of the separation;

 

   

increased significance of certain costs and liabilities;

 

   

one-time costs of the spin-off or ongoing costs after the spin-off;

 

   

potential inability to realize anticipated benefits of the spin-off; and

 

   

our covenants and obligations pursuant to the Separation and Distribution Agreement, the Tax Matters Agreement, and other agreements entered into in connection with the separation.

SunPower and the SunPower Board believe that the anticipated benefits of the spin-off outweigh these factors. However, the completion of the spin-off remains subject to the satisfaction, or waiver by the SunPower Board, of a number of conditions. We describe these benefits and certain other factors considered by SunPower and the SunPower Board, as well as conditions to the closing, in greater detail under “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off.”

Risks Associated with Our Business and the Spin-Off

Our business is subject to numerous risks, including:

 

   

uncertainties regarding the expected benefits of the spin-off, and costs associated with being a standalone public company;

 

   

the severity, duration and spread of the COVID-19 pandemic and the impacts of the pandemic (as well as the efforts to contain it) on our operations and financial performance, our industry, our suppliers and our customers;

 

   

business risks associated with significant international activities and customers;

 

   

dependence on a limited number of third-party suppliers for raw materials and components;



 

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costs associated with protecting our intellectual property;

 

   

potential volatility in the price of our shares after the spin-off;

 

   

uncertainties regarding future sales or dispositions of our shares; and

 

   

the other factors described in the “Risk Factors” section of this Form 20-F.

Neither we nor SunPower can assure you that, following the separation and spin-off, any of the benefits described in this Form 20-F will be realized to the extent or at the time anticipated or at all. For additional information, please read carefully the risks described under “Item 3. Key Information—3.D. Risk Factors.”

Our Capitalization

The investment agreement providing for the TZS investment (as amended, the “Investment Agreement”) requires that we and SunPower will use our reasonable best efforts to arrange and obtain debt financing on terms that are no less favorable to us than the acceptable financing terms agreed to in the Investment Agreement. If any portion of the debt financing becomes unavailable, we and SunPower will use reasonable best efforts to arrange to obtain alternative debt financing from internationally recognized financing sources to be funded at the closing in an amount sufficient to replace any unavailable portion of the debt financing on the best terms and conditions then available to us, which terms will be no less favorable to us than the acceptable financing terms agreed to in the Investment Agreement. Arrangement of such financing is a condition to the closing of the TZS investment.

On July 9, 2020, we announced the pricing of an offering of $185.0 million aggregate principal amount of our 6.50% green convertible senior notes due 2025 (the “convertible notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The issuance and sale of the convertible notes settled on July 17, 2020. We also granted the initial purchasers of the convertible notes an option to purchase, for settlement within a period of 13 days from, and including, the date convertible notes are first issued, up to an additional $15.0 million aggregate principal amount of notes, which was exercised on July 14, 2020 and settled on July 17, 2020. The convertible notes are senior, unsecured obligations of Maxeon and will accrue regular interest at a rate of 6.50% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2021. Additional interest may accrue on the convertible notes in certain circumstances. The convertible notes will mature on July 15, 2025, unless earlier repurchased, redeemed or converted. We will settle conversions by paying or delivering, as applicable, cash, Maxeon Solar shares or a combination of cash and Maxeon Solar shares, at our election.

The convertible notes are not currently convertible. If the spin-off occurs, and certain conditions (which are referred to as the “note valuation period conditions precedent”) relating to the physical delivery forward transaction described in this Form 20-F are satisfied, then, from and after the date on which the note valuation period conditions precedent are satisfied, noteholders may convert their convertible notes at their option in specified circumstances. The initial conversion price will represent a premium of approximately 15% over the Maxeon spin-off reference price, which will be the average of the daily volume-weighted average prices (“VWAP”) per Maxeon Solar share over the period (the “note valuation period”) of 15 consecutive VWAP trading days beginning on, and including, the later of (1) the fifth VWAP trading day immediately after the date on which Maxeon Solar shares are distributed in the spin-off; and (2) the VWAP trading day immediately after the first date on which the note valuation period conditions precedent have been satisfied. The conversion rate and conversion price will be subject to adjustment in specified circumstances.

In connection with the issuance of the convertible notes, we entered into a privately negotiated forward-starting prepaid forward share purchase transaction (the “prepaid forward transaction”) with an affiliate of one of the initial purchasers in the convertible notes offering (in such capacity, the “prepaid forward counterparty”), pursuant to which we will repurchase approximately $40 million worth of Maxeon Solar shares, subject to the conditions set forth in the agreements governing the prepaid forward transaction, including receipt of required



 

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shareholder approvals on an annual basis. The prepaid forward transaction will become effective on the first day of the note valuation period. The number of Maxeon Solar shares to be repurchased under the prepaid forward transaction will be determined based on the arithmetic average of the VWAPs per Maxeon Solar share over the note valuation period, subject to a floor price and subject under Singapore law to a limit in aggregate of no more than 20% of the total number of ordinary shares in our capital as of the date of the annual shareholder repurchase approval (calculated together with the number of ordinary shares to be repurchased in connection with the physical delivery forward transaction set out below). We will prepay the forward purchase price in cash using a portion of the net proceeds from the offering of convertible notes. Under the terms of the prepaid forward transaction, the prepaid forward counterparty will be obligated to deliver the number of Maxeon Solar shares underlying the transaction to us, or pay cash to the extent we fail to provide to the prepaid forward counterparty evidence of a valid shareholder authorization, on or shortly after the maturity date of the convertible notes, subject to the ability of the prepaid forward counterparty to elect to settle all or a portion of the transaction early.

In addition, in connection with the issuance of the convertible notes, we entered into a physical delivery forward transaction with a physical delivery forward counterparty with respect to approximately $60.0 million worth of Maxeon Solar shares (the “physical delivery Maxeon Solar shares”), pursuant to which the physical delivery forward counterparty agreed to deliver such physical delivery Maxeon Solar shares to us or a third party-trustee designated by us for no consideration at or around the maturity of the convertible notes subject to the conditions set forth in the agreements governing the physical delivery forward transaction, including receipt of required shareholder approvals on an annual basis subject under Singapore law to a limit in aggregate of no more than 20% of the total number of ordinary shares in our capital as of the date of the annual shareholder repurchase approval (calculated together with the number of ordinary shares to be repurchased in connection with the prepaid forward transaction set out above). The physical delivery forward transaction will become effective on the first day of the note valuation period. To facilitate the physical delivery forward transaction, we intend to issue approximately $60.0 million worth of Maxeon Solar shares to the underwriters for no consideration to be sold during the note valuation period in a registered offering off of a Form F-3 registration statement (the “Maxeon Form F-3”) at prevailing market prices at the time of sale or at negotiated prices, and the number of Maxeon Solar shares sold in such offering will be the number of physical delivery Maxeon Solar shares. The underwriters will receive all of the proceeds from the sale of such Maxeon Solar Shares. We will not receive any proceeds from the sale of such Maxeon Solar shares. This Form 20-F does not constitute an offer of Maxeon Solar shares pursuant to the physical delivery forward transaction.

In addition, on July 14, 2020, we or our subsidiaries entered into the following debt facilities with a syndicate of lenders (the “Bank Facilities”):

 

   

a $55.0 million term loan facility available to SunPower Philippines Manufacturing Ltd. (the “Philippines Term Loan”), which will be a subsidiary of ours following the spin-off;

 

   

a $50.0 million working capital facility available to Maxeon Solar Technologies, Ltd. (the “Singapore Working Capital Facility”); and

 

   

a $20.0 million term loan facility available to Maxeon Solar Technologies, Ltd. (the “Singapore Term Loan” and, together with the Philippines Term Loan, the “Term Loans”).

The $125.0 million of borrowing capacity under the Bank Facilities and the $200.0 million aggregate principal amount of the convertible notes offered (after giving effect to the exercise by the initial purchasers of their option to purchase additional convertible notes) will satisfy the debt financing closing condition in the Investment Agreement.



 

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Corporate Information

We are incorporated under the laws of Singapore in accordance with the Singapore Companies Act. We are registered with the ACRA under “Maxeon Solar Technologies, Ltd.” We were formed by SunPower in connection with our separation from SunPower, for an unlimited duration, effective as of the date of our incorporation with ACRA on October 11, 2019.

We are domiciled in Singapore and our registered office is located at 8 Marina Boulevard #05-02, Marina Bay Financial Centre, 018981, Singapore, which also currently serves as our principal executive offices, and our telephone number is +65 6338 1888.

Implications of Being a Foreign Private Issuer and Being Treated as an Emerging Growth Company

Foreign Private Issuer

Upon consummation of the spin-off, we will report under the Exchange Act as a non-U.S. company with foreign private issuer (“FPI”) status. As long as we qualify as an FPI under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission (“SEC”) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events.

Notwithstanding these exemptions, we will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.

We may take advantage of these exemptions until such time as we are no longer an FPI. We would cease to be an FPI at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States.

Emerging Growth Company

We are treated as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), because we qualified as an emerging growth company at the time we first confidentially submitted this registration statement on Form 20-F to the SEC. Accordingly, we are eligible to comply with reduced disclosure requirements applicable to emerging growth companies until the earlier of the effective date of the spin-off and January 3, 2021. These reduced disclosure requirements and exemptions include:

 

   

the ability to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

   

to the extent that we no longer qualify as a foreign private issuer (“FPI”), reduced disclosure obligations regarding executive compensation in this registration statement; and



 

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an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements for this registration statement.

As a result, the information contained in this Form 20-F may be different from the information you receive from other public companies in which you hold shares.

Both FPIs and emerging growth companies also are exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company, but remain an FPI, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor an FPI.

Summary Historical and Pro Forma Combined Financial Information

The following table sets forth summary financial information for the periods and dates indicated below and should be read together with our combined financial statements and related notes, the unaudited pro forma combined financial information and related notes, “Item 3. Key Information—3.B. Capitalization and Indebtedness” and “Item 5. Operating and Financial Review and Prospects” appearing elsewhere in this Form 20-F. We derived the summary historical statement of operations data for the year ended December 29, 2019 and the summary historical balance sheet data as of December 29, 2019 from our combined financial statements and related notes appearing elsewhere in this Form 20-F. We derived the summary historical statement of operations data for the three months ended March 29, 2020 and March 31, 2019 and the summary balance sheet data as of March 29, 2020 from our unaudited condensed combined financial statements and related notes included in this Form 20-F.

The summary unaudited pro forma combined financial information was prepared to reflect adjustments to our historical financial results in connection with the spin-off and the investment by TZS. We derived the summary unaudited pro forma combined statement of operations data for the year ended December 29, 2019 and three months ended March 29, 2020 and the summary unaudited pro forma combined balance sheet data as of March 29, 2020 from our unaudited pro forma condensed combined financial information that appears elsewhere in this Form 20-F. The unaudited pro forma combined statement of operations data give effect to the spin-off and the investment as if these transactions had occurred at December 31, 2018. The unaudited pro forma combined balance sheet data give effect to the spin-off and the investment as if these transactions had occurred as of March 29, 2020. The assumptions used, and pro forma adjustments derived from such assumptions, were based on currently available information and we believe such assumptions were reasonable under the circumstances.

The summary unaudited pro forma combined financial information is not necessarily indicative of our results of operations or financial condition had the spin-off and our anticipated post-separation capital structure been completed and implemented on the dates assumed. In addition, the summary financial data is not intended to replace our combined financial statements and related notes. Our historical results could differ from those that would have resulted if we operated autonomously or as an entity independent of SunPower in the periods for which historical financial data is presented below, and such results are not necessarily indicative of results that may be expected in the future.

For additional details regarding the preparation of our combined financial statements and unaudited pro forma combined financial information, please see “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Basis of Presentation,” “Note 1. Background and Basis of Presentation” to our combined financial statements and the notes to our unaudited pro forma combined financial information appearing elsewhere in this Form 20-F.



 

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We prepare our combined financial statements in accordance with GAAP.

 

     Three Months Ended
March 29
(Unaudited)
     Fiscal Year Ended
December 29
 
     2020      (Pro Forma)
2020
     2019      (Pro Forma)
2019
 
     (dollars in thousands, except per share data)  

Statement of Operations Data:

           

Revenue

   $ 227,640      $ 227,640      $ 1,198,301      $ 1,198,301  

Gross profit (loss)

     3,232        5,097        (2,309      5,383  

Operating loss

     (29,580      (27,550      (135,646      (125,872

(Provision for) benefit from income taxes

     (468      (468      (10,122      (10,122

Net loss

     (31,077      (28,613      (178,902      (165,983

Net loss attributable to the Company

     (31,749      (29,285      (183,059      (170,140

Basic and diluted net loss per share attributable to the Company

     —          (0.99      —          (6.69

Basic and diluted weighted-average shares

     —          29,659        —          25,438  


 

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     As of March 29
(Unaudited)
 
     2020      (Pro Forma)
2020
 
     (dollars in thousands)  

Balance Sheet Data:

     

Cash and cash equivalents

   $ 55,792      $ 374,200  

Total assets

     893,746        1,226,691  

Short-term debt

     46,583        38,000  

Long-term debt

     1,315        191,200  

Total equity

     374,016        541,352  

For additional information, see the unaudited pro forma combined financial information and related notes appearing elsewhere in this Form 20-F.



 

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The Spin-Off

Overview

On November 11, 2019, SunPower announced plans to separate into two independent, complementary, strategically aligned and publicly traded companies—Maxeon Solar Technologies, Ltd., which will own and operate solar cell and panel manufacturing facilities located in France, Malaysia, Mexico and the Philippines and will be comprised of technology and manufacturing upstream operations and international sales capability, comprising substantially all of the international portion of SunPower’s SunPower Technologies business unit, and SunPower Corporation, a pure-play distributed generation energy services company focused on product innovation, downstream high efficiency solar systems and storage and energy services. The planned separation was structured to facilitate the investment by Tianjin Zhonghuan Semiconductor Co., Ltd., a PRC joint stock limited company (“TZS”), into us. As two distinct publicly traded companies, we also believe both SunPower and Maxeon Solar will be better positioned to capitalize on significant growth opportunities and focus resources on their respective businesses and strategic priorities. See “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—Reasons for the Spin-Off.”

To implement the separation, SunPower will first transfer its solar cell and panel manufacturing facilities located in France, Malaysia, Mexico and the Philippines and technology and manufacturing upstream operations and international sales capability to us, and will subsequently distribute all of our shares held by SunPower to SunPower shareholders, pro rata to their respective holdings. Each SunPower shareholder will receive one Maxeon Solar share for every eight SunPower shares they hold or have acquired and do not sell or otherwise dispose of prior to the close of business on August 17, 2020. The distribution is intended to be tax-free to SunPower shareholders for Singapore withholding and income tax and for U.S. federal income tax purposes. An application has been made to list our shares on NASDAQ under the symbol “MAXN” and trading in our shares is expected to begin on the NASDAQ on August 27, 2020.

To enable the separation, prior to the spin-off, SunPower will complete the Internal Transactions as described under “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us” or “Internal Transactions.”

In connection with the distribution, on November 8, 2019, Maxeon Solar, SunPower and, for the limited purposes set forth therein, Total Solar INTL SAS (“Total”), an affiliate of Total S.A., and TZS entered into the Investment Agreement pursuant to which, immediately following the distribution and in exchange for a purchase price of $298.0 million, TZS will acquire and we will issue additional ordinary shares representing approximately 28.848% of the total number of our outstanding shares immediately following the distribution and TZS investment. In connection with the TZS investment, Maxeon Solar, Total and TZS will enter into a Shareholders Agreement relating to certain rights and obligations of each of Total and TZS as a holder of our ordinary shares. We expect that the TZS investment will finance continued scale-up of Maxeon 5 and 6 capacity and development of our next-generation Maxeon 7 panels, which we believe will allow us to increase our distributed generation market share and accelerate profit growth.

On November 8, 2019, we entered into a Separation and Distribution Agreement with SunPower related to the separation and distribution, and we intend to enter into several other agreements with SunPower prior to completion of the spin-off to effect the separation and provide a framework for our relationship with SunPower after the spin-off. These agreements will be of short-term duration, will govern the relationship between us and SunPower up to and after completion of the spin-off, and will allocate between us and SunPower various assets, liabilities and obligations, including supply arrangements, employee benefits, intellectual property and tax-related assets and liabilities. See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions” for more detail.



 

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Completion of each of the spin-off and the investment is subject to the satisfaction, or waiver by the SunPower Board, of a number of conditions. See “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off” for more detail.

Questions and Answers About the Spin-Off

The following provides only a summary of and certain questions relating to the terms of the spin-off. You should read the section entitled “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off” below in this Form 20-F for a more detailed description of the matters identified below.

Q: Why am I receiving this document?

 

  A:

SunPower has made this document available to you because you are a holder of SunPower shares. If you hold or have acquired and do not sell or otherwise dispose of your SunPower shares prior to the close of business on August 17, 2020, you will be entitled to receive one Maxeon Solar share for every eight of your SunPower shares. An application will be made to list our shares on the NASDAQ. This document will help you understand how the separation and distribution will affect your investment in SunPower and your investment in us after the spin-off.

Q: How will the spin-off of Maxeon Solar from SunPower work?

 

  A:

To accomplish the spin-off, SunPower will distribute all of our shares held by SunPower to holders of SunPower shares on a pro rata basis. You will not receive fractional Maxeon Solar shares and will instead receive cash upon the sale of the aggregated fractional shares in lieu of any fractional shares. For more information, see “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-off—Treatment of Fractional Shares.” Following the spin-off, we will be an independent, publicly traded company, and SunPower will not retain any ownership interest in us. See also “Item 7. Major Shareholders and Related Party Transactions—7.A. Major Shareholders.”

Q: Why is the separation of Maxeon Solar structured as a spin-off?

 

  A:

SunPower believes that a tax-free distribution to SunPower shareholders for Singapore withholding and income tax and for U.S. federal income tax purposes of all our shares held by SunPower to SunPower shareholders is an efficient way to facilitate the TZS investment and separate the international portion of its SunPower Technologies business unit in a manner that will create long-term benefits for both the SunPower and Maxeon Solar businesses.

Q: When will Maxeon Solar shares begin to trade on a standalone basis?

 

  A:

We expect to become a standalone public company, independent of SunPower, on August 26, 2020, the proposed distribution date for the spin-off, and our shares are expected to commence “regular-way” trading on a standalone basis on the NASDAQ at market open on August 27, 2020 (9:30 a.m. New York City time on the NASDAQ). See also “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—Listing and Trading of Maxeon Solar Shares.”

Q: What will be the ticker symbol of the Maxeon Solar shares that SunPower shareholders will receive in the spin-off?

 

  A:

Our shares are expected to trade on the NASDAQ under the ticker symbol “MAXN.”



 

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Q: When will SunPower shares cease to trade with the right to receive Maxeon Solar shares?

 

  A:

The last day of trading of SunPower shares with the right to receive our shares on the NASDAQ will be August 17, 2020. This means that any SunPower shares that you hold or acquire and do not sell or otherwise dispose of prior to the close of business on August 17, 2020 will include the right to receive our shares.

See “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—When and How You Will Receive Maxeon Solar Shares” for more information.

Q: What is “regular-way” and “ex-distribution” trading of SunPower shares?

 

  A:

It is expected that, beginning on or shortly before the record date and continuing up to and through the distribution date, there will be two markets in SunPower shares on NASDAQ: a “regular-way” market and an “ex-distribution” market. SunPower shares that trade in the “regular-way” market will trade with an entitlement to Maxeon Solar shares to be distributed pursuant to the distribution. SunPower shares that trade in the “ex-distribution” market will trade without an entitlement to Maxeon Solar shares to be distributed pursuant to the distribution.

If you decide to sell any SunPower shares before the distribution date, you should make sure your bank, broker or other nominee understands whether you want to sell your SunPower shares with or without your entitlement to Maxeon Solar shares pursuant to the distribution.

Q: What do I have to do to participate in the spin-off?

 

  A:

Holders of SunPower shares held in book-entry form with a bank or broker. Most SunPower shareholders hold their SunPower shares through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank’s or brokerage firm’s books. If a SunPower shareholder holds their SunPower shares through a bank or brokerage firm, their bank or brokerage firm will credit their account for the Maxeon Solar shares that they are entitled to receive in the distribution. If SunPower shareholders have any questions concerning the mechanics of having shares held in “street name,” they should contact their bank or brokerage firm.

Holders of SunPower physical share certificates. In connection with the spin-off, all registered SunPower shareholders holding physical share certificates will be issued Maxeon Solar shares in book-entry form only, which means that no physical share certificates will be issued. For questions relating to the transfer or mechanics of the distribution, please contact SunPower Share Registry by telephone at 1-877-373-6374 (in the United States) or 1-781-575-2879 (outside the United States) or by online inquiry at https://www-us.computershare.com/investor/Contact. For more information, see “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—When and How You Will Receive Maxeon Solar Shares,” as well as “—Where can I get more information?” below.

The spin-off will not affect the number of outstanding SunPower shares or any rights of SunPower shareholders, although it will affect the market value of each outstanding SunPower share. See “—Will the spin-off affect the trading price of my SunPower shares?” below.

Q: Will there be any “when-issued” trading of Maxeon Solar shares before the distribution date?

 

  A:

We anticipate that trading in our shares will begin on a “when-issued” basis approximately two trading days before the record date and will continue up to and through the distribution date and that



 

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“regular-way” trading in our shares will begin on the first trading day following the distribution date. If trading begins on a “when-issued” basis, you may purchase or sell our shares up to and through the distribution date, but your transaction will not settle until after the distribution date. We cannot predict the trading prices for our shares before, on or after the distribution date.

Q: How many Maxeon Solar shares will I receive in the spin-off?

 

  A:

SunPower will distribute to you one Maxeon Solar share for every eight SunPower shares that you hold or have acquired and do not sell or otherwise dispose of prior to the close of business on August 17, 2020. The total number of our shares that SunPower will distribute will depend on the total number of issued SunPower shares (excluding treasury shares held by SunPower and its subsidiaries) as of August 17, 2020. The Maxeon Solar shares that SunPower distributes will constitute all of our shares held by SunPower immediately prior to the spin-off. Pursuant to the Investment Agreement with TZS, however, we have agreed to issue additional shares representing approximately 28.848% of the total number of our outstanding shares immediately following the spin-off and investment. For additional information on the spin-off, see “Item 4. Information and Development of the Company—4.A. History and Development of the Company—The Spin-Off—When and How You Will Receive Maxeon Solar Shares,” for additional information on the TZS investment, see “Item 7. Major Shareholders and Related Party Transactions—Item 7.B. Related Party Transactions—Agreements Between Us and TZS and/or Total in Connection with TZS Investment—Investment Agreement,” and for additional information on our expected share capital following the spin-off, see “Item 10. Additional Information—10.A. Share Capital.”

Q: How will fractional shares be treated in the spin-off?

 

  A:

SunPower will not distribute any fractional Maxeon Solar shares in connection with the spin-off. Instead, except as otherwise described in “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-off—Treatment of Fractional Shares,” Computershare Trust Company, N.A. (“Computershare”), the SunPower share registrar and transfer agent, will send to each registered SunPower shareholder entitled to a fractional share a cash payment in lieu of that shareholder’s fractional share on or around September 9, 2020. If you hold your SunPower shares through the facilities of the DTC or otherwise through a bank, broker or other nominee, your custodian, bank, broker or nominee will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales of fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient shareholders for U.S. federal income tax purposes and will, in certain circumstances, be taxable to the recipient shareholders for Singapore income tax purposes, as described in greater detail in “Item 10. Additional Information—10.E. Taxation—Material U.S. Federal Income Tax Considerations” and “—Material Singapore Tax Considerations.” See “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-off—Treatment of Fractional Shares” for more detail.

Q: What will happen to the listing of SunPower shares?

 

  A:

After the spin-off, SunPower shares will continue to trade on the NASDAQ under the symbol “SPWR.”

Q: Will the number of SunPower shares I own change as a result of the spin-off?

 

  A:

No, the number of SunPower shares you own will not change as a result of the spin-off.



 

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Q: Will the spin-off affect the trading price of my SunPower shares?

 

  A:

Yes. As a result of the spin-off, SunPower expects the trading prices of SunPower shares in the “regular-way” market at market open on the trading day following the distribution date will be lower than the trading prices in the “regular-way” market at market close on the distribution date, because the trading prices will no longer reflect the value of the Maxeon Business. There can be no assurance that the aggregate market value of the SunPower shares and our shares following the spin-off and after giving effect to the investment by TZS will be higher than, equal to or lower than the market value of SunPower shares if the spin-off did not occur. This means, for example, that the combined trading prices of eight SunPower shares and one Maxeon Solar share after market open following the distribution date may be equal to, greater than or less than the trading prices of one SunPower share prior to the distribution date. In addition, your SunPower shares sold in the “ex-distribution” market (as opposed the “regular-way market”) will reflect an ownership interest solely in SunPower and will not include the right to receive any of our shares in the spin-off, but may not yet accurately reflect the value of such SunPower shares excluding the Maxeon Business.

Q: What is the expected date of completion of the spin-off?

 

  A:

It is expected that the Maxeon Solar shares that eligible holders of SunPower shares are entitled to receive in the spin-off will be distributed on August 26, 2020 and will begin trading separately from SunPower shares on August 27, 2020. However, the completion and timing of the spin-off are dependent upon a number of conditions and no assurance can be provided as to the timing of the spin-off or that all conditions to the spin-off will be met.

Q: What are the conditions to the spin-off?

 

  A:

We expect that the spin-off will be effective on August 26, 2020, provided that the following conditions have been satisfied or waived by SunPower and subject to SunPower’s obligations under the Investment Agreement with TZS:

 

   

the consummation in all material respects of the Internal Transactions;

 

   

all corporate and other action necessary in order to execute, deliver and perform the Separation and Distribution Agreement and to consummate the transactions contemplated thereby by each of us and SunPower having been obtained;

 

   

the receipt by SunPower of the written opinion of Jones Day regarding the qualification of the distribution as a transaction that should be generally tax-free to SunPower shareholders for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”);

 

   

the SEC declaring this Form 20-F effective under the Exchange Act, and no stop order suspending the effectiveness of this Form 20-F being in effect and no proceedings for that purpose being pending before or threatened by the SEC;

 

   

copies of this Form 20-F, or a notice of internet availability thereof, having been mailed to record holders of SunPower shares as of the record date for the spin-off;

 

   

the actions necessary or appropriate under U.S. federal, U.S. state or other securities laws or blue sky laws (and comparable laws under foreign jurisdictions) having been taken or made;

 

   

the receipt of all necessary government approvals required to consummate the spin-off;

 

   

no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the spin-off being in effect;



 

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our shares to be distributed to SunPower shareholders having been accepted for listing on the NASDAQ (subject to official notice of issuance); and

 

   

all of the conditions precedent to completion of the investment contemplated by the Investment Agreement having been satisfied or waived, including the funding into escrow of the final remaining portion of the TZS investment.

We and SunPower cannot assure you that any or all of the above or any of the other conditions to the spin-off will be met. See also “—Can SunPower decide to cancel the spin-off of our shares even if all the conditions are met?” below and, for a complete discussion of all of the conditions to the spin-off, see “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—Conditions to the Spin-Off.”

Q: Can SunPower decide to cancel the spin-off of Maxeon Solar shares, even if all the conditions are met?

 

  A:

No. The spin-off is subject to the satisfaction or waiver of certain conditions. If all of such conditions have been satisfied or waived in a timely manner, SunPower does not have the right to subsequently terminate the planned distribution. See also “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—Conditions to the Spin-Off.”

Q: What if I want to sell my SunPower shares or my Maxeon Solar shares?

 

  A:

You should consult with your custodian bank or broker or other financial advisors and/or your tax advisors.

Q: What are the Singapore tax and U.S. federal income tax consequences to me of the spin-off?

 

  A:

The spin-off is expected to be tax-free to SunPower shareholders for Singapore income and capital gains tax purposes as well as for U.S. federal income tax purposes, and it is a condition to the spin-off that SunPower receives a tax opinion of counsel that the distribution should be so treated for U.S. federal tax purposes.

See “Item 10. Additional Information—10.E. Taxation—Material Singapore Tax Considerations” and “—Material U.S. Federal Income Tax Considerations” for more information regarding the material tax consequences to Singapore Holders and U.S. Holders of the spin-off (including the respective definitions of “Singapore Holder” and “U.S. Holder”).

Q: Who will manage Maxeon Solar after the spin-off?

 

  A:

Jeffrey W. Waters is our Chief Executive Officer and will continue in this role after the spin-off. Joanne Solomon will be our Chief Financial Officer, Lindsey Wiedmann will be our Chief Legal Officer, Markus Sickmoeller will be our Chief Operations Officer and Peter Aschenbrenner will be our Chief Strategy Officer after the spin-off. For more information regarding our management team, see “Item 6. Directors, Senior Management and Employees—6.A. Directors and Senior Management—Senior Management.”

Q: Does Maxeon Solar intend to pay cash dividends?

 

  A:

While our Board of Directors (the “Maxeon Solar Board”) may, in its discretion, recommend the payment of a dividend in respect of each fiscal year, the declaration, timing, and amount of any dividend to be paid by us following the spin-off will be subject to the approval of our shareholders at a general meeting of shareholders. The determination of the Maxeon Solar Board as to whether to



 

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recommend a dividend and the approval of any such proposed dividend by our shareholders will depend upon many factors, including our financial condition, earnings, corporate strategy, capital requirements of its operating subsidiaries, covenants, legal requirements and other factors deemed relevant by the Maxeon Solar Board and shareholders. See “Item 10. Additional Information— 10.B. Memorandum and Articles of Association—Dividends” for more information.

Q: Will Maxeon Solar incur any debt prior to or at the time of the spin-off?

 

  A:

In connection with the spin-off, one of our subsidiaries will acquire certain intangible property from SunPower in exchange for a note of approximately $100.0 million and that subsidiary will satisfy that obligation with a combination of cash on hand and funds received in connection with the spin-off. In addition, we issued the convertible notes on July 17, 2020 and entered into the Bank Facilities on July 14, 2020 as described above under “—Our Capitalization.” See “Item 3. Key Information—3.B. Capitalization and Indebtedness” and “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—Conditions to the Spin-Off” for more information.

Q: What will the Maxeon Solar relationship with SunPower be following the spin-off?

 

  A:

We have entered into the Separation and Distribution Agreement with SunPower to effect the separation and provide a framework for our relationship with SunPower after the separation and distribution. We will also enter into certain other agreements with SunPower, all of which will have a limited duration of time, including but not limited to a Tax Matters Agreement, an Employee Matters Agreement, a Transition Services Agreement, a Supply Agreement, a Back-to-Back Agreement, a Brand Framework Agreement, a Cross License Agreement and a Collaboration Agreement and certain other agreements. These agreements will govern the separation between us and SunPower of the assets, employees, liabilities and obligations (including investments, property and employee benefits and tax liabilities) of SunPower and its subsidiaries that constitute the Maxeon Business and are attributable to periods prior to, at and after the separation of us from SunPower, and will govern certain relationships between us and SunPower after the separation and distribution. We describe these arrangements in greater detail under “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us,” and describe some of the risks of these arrangements under “Item 3. Key Information—3.D. Risk Factors—Risks Related to the Separation from SunPower.”

Q: Are there risks associated with owning Maxeon Solar shares?

 

  A:

Yes. Ownership of our shares is subject to both general and specific risks relating to the Maxeon Business, the industry in which we operate, our ongoing contractual relationships with SunPower and our status as a separate, publicly traded company. Ownership of our shares is also subject to risks relating to the spin-off. Accordingly, you should carefully read the information set forth under “Item 3. Key Information—3.D. Risk Factors” in this Form 20-F.

Q: Who will be the registrar and transfer agent for the Maxeon Solar shares?

 

  A:

Computershare will act as our U.S. share registrar and transfer agent.



 

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Q: Where can I get more information?

 

  A:

Before the spin-off, if you have any questions relating to the business performance of SunPower or us or the spin-off, you should contact SunPower at:

SunPower Corporation

Investor Relations

51 Rio Robles

San Jose, CA 95134

Tel: (408) 240-5500

Website: www.investors.sunpower.com

After the spin-off, if you have any questions relating to our business performance, you should contact us at:

Maxeon Solar Technologies, Ltd. Investor Relations

8 Marina Boulevard #05-02

Marina Bay Financial Centre

018981, Singapore

Tel: +65 6338 1888

Website: www.maxeon.com

Our investor website will be operational at or prior to the spin-off.



 

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

1.A. DIRECTORS AND SENIOR MANAGEMENT

For information regarding our directors and senior management, see “Item 6. Directors, Senior Management and Employees—6.A. Directors and Senior Management.”

1.B. ADVISERS

Our Singapore legal counsel is Jones Day, 138 Market St, Level 28 CapitaGreen, Singapore 048946. Our U.S. legal counsel is Jones Day, 250 Vesey Street, New York, New York 10281.

1.C. AUDITORS

We have retained Ernst & Young LLP to act as our independent registered public accounting firm. The address for Ernst & Young LLP is 303 S. Almaden Blvd. #1000, San Jose, California 95110. Ernst & Young LLP is registered with the Public Company Accounting Oversight Board.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

 

ITEM 3.

KEY INFORMATION

3.A. SELECTED FINANCIAL DATA

The following selected financial data should be read together with our combined financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” appearing elsewhere in this Form 20-F. We derived the selected statement of operations data for the year ended December 29, 2019 and the selected balance sheet data as of December 29, 2019 from our combined financial statements and related notes appearing elsewhere in this Form 20-F. We derived the selected historical statement of operations data for the three months ended March 29, 2020 and March 31, 2019 and the summary balance sheet data as of March 29, 2020 from our unaudited condensed combined financial statements and related notes included in this Form 20-F.

The selected financial data in this section are not intended to replace our combined financial statements and the related notes. Our historical results could differ from those that would have resulted if we operated autonomously or as an entity independent of SunPower in the periods for which historical financial data is presented below, and such results are not necessarily indicative of the results that may be expected in the future.

For additional details regarding the preparation of our combined financial statements, please see “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results—Basis of Presentation” and “Note 1. Background and Basis of Presentation” to our combined financial statements appearing elsewhere in this Form 20-F.

 

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We prepare our combined financial statements in accordance with GAAP.

 

     Three Months Ended
March 29
(Unaudited)
     Fiscal Year Ended
December 29
 
     2020      (Pro Forma)
2020
     2019      (Pro Forma)
2019
 
     (dollars in thousands, except per share data)  

Statement of Operations Data:

           

Revenue

   $ 227,640      $ 227,640      $ 1,198,301      $ 1,198,301  

Gross profit (loss)

     3,232        5,097        (2,309      5,383  

Operating loss

     (29,580      (27,550      (135,646      (125,872

(Provision for) benefit from income taxes

     (468      (468      (10,122      (10,122

Net loss

     (31,077      (28,613      (178,902      (165,983

Net loss attributable to the Company

     (31,749      (29,285      (183,059      (170,140

Basic and diluted net loss per share attributable to the Company

     —          (0.99      —          (6.69

Basic and diluted weighted-average shares

     —          29,659        —          25,438  

 

     As of March 29
(Unaudited)
 
     2020      (Pro Forma)
2020
 
     (dollars in thousands)  

Balance Sheet Data:

     

Cash and cash equivalents

   $ 55,792      $ 374,200  

Total assets

     893,746        1,226,691  

Short-term debt

     46,583        38,000  

Long-term debt

     1,315        191,200  

Total equity

     374,016        541,352  

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined financial information included in this Form 20-F is based on the combined financial statements of the Maxeon Business after giving effect to the Maxeon spin-off, the TZS investment and the offering of convertible notes and applying the estimates, assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined financial information. The historical column in the Unaudited Pro Forma Combined Statement of Operations for the year ended December 29, 2019 is derived from the Combined Statement of Operations of the Maxeon Business for the year ended December 29, 2019 included in this Form 20-F. The historical column in the Unaudited Pro Forma Condensed Combined Statement of Operations for the three months ended March 29, 2020 is derived from the Unaudited Condensed Combined Statement of Operations of the Maxeon Business for the three months ended March 29, 2020 included in this Form 20-F. The historical column in the Unaudited Pro Forma Condensed Combined Balance Sheet is derived from the Unaudited Condensed Combined Balance Sheet of the Maxeon Business as of March 29, 2020 included in this Form 20-F. The unaudited pro forma combined financial information was prepared by our management for illustrative purposes and is not intended to represent our combined financial position or combined results of operations of the Maxeon Business in future periods or what the financial position or the results of operations actually would have been had we completed the proposed Maxeon spin-off, investment and the convertible notes offering during the specified periods or as of the specified date.

The unaudited pro forma combined financial statements and unaudited pro forma condensed combined financial statements reflect adjustments to our historical financial results in connection with the spin-off, the investment and the convertible notes offering. The Unaudited Pro Forma Combined Statement of Operations gives effect to the Maxeon spin-off and the investment as if they had occurred on December 31, 2018, the beginning of our most recently completed fiscal year. The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to these events as if they occurred as of March 29, 2020, our latest balance sheet date. Our reference to the combined financial statement(s) includes the relevant condensed financial statement(s) for the periods presented throughout the rest of this section.

The unaudited pro forma combined financial statements have been adjusted to give effect to the following (collectively, the “Pro Forma Adjustments”):

 

   

the incurrence and issuance of debt and the funding of cash between us and SunPower as part of our plan to capitalize our company;

 

   

the contribution in cash by TZS in exchange for a number of Maxeon Solar shares such that immediately following such issuance, TZS will own 28.848% of our outstanding shares;

 

   

the incurrence and repayment of a promissory note due from a Maxeon Solar subsidiary to SunPower;

 

   

the transfer of certain intellectual property necessary for the operation of our company;

 

   

the incurrence of income taxes in certain jurisdictions as a result of an internal reorganization undertaken for the sole purpose of facilitating the separation and distribution;

 

   

the distribution, expected to be taxable to SunPower and intended to be tax-free to SunPower shareholders, for U.S. federal income tax purposes, of Maxeon Solar shares to SunPower shareholders, based on the distribution of one Maxeon Solar share for every eight SunPower shares outstanding as of the record date for the distribution, and the resulting redesignation of SunPower’s historical net investment as common stock and additional paid-in capital; and

 

   

the impact of transactions contemplated by the Separation and Distribution Agreement, Investment Agreement, Tax Matters Agreement and Transition Services Agreement.

The historical financial information has been adjusted to give pro forma effect to events that are (i) related and/or directly attributable to the Maxeon spin-off and the investment, (ii) factually supportable, and (iii) with

 

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respect to the pro forma statement of operations, are expected to have a continuing impact on the combined results. The unaudited pro forma combined financial information is prepared in accordance with Article 11 of Regulation S-X for illustrative purposes only and is based upon currently available information and preliminary estimates and assumptions that we believe to be reasonable under the circumstances. The unaudited pro forma combined financial information does not purport to represent what our results of operations or financial position would have been had the Maxeon spin-off and the investment occurred on the dates indicated nor do they purport to project the results of operations or financial position for any future period or as of any future date. The unaudited pro forma combined financial information does not give effect to the potential impact of current financial conditions or any anticipated operating efficiencies or cost savings that may result from the Maxeon spin-off and the investment described above.

In connection with the Maxeon spin-off, we and SunPower anticipate entering into the Transition Services Agreement in which SunPower will provide certain corporate and administrative services to us. Pro forma adjustments have been made to the historical combined financial statements for the anticipated Transition Services Agreement based on management’s best estimates of charges to be incurred on an annual basis as of the filing date. Such estimates may differ from actual charges to be incurred in the near future as the terms of the Transition Services Agreement remain subject to change.

The unaudited pro forma combined financial information is subject to change based on the finalization of the terms of the Maxeon spin-off, the investment and the following agreements: a Tax Matters Agreement, an Employee Matters Agreement, a Transition Services Agreement, a Brand Framework Agreement, a Cross License Agreement, a Collaboration Agreement, a Supply Agreement and a Back-to-Back Agreement (collectively, the “Ancillary Agreements”). If the actual facts are different than these assumptions, then the unaudited pro forma combined financial information will be different, and those changes could be material.

 

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MAXEON SOLAR TECHNOLOGIES, LTD.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 29, 2019

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

     Historical     Pro Forma
Adjustments
    Notes   Pro Forma  

Revenue

   $ 1,198,301     $ —         $ 1,198,301  

Cost of revenue

     1,200,610       (7,120   (f)     1,192,918  
     —         (572   (g)     —    
  

 

 

   

 

 

     

 

 

 

Gross (loss) profit

     (2,309     7,692         5,383  
  

 

 

   

 

 

     

 

 

 

Operating expenses:

        

Research and development

     36,997       —       (g)     36,997  

Sales, general and administrative

     96,857       (2,082   (g)     94,775  

Restructuring charges

     (517     —           (517
  

 

 

   

 

 

     

 

 

 

Total operating expenses

     133,337       (2,082       131,255  
  

 

 

   

 

 

     

 

 

 

Operating loss

     (135,646     9,774         (125,872

Other expense, net

        

Interest expense

     (25,831     (14,760   (d)     (22,687
     —         (3,713   (e)     —    
     —         19,485     (i)     —    
     —         177     (m)     —    
     —         1,955     (n)     —    
  

 

 

   

 

 

     

 

 

 

Other, net

     (1,961     —           (1,961
  

 

 

   

 

 

     

 

 

 

Other expense, net

     (27,792     3,144         (24,648
  

 

 

   

 

 

     

 

 

 

Loss before income taxes and equity in losses of unconsolidated investees

     (163,438     12,919         (150,519

Provision for income taxes

     (10,122     —       (j)     (10,122

Equity in losses of unconsolidated investees

     (5,342     —           (5,342
  

 

 

   

 

 

     

 

 

 

Net loss

   $ (178,902   $ 12,919       $ (165,983
  

 

 

   

 

 

     

 

 

 

Net loss attributable to noncontrolling interests

     (4,157     —           (4,157
  

 

 

   

 

 

     

 

 

 

Net loss attributable to the Company

   $ (183,059   $ 12,919       $ (170,140
  

 

 

   

 

 

     

 

 

 

Basic and diluted net loss per share attributable to the Company

     —         (k)   $ (6.69
  

 

 

       

 

 

 

Basic and diluted weighted-average shares

     —         (k)     25,438  

The accompanying notes are an integral part of these unaudited pro forma combined financial statements.

 

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MAXEON SOLAR TECHNOLOGIES, LTD.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 29, 2020

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

     Historical     Pro Forma
Adjustments
    Notes   Pro Forma  

Revenue

   $ 227,640     $         $ 227,640  

Cost of revenue

     224,408       (1,780   (f)     222,543  
       (85   (g)  
  

 

 

   

 

 

     

 

 

 

Gross profit

     3,232       1,865         5,097  
  

 

 

   

 

 

     

 

 

 

Operating expenses:

        

Research and development

     8,570       —       (g)     8,570  

Sales, general and administrative

     24,242       (165   (g)     24,077  

Total operating expenses

     32,812       (165       32,647  
  

 

 

   

 

 

     

 

 

 

Operating loss

     (29,580     2,030         (27,550

Other expense, net

        

Interest expense

     (5,905     (3,690   (d)     (5,471
       (616   (e)  
       4,563     (i)  
       177     (m)  
  

 

 

   

 

 

     

 

 

 

Other, net

     4,631       —           4,631  
  

 

 

   

 

 

     

 

 

 

Other expense, net

     (1,274     434         (840
  

 

 

   

 

 

     

 

 

 

Loss before income taxes and equity in losses of unconsolidated investees

     (30,854     2,464         (28,390

Provision for income taxes

     (468     —       (j)     (468

Equity in losses of unconsolidated investees

     245       —           245  
  

 

 

   

 

 

     

 

 

 

Net loss

     (31,077     2,464         (28,613

Net loss attributable to noncontrolling interests

     (672     —           (672
  

 

 

   

 

 

     

 

 

 

Net loss attributable to the Company

     (31,749     2,464         (29,285
  

 

 

   

 

 

     

 

 

 

Basic and diluted net loss per share attributable to the Company

     —         (k)   $ (0.99
  

 

 

       

 

 

 

Basic and diluted weighted-average shares

     —         (k)     29,659  
  

 

 

       

 

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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MAXEON SOLAR TECHNOLOGIES, LTD.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 29, 2020

(IN THOUSANDS)

 

     Historical     Pro Forma
Adjustments
    Notes   Pro Forma  

Assets

        

Current assets:

        

Cash and cash equivalents

   $ 55,792     $ (5,792   (a)   $ 374,200  
     —         298,000     (b)     —    
     —         (100,000   (c)     —    
     —         191,200     (d)     —    
     —         (40,000   (d)     —    
     —         (25,000   (o)     —    

Restricted short-term marketable securities

     6,196       —           6,196  

Accounts receivable, net

     127,659       —           127,659  

Inventories

     208,084       —           208,084  

Advances to suppliers, current portion

     98,452       —           98,452  

Prepaid expenses and other current assets

     39,131       1,098     (l)     36,349  
     —         (3,880   (m)     —    
  

 

 

   

 

 

     

 

 

 

Total current assets

     535,314       315,626         850,940  

Restricted long-term marketable securities

        

Property, plant and equipment, net

     270,865       (11,711   (g)     259,154  

Operating lease right-of-use assets

     18,129       (8,003   (g)     10,126  

Other intangible assets, net

     3,233       (2,967   (f)     266  

Advances to suppliers, net of current portion

     13,993       —           13,993  

Other long-term assets

     52,212       40,000     (d)     92,212  
  

 

 

   

 

 

     

 

 

 

Total assets

   $ 893,746     $ 332,945       $ 1,226,691  
  

 

 

   

 

 

     

 

 

 

Liabilities and Equity

        

Current liabilities:

        

Accounts payable

   $ 249,193     $ —         $ 249,193  

Accrued liabilities

     81,570       (6,429   (m)     75,141  

Contract liabilities, current portion

     45,668       —           45,668  

Short-term debt

     46,583       (8,583   (a)     38,000  

Short-term lease liability

     2,475       (502   (g)     1,973  
  

 

 

   

 

 

     

 

 

 

Total current liabilities

     425,489       (15,514       409,975  

Long-term debt

     1,315       (1,315   (a)     191,200  
       191,200     (d)  

Contract liabilities, net of current portion

     32,324           32,324  

Operating lease liability, net of current portion

     17,667       (8,762   (g)     8,905  

Other long-term liabilities

     42,935           42,935  
  

 

 

   

 

 

     

 

 

 

Total liabilities

     519,730       165,609         685,339  
  

 

 

   

 

 

     

 

 

 

Commitment and contingencies

        

Equity:

        

Ordinary shares, no par value

     —         —           —    

Additional paid-in capital

     —         4,106     (a)(h)     541,382  
     —         298,000     (b)     —    
     —         (100,000   (c)(h)     —    
     —         (2,967   (f)(h)     —    
     —         (10,450   (g)(h)     —    
     —         1,098     (l)(h)     —    
     —         2,549     (m)(h)     —    
     —         (25,000   (o)(h)     —    
     —         374,046     (h)     —    

Net Parent investment

     374,046       (374,046   (h)     —    

Accumulated other comprehensive loss

     (6,006     —           (6,006
  

 

 

   

 

 

     

 

 

 

Equity attributable to the Company

     368,040       167,336         535,376  

Noncontrolling interests

     5,976       —           5,976  
  

 

 

   

 

 

     

 

 

 

Total equity

     374,016       167,336         541,352  
  

 

 

   

 

 

     

 

 

 

Total liabilities and equity

   $ 893,746     $ 332,945       $ 1,226,691  
  

 

 

   

 

 

     

 

 

 

The accompanying notes are an integral part of these unaudited pro forma combined financial statements.

 

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MAXEON SOLAR TECHNOLOGIES, LTD.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined financial statements as of March 29, 2020 and for the year ended December 29, 2019 and three months ended March 29, 2020 include the following adjustments:

 

  a)

Following the Maxeon spin-off and immediately prior to the investment, we will have $50.0 million available cash and target debt not to exceed $38.0 million. The Pro Forma Adjustments reflect the repayment of our outstanding debt in excess of the target debt amount and the return of cash in excess of the target cash amount to SunPower in accordance with the Investment Agreement.

 

  b)

Immediately following the Maxeon spin-off, TZS will contribute $298.0 million in cash to us in exchange for a number of newly registered Maxeon Solar shares such that immediately following such issuance, TZS will own 28.848% of our outstanding shares. The Pro Forma Adjustments do not include interest income that would likely be earned on the additional cash resulting from this capital injection. The usage of cash in our ongoing operations is undeterminable at this time and accordingly, we are unable to determine the amount of interest we expect to earn on any amounts deposited.

 

  c)

Prior to the Maxeon spin-off, as part of the restructuring to effect the transaction, a Maxeon Solar subsidiary intends to issue a promissory note for a principal amount of $100.0 million to SunPower in exchange for intellectual property necessary for the operation of the Maxeon Business. The promissory note, which was contractually negotiated by SunPower and Maxeon Solar, is to be repaid with a combination of cash on hand and funds received in connection with the Maxeon spin-off, with such repayment conditioned upon effectiveness of the Maxeon spin-off and receipt of the TZS contribution. The Pro Forma Adjustments reflect the transfer to Maxeon Solar from SunPower of this internally developed technology at a carryover basis of zero, for non-U.S. federal income tax purposes, and the corresponding cash outflow to repay the promissory note. The $100.0 million cash outflow for the transfer of internally developed technology at a carryover basis of zero effectively results in a $100.0 million net parent distribution. The transaction represents a transaction between entities under common control and as such the carrying value of the intellectual property transferred is not intended to be reflective of fair value.

 

  d)

Prior to the Maxeon spin-off, we entered into various debt financing arrangements providing for a total available borrowing capacity of up to $337.0 million (in addition to debt that was then outstanding). On July 17, 2020, we completed an offering of $200.0 million aggregate principal amount of our 6.50% green convertible senior notes due 2025 (the “convertible notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. For purposes of the unaudited pro forma combined financial statements, Maxeon Solar has issued $200.0 million aggregate principal amount of convertible senior notes, net of issuance costs of $8.8 million. The Pro Forma Adjustments reflect interest expense of $14.8 million and $3.7 million for the year ended December 29, 2019 and three months ended March 29, 2020, respectively, based on an assumed per annum interest rate, as well as the amortization of the issuance costs using the effective interest method.

Upon issuance of the convertible notes, we may be required under ASC 470-20 to recognize a debt discount as a decrease in debt and a corresponding increase in equity as convertible debt that may be wholly or partially settled in cash is required to be separated into a debt component and an equity component. The debt component is then accreted up to the principal amount over the expected term of the debt using the effective interest method such that interest expense reflects our nonconvertible debt interest rate. The amounts shown in the unaudited pro forma combined financial information for the convertible notes is the aggregate principal amount without reflecting the debt discount that we may be required to recognize as ASC 470-20 does not affect the actual amount that we are required to repay.

 

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In connection with the issuance of the convertible notes, Maxeon Solar entered into the prepaid forward transaction with the prepaid forward counterparty pursuant to which we will prepay $40 million to the prepaid forward counterparty in cash using a portion of the net proceeds of the offering of convertible notes. Under the terms of the prepaid forward transaction, the prepaid forward counterparty will be obligated to deliver the number of Maxeon Solar shares underlying the transaction to us, or pay cash to the extent we fail to provide to prepaid forward counterparty evidence of a valid shareholder authorization, on or shortly after the maturity date, subject to the ability of the prepaid forward counterparty to elect to settle all or a portion of the transaction early. The number of Maxeon Solar shares to be repurchased under the prepaid forward transaction will be determined based on the arithmetic average of the volume-weighted average prices per Maxeon Solar share over the note valuation period, subject to the floor price, and we will prepay the forward purchase price in cash using a portion of the net proceeds from the offering of convertible notes following the note valuation period. The prepayment will be recorded as an asset upon payment, with changes in fair value over time recorded in earnings. The Pro Forma Adjustment reflects a reduction of cash and cash equivalents for the prepayment and an increase to other long-term assets for the estimate of the fair value of the prepaid forward transaction equal to the cash prepayment.

Additionally, in connection with the issuance of the convertible notes, we entered into the physical delivery forward transaction with the physical delivery forward counterparty with respect to the physical delivery Maxeon Solar shares, pursuant to which the physical delivery forward counterparty agreed to deliver such physical delivery Maxeon Solar shares to us or a third-party trustee designated by us for no consideration at or around the maturity of the convertible notes. We intend to, on the first day of the note valuation period, issue a number of Maxeon Solar shares equal to $60.0 million worth of Maxeon Solar shares to the underwriters for no consideration to be sold in a registered offering off of the Maxeon Form F-3 at prevailing market prices at the time of sale or at negotiated prices. The net fair value of this arrangement will result in an increase to equity and an increase to the debt issuance costs, which may need to be allocated to the debt and equity components consistent with the underlying classification of the convertible notes. The pro forma financial statements does not give effect to this physical forward delivery transaction as the fair value of the arrangement will be based on the present value of a share lending fee for similar arrangements priced at market, which is currently unknown as of the date of this Form 20-F.

 

  e)

We entered into various debt financing arrangements providing for a total available borrowing capacity of up to $337.0 million (in addition to debt that was then outstanding), including term loans, working capital credit facilities and the issuance of the convertible notes. Specifically, Maxeon Solar entered into term loan facilities in an aggregate amount of $75.0 million and entered into or has access to working capital facilities providing for available borrowings of up to $62.0 million (in addition to the $38.0 million expected to be drawn at the time of the Maxeon spin-off). The usage of cash under the term loan facilities will be limited to fund future capital expenditures required to support the production of Maxeon 5 and Maxeon 6. As the amount to be withdrawn for the capital expenditures is unknown as of the date of this filing, the usage of cash under the term loan facilities has been excluded from this unaudited pro forma financial information. The Pro Forma Adjustments reflects commitment fees based on an assumed per annum interest rate on the unused portions of the term loan facilities and working capital facilities, aggregating to $3.7 million and $0.6 million of interest expense for the year ended December 29, 2019 and the three months ended March 29, 2020, respectively.

 

  f)

The adjustment reflects the removal of Cogenra related intangible asset balance of $3.0 million reflected on the historical Condensed Combined Balance Sheet as of March 29, 2020 and related amortization of $7.1 million and $1.8 million reflected on the historical Combined Statement of Operations for the year ended December 29, 2019 and three months ended March 29, 2020, respectively. Such intangible assets will be retained by SunPower. While intellectual property will be licensed back to Maxeon Solar from SunPower, no pro forma adjustments have been made to the historical Combined Statement of Operations for the anticipated licensing agreement as there is no additional licensing fee to be incurred.

 

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  g)

In connection with the Maxeon spin-off, certain assets and liabilities will not be transferred to us by SunPower. These assets and liabilities formed a portion of our historical business prior to the Maxeon spin-off, but ultimately will not be transferred per the Separation and Distribution Agreement. The expenses, including depreciation, related to those assets and liabilities were previously included within our historical Combined Statement of Operations as a charge to us through allocations from SunPower. Such expenses were accordingly removed from our historical Combined Statement of Operations. Although certain research and development-related assets will not be transferred per the Separation and Distribution Agreement, expenses incurred relating to these assets will be cross charged to us through the Product Collaboration Agreement. As such, the research and development expenses relating to these assets were not adjusted.

 

  h)

The adjustment reflects the elimination of net parent contribution and the recapitalization of our equity in connection with the Maxeon spin-off. As of the Maxeon spin-off date, SunPower’s investment in our business will be redesignated as our stockholders’ equity and will be allocated between Maxeon Solar shares and additional paid-in capital based on the number of shares outstanding at the Maxeon spin-off date. SunPower shareholders will receive shares based on a distribution ratio of one Maxeon Solar share for every eight SunPower shares outstanding as of the record date for the distribution. The total redesignation from net parent contribution to additional paid-in capital is $541.4 million and includes (1) SunPower’s $374.0 million historical investment in us and (2) the effect of all pro forma adjustments representing a $167.3 million net parent distribution.

 

  i)

In December 2015, SunPower issued $425.0 million in principal amount of 4.00% debentures due 2023 (“the debentures”), the proceeds of which were used to finance the construction of our solar cell manufacturing facility in the Philippines which relates to our historical business. As such, the interest and other costs associated with the debentures are reflected in our Combined Statement of Operations. The Pro Forma Adjustments reflect the removal of $17.0 million and $4.3 million of interest expense for the year ended December 29, 2019 and three months ended March 29, 2020, respectively, and $2.5 million and $0.3 million of debt issuance cost amortization for the year ended December 29, 2019 and three months ended March 29, 2020, respectively, as the liability for these debentures is retained by SunPower and will not be transferred to us.

 

  j)

Based on the pro forma loss before income taxes for the year ended December 29, 2019 and three months ended March 29, 2020, we believe that sufficient uncertainty exists regarding the realizability of the deferred tax assets such that a full valuation allowance is necessary against the net deferred tax assets. Therefore, no incremental Pro Forma Adjustments were recognized on the Unaudited Pro Forma Combined Statement of Operations.

 

  k)

The calculations of pro forma basic and diluted net loss per share and average shares outstanding for the period presented are based on SunPower’s 144,796 and 168,822 weighted-average common shares outstanding (in thousands) for the year ended December 29, 2019 and for the three months ended March 29, 2020, respectively, as adjusted for the expected distribution ratio of one Maxeon Solar share for every eight SunPower shares and for the issuance of shares to effect TZS’ 28.848% ownership of our total outstanding shares upon distribution.

 

  l)

We are involved in various lawsuits, claims, investigations and proceedings. SunPower has agreed to indemnify us for certain litigation claims for which we or one of our subsidiaries is named the defendant or party to. The liabilities related to these legal claims are reflected on our historical Condensed Combined Balance Sheet as of March 29, 2020. The Pro Forma Adjustments reflect the recognition of $1.1 million of indemnification receivable from SunPower included in prepaid expenses and other current assets.

 

  m)

The Separation and Distribution Agreement requires that all receivables, payables and loans between Maxeon Solar and SunPower be settled prior to the Maxeon spin-off. The Pro Forma Adjustments reflect removal of these amounts to assume settlement along with the interest expense incurred during the year ended December 29, 2019 and three months ended March 29, 2020 associated with these intercompany loans due between us and SunPower.

 

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  n)

In connection with our 2016 acquisition of 100% equity voting interest in our former joint venture AUO SunPower Sdn. Bhd., we are required to make non-cancellable annual installment payments during 2019 and 2020. As per the Investment Agreement, SunPower made the payment that was due in September 2019, which is reflected as a net parent investment in the historical Combined Balance Sheet. The Pro Forma Adjustment reflects removal of the non-cash accretion charges related to the 2019 installment payment of $2.0 million included in interest expense.

 

  o)

As part of the Separation and Distribution Agreement, we are required to reimburse SunPower up to $25.0 million for transaction expenses that they will incur in connection with the separation. This adjustment represents the expected reimbursement of $25.0 million.

 

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3.B. CAPITALIZATION AND INDEBTEDNESS

The following table sets forth our cash and cash equivalents and our capitalization as of March 29, 2020 on:

 

   

an actual basis; and

 

   

an adjusted basis, to give effect to the pro forma adjustments set forth in “—Unaudited Pro Forma Combined Financial Information” above.

The table below was prepared from our unaudited condensed combined financial statements for the quarter ended March 29, 2020. The “as adjusted” information below is not necessarily indicative of what our capitalization and indebtedness would have been had the separation and related transactions been completed as of March 29, 2020. You can find an explanation of the pro forma adjustments made to our historical combined financial statements under “Unaudited Pro Forma Combined Financial Statements.” You should review the following table in conjunction with our “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and related notes to those statements appearing elsewhere in this Form 20-F, as well as the sections of this Form 20-F captioned “Item 3. Key Information—3.A. Selected Financial Data,” “Item 5. Operating and Financial Review and Prospects” and “—Unaudited Pro Forma Combined Financial Information” below.

We are providing the capitalization table below for informational purposes only. It should not be construed to be indicative of our capitalization or financial condition had the separation been completed on the date assumed. The capitalization table below may not reflect the capitalization or financial condition that would have resulted had we operated as a standalone public company at that date and is not necessarily indicative of our future capitalization or financial position.

 

     As of March 29, 2020  
     Historical      As
adjusted(1)
 
    

(In thousands, except share

and per share data)

 

Cash and cash equivalents(2)

   $ 55,792      $ 374,200  
  

 

 

    

 

 

 

Debt:

     

Working capital facilities(3)

   $ 47,898      $ 38,000  

Term loans(3)

     —          —    

Principal amount of 6.50% green convertible senior notes due 2025 we are offering(3)(4)(5)

     —          191,200  
  

 

 

    

 

 

 

Total debt

     47,898        229,200  
  

 

 

    

 

 

 

Equity:

     

Ordinary shares, no par value

     —          —    

Additional paid-in capital(3)(4)(5)

     —          —    

Net Parent investment

     374,046        541,382  

Accumulated other comprehensive loss

     (6,006      (6,006
  

 

 

    

 

 

 

Equity attributable to the Company

     368,040        535,376  

Noncontrolling interests

     5,976        5,976  
  

 

 

    

 

 

 

Total equity

     374,016        541,352  
  

 

 

    

 

 

 

Total capitalization

   $ 421,914      $ 770,552  
  

 

 

    

 

 

 

 

(1)

The as adjusted figures in the table above give effect to the Maxeon spin-off and other transactions reflected in the pro forma adjustments set forth in “—Unaudited Pro Forma Combined Financial Information” in this

 

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Form 20-F. The Maxeon spin-off, which is subject to various conditions, and those other transactions may not occur. Accordingly, our capitalization following this offering may be significantly different from that reflected in the table above. See “—Unaudited Pro Forma Combined Financial Information” for a description of the assumptions used in the preparation of the pro forma financial information upon which the “as adjusted” column of the table above was based.

(2)

In connection with the issuance of the convertible notes, Maxeon Solar entered into a prepaid forward transaction with a prepaid forward counterparty pursuant to which we will prepay $40 million to the prepaid forward counterparty in cash using a portion of the net proceeds of the offering of convertible notes. Under the terms of the prepaid forward transaction, the prepaid forward counterparty will be obligated to deliver the number of Maxeon Solar shares underlying the transaction to us, or pay cash to the extent we fail to provide to prepaid forward counterparty evidence of a valid shareholder authorization, on or shortly after the maturity date, subject to the ability of the prepaid forward counterparty to elect to settle all or a portion of the transaction early. The number of Maxeon Solar shares to be repurchased under the prepaid forward transaction will be determined based on the arithmetic average of the volume-weighted average prices per Maxeon Solar share over the note valuation period, subject to a floor price. The prepayment will be recorded as an asset upon payment, with changes in fair value over time recorded in earnings. The as adjusted cash and cash equivalents balance in the table above reflects our $40 million

payment pursuant to the prepaid forward transaction.

(3)

Reflects principal amount outstanding, without deduction for debt discounts or issuance costs.

(4)

The amounts shown in the table above for the convertible notes represent their principal amount, before deduction for estimated issuance costs, and before giving effect to the accounting for separation of debt and equity components in accordance with the applicable accounting framework. Upon issuance of the convertible notes, we may be required under ASC 470-20 to recognize a debt discount as a decrease in debt and a corresponding increase in equity as convertible debt that may be wholly or partially settled in cash is required to be separated into a debt component and an equity component. The debt component is then accreted up to the principal amount over the expected term of the debt using the effective interest method such that interest expense reflects our nonconvertible debt interest rate. The amounts shown in the table above for the convertible notes is the aggregate principal amount without reflecting the debt discount that we may be required to recognize.

(5)

In connection with the issuance of the convertible notes, we entered into the physical delivery forward transaction with the physical delivery forward counterparty with respect to the physical delivery Maxeon Solar shares, pursuant to which the physical delivery forward counterparty agreed to deliver such physical delivery Maxeon Solar shares to us or a third-party trustee designated by us for no consideration at or around the maturity of the convertible notes. We intend to issue a number of Maxeon Solar shares equal to the number of physical delivery Maxeon Solar shares to the underwriters for no consideration to be sold in a registered offering off of the Maxeon Form F-3 at prevailing market prices at the time of sale or at negotiated prices. The net fair value of this arrangement will result in an increase to equity and an increase to the debt issuance costs, which may need to be allocated to the debt and equity components consistent with the underlying classification of the convertible notes. The amounts shown in the table above do not give effect to this physical delivery forward transaction as the fair value of the arrangement will be based on the present value for similar arrangements priced at market, which is currently unknown. Similarly, the amounts shown in the table above do not give effect to the similar agreements that we expect to enter into with Total and TZS to allow them to maintain their respective percentage interests. See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between Us and TZS and/or Total in Connection with TZS Investment—Dilution Protection Agreements.”

3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

 

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3.D. RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this Form 20-F, in evaluating us and our shares. The following risk factors could adversely affect our business, financial condition, results of operations and the price of our shares.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has had an adverse impact on our business, operations, and financial performance, as well as on the operations and financial performance of many of our suppliers, dealers and customers. We are unable to predict the extent to which the pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position, and the achievement of our strategic objectives.

The COVID-19 pandemic has had an adverse impact on most aspects of our business, operations and financial performance, and the impact is ongoing and will likely continue to change. The pandemic has affected our employees and their ability to work, our ability to conduct our business operations around the globe, reduced demand for our products, disrupted our supply chains, limited the ability of some of our customers to purchase and pay for our products, and caused us to reallocate and prioritize our planned spending among our strategic initiatives. These impacts are substantial and may make it more difficult for us to generate cash flow to meet our own obligations under the terms of our outstanding indebtedness. While we are actively evaluating our ability to obtain relief through recently-announced government assistance, such relief may not be available and, even if available, is unlikely to fully mitigate the impacts of the pandemic on our business and our financial results.

Employees. The safety and wellbeing of our employees is paramount and could also impact our ability to address the uncertainties associated with the COVID-19 pandemic. We have modified our business practices in response to the pandemic, instituting health and safety measures such as limiting employee travel, implementing social distancing and remote work measures, and cancelling physical participation in meetings, events, and conferences. Despite these efforts, such measures may not be sufficient to mitigate the risks posed by the COVID-19 pandemic to our employees, dealers, customers and suppliers. Our employees may be unable to work effectively due to sheltering-in-place arrangements, illness, quarantine, travel restrictions, lack of public transportation or other restrictions required by government authorities or that we determine are in the best interests of our employees, which may harm our operations. We have announced temporary reductions in the salaries of certain of our executive officers, as well as temporary reductions in salaries and reduced work week schedules for certain of our employees to address reduced demand and workloads related to the pandemic and to conserve cash, with exceptions for certain groups, including those supporting customer and asset services.

Adverse manufacturing, supply, and strategic investment impacts. The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and operations, including our manufacturing operations, bookings and sales, and may adversely affect our ability to continue to invest in all of our planned research and development and other initiatives. Consistent with actions taken or recommended by governmental authorities, we temporarily idled our solar cell and module production lines located at our manufacturing facilities in the Philippines, France, Malaysia and Mexico. All of our factories have resumed production as of May 2020 in accordance with the relevant local restrictions and with additional safety measures to protect our employees. However, a return to production to prior levels may take a significant period of time, and may be dependent on similar plans from our suppliers, and we may face disruptions to the timing, capacity, and efficiency of our solar cell and module production lines, which in turn may restrict our ability to match product supplies to customer demand. In addition, new governmental orders and restrictions may be issued in some locations if the pandemic recurs or worsens. During a prolonged reduction in manufacturing operations or demand, the business and financial condition of our suppliers and customers may deteriorate, resulting in liquidity challenges, bankruptcies, permanent discontinuation of operations, or an inability to make timely deliveries or payments to us. Our suppliers and vendors may also request new or changed credit terms, which could effectively increase the prices we pay for raw materials and supplies.

 

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Although we continue to invest in research and development initiatives, including for development of our Maxeon 7 technology, we cannot be certain whether we will realize the anticipated value of such investments or realize the anticipated value within previously predicted time frames, in light of the economic uncertainty caused by the COVID-19 pandemic and steps we have taken to reduce workweek length and promote social distancing and remote work for employees.

Decline in demand for products. We have experienced, and expect to continue to experience, a decline in demand for our solar panels in light of the global economic slowdown caused by the COVID-19 pandemic and the associated decrease in consumer spending, which we expect will have a near-term adverse impact on our business, financial condition, results of operations, and cash flows. Additionally, as credit markets become more challenging, customers may be unable or unwilling to finance the cost of our products, and the parties that have historically provided this financing may cease to do so, or only do so on terms that are substantially less favorable for our customers, any of which could materially and adversely affect our revenue and growth of our business. Cancellations or rescheduling of customer orders could result in the delay or loss of anticipated sales without allowing us sufficient time to reduce, or delay the incurrence of, our corresponding inventory and operating expenses. In addition, changes in forecasts or the timing of orders from these or other customers expose us to the risks of inventory shortages or excess inventory.

Impacts on our ability to meet our financial commitments. Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flows. In light of reduced demand and general economic uncertainty related to the COVID-19 pandemic, we cannot assure you that our business will generate cash flows from operations, or that future borrowings will be available to us under our existing or any future credit facilities or otherwise, in an amount sufficient to enable us to meet our payment obligations under our debt and to fund other liquidity needs. If we are unable to generate sufficient cash flows to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. There can be no assurance that we will be successful in any sale of assets, refinancing, restructuring, or capital raising effort.

Impact on other risks inherent in our business. The overall effect that the COVID-19 pandemic will have on our business, financial condition and results of operations will depend on future developments, including the ultimate duration and scope of the pandemic, the timing of lifting or easing of various governmental restrictions, the impact on our suppliers, dealers and customers, and how quickly economic conditions, operations, and the demand for our products return to prior levels. The ultimate effect that the pandemic may have on our operating and financial results is not presently known to us or may present unanticipated risks that cannot be determined at this time.

We expect the COVID-19 pandemic will have a material adverse effect on our business, and thus are aggressively managing our response to the pandemic. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks identified in this “Risk Factors” section. We believe the most significant elements of uncertainty are the intensity and duration of the impact on project installation by our customers, commercial and consumer spending as well as the ability of our sales channels, supply chain, manufacturing, and distribution to continue to operate with minimal disruption for the remainder of fiscal 2020 and beyond, all of which could negatively impact our financial position, results of operations, cash flows and outlook.

Risks Related to the Maxeon Business Generally

If we fail to successfully reduce costs in response to downward pressure on solar panel prices, or fail to develop and introduce new and enhanced products, we may be unable to compete effectively, and our ability to generate revenues, profits and cash flows could suffer.

Our solar panels are competitive in the market as compared with lower cost conventional solar cells, such as thin-film, due to our products’ higher efficiency, among other things. Given the general downward pressure on prices for solar panels driven by increasing supply and technological change, a principal component of our

 

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business strategy is reducing our costs to manufacture our products to remain competitive. If our competitors are able to drive down their manufacturing costs or increase the efficiency of their products faster than we can, or if competitor products are exempted from tariffs and quotas and ours are not, our products may become less competitive even when adjusted for efficiency. Further, if raw materials costs and other third-party component costs were to increase, we may not meet our cost reduction targets. If we cannot effectively reduce costs, our competitive position could suffer, we could lose sales and/or market share, and our margins could be adversely affected as we face downward pricing pressure.

The solar power market is characterized by continually changing technology and improving features, such as increased efficiency, higher power output and enhanced aesthetics. Technologies developed by our direct competitors, including thin-film solar panels, concentrating solar cells, solar thermal electric and other solar technologies, may provide energy at lower costs than our products. We also face competition in some markets from other energy generation sources, including conventional fossil fuels, wind, biomass, and hydro. In addition, we compete with traditional utilities that supply energy to our potential customers. Such utilities have greater financial, technical, operational and other resources than we do. If electricity rates decrease and our products become less competitive by comparison, our operating results and financial condition could be adversely affected.

Our failure to further refine our technology, reduce costs in our manufacturing process, and develop and introduce new solar power products could cause our products or our manufacturing facilities to become less competitive or obsolete, which could reduce our market share, cause our sales to decline, and cause the impairment of our assets. We are required to continually develop new solar power products and enhancements for existing solar power products to keep pace with evolving industry standards, competitive pricing and changing customer preferences, expectations, and requirements. It is difficult to successfully predict the products our customers will demand. If we cannot continually improve the efficiency and prove the reliability of our solar panels as compared with those of our competitors, our pricing will become less competitive, we could lose market share, and our margins would be adversely affected.

As we introduce new or enhanced products or integrate new technology and components into our products, we will face risks relating to such transitions including, among other things, the incurrence of high fixed costs, technical challenges, acceptance of products by our customers, disruption in customers’ ordering patterns, insufficient supplies of new products to meet customers’ demand, possible product and technology defects arising from the integration of new technology and a potentially different sales and support environment relating to any new technology. Our failure to manage the transition to newer products or the integration of newer technology and components into our products could adversely affect our business’s operating results and financial condition.

The increase in the global supply of solar cells and panels, and increasing competition, may cause substantial downward pressure on the prices of such products and cause us to lose sales or market share, resulting in lower revenues, earnings, and cash flows.

Global solar cell and panel production capacity has been materially increasing overall, and solar cell and solar panel manufacturers currently have excess capacity, particularly in China. Excess capacity and industry competition have resulted in the past, and may continue to result, in substantial downward pressure on the price of solar cells and panels, including our products. Intensifying competition could also cause us to lose sales or market share. Such price reductions or loss of sales or market share could have a negative impact on our revenue and earnings, and could materially adversely affect our business, financial condition and cash flows. In addition, our internal pricing forecasts may not be accurate in such a market environment, which could cause our financial results to be different than forecasted. Uncertainty with respect to Chinese and other government policies, including subsidies or other incentives for solar projects, may cause increased, decreased, or volatile supply and/or demand for solar products, which could negatively impact our revenue and earnings.

 

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Changes in international trade policies, tariffs, or trade disputes could significantly and adversely affect our business, revenues, margins, results of operations and cash flows.

On February 7, 2018, safeguard tariffs on imported solar cells and modules went into effect pursuant to Proclamation 9693, which approved recommendations to provide relief to U.S. manufacturers and impose safeguard tariffs on imported solar cells and modules, based on the investigations, findings, and recommendations of the U.S. International Trade Commission (the “International Trade Commission”). Modules are subject to a four-year tariff at a rate of 30% in the first year, declining 5% in each of the three subsequent years, to a final tariff rate of 15% in 2021. Cells are subjected to a tariff-rate quota, under which the first 2.5 GW of cell imports each year will be exempt from tariffs; and cells imported after the 2.5 GW quota has been reached will be subject to the same 30% tariff as modules in the first year, with the same 5% decline in each of the three subsequent years. The tariff-free cell quota applies globally, without any allocation by country or region.

The tariffs could materially and adversely affect our business and results of operations. While solar cells and modules based on IBC technology, like our Maxeon 2, Maxeon 3, Maxeon 5 and 6 and related products, were granted exclusion from these safeguard tariffs on September 19, 2018, our solar products based on other technologies continue to be subject to the safeguard tariffs. Although we are actively engaged in efforts to mitigate the effect of these tariffs and SunPower filed an assessment with the International Trade Commission that the existing quota on cells will eventually be insufficient to supply the domestic industry and should be increased, there is no guarantee that these efforts will be successful.

Additionally, the Office of the United States Trade Representative (“USTR”) initiated an investigation under Section 301 of the Trade Act of 1974 into the government of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. Starting in 2018, the USTR imposed additional import duties of up to 25% on certain Chinese products covered by the Section 301 remedy. These tariffs include certain solar power system components and finished products, including those purchased from our suppliers for use in our products and used in our business.

On January 15, 2020, the United States and China entered into a “Phase One” trade agreement, and the two governments have indicated that they may seek to negotiate additional trade agreements. Nonetheless, the Phase One agreement does not contain specific provisions committing the United States to reduce the Section 301 or Proclamation 9693 tariffs, and no fixed timetable for their removal has been announced. Additionally, the United States and China continue to signal the possibility of taking additional retaliatory measures in response to actions taken by the other country, including in connection with the COVID-19 pandemic and the introduction of new laws and political measures in Hong Kong. Such retaliatory measures could result in changes to existing trade agreements and terms, potentially including additional tariffs on imports from China or other countries, additional technology controls or controls on exports or imports and economic sanctions on Chinese or other persons.

Additionally, on May 1, 2020, President Trump declared a national emergency with respect to foreign supply of bulk-power system electric equipment and directed the U.S. Secretary of Energy to take additional steps to protect the security, integrity, and reliability of bulk-power system electric equipment used in the United States, including by prohibiting certain transactions. Although the President’s order does not address the solar industry specifically, it could indicate heightened U.S. government attention to electricity generation and transmission matters, and it is possible that the U.S. Secretary of Energy will seek to take actions under the President’s order that could have an adverse effect on our suppliers, customers, partners, or projects.

Uncertainty surrounding the implications of existing tariffs affecting the U.S. solar market, trade tensions between China and the United States and other trade and national security regulatory actions could cause market volatility, price fluctuations, supply shortages, and project delays, any of which could harm our business, and our pursuit of mitigating actions may divert substantial resources from other projects. In addition, the imposition of additional tariffs or trade controls could result in a wide range of impacts to the U.S. solar industry and the global

 

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manufacturing market, as well as our business in particular. Such tariffs or trade controls could materially increase the price of our solar products and result in significant additional costs to us, our resellers, and our resellers’ customers, which could cause a significant reduction in demand for our solar power products and greatly reduce our competitive advantage. With the uncertainties associated with the tariffs and Section 301 trade case, events and changes in circumstances have indicated that the carrying values of our long-lived assets associated with our manufacturing operations might not be recoverable.

The reduction, modification or elimination of government incentives could cause our revenue to decline and harm our financial results.

The market for on-grid applications, where solar power is used to supplement a customer’s electricity purchased from the utility network or sold to a utility under tariff, depends in large part on the availability and size of government mandates and economic incentives because, at present, the cost of solar power generally exceeds retail electric rates in many locations and wholesale peak power rates in some locations. Incentives and mandates vary by geographic market. Various government bodies in most of the countries where we do business have provided incentives in the form of feed-in tariffs, rebates, and tax credits and other incentives and mandates, such as renewable portfolio standards and net metering, to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applications and to reduce dependency on other forms of energy. These various forms of support for solar power are subject to change and are expected in the longer term to decline. Even changes that may be viewed as positive can have negative effects if they result, for example, in delaying purchases that otherwise might have been made before expiration or scheduled reductions in such credits. Governmental decisions regarding the provision of economic incentives often depend on political and economic factors that we cannot predict and that are beyond our control. The reduction, modification or elimination of grid access, government mandates or economic incentives in one or more of our customer markets could materially and adversely affect the growth of such markets or result in increased price competition, either of which could cause our revenue to decline and materially adversely affect our financial results.

Existing regulations and policies and changes to these regulations and policies may present technical, regulatory, and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products.

The market for electric generation products is heavily influenced by federal, state and local government laws, regulations and policies concerning the electric utility industry globally, as well as policies promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation, and changes that make solar power less competitive with other power sources could deter investment in the research and development of alternative energy sources as well as customer purchases of solar power technology, which could in turn result in a significant reduction in the demand for our solar power products. The market for electric generation equipment is also influenced by trade and local content laws, regulations and policies that can discourage growth and competition in the solar industry and create economic barriers to the purchase of solar power products, thus reducing demand for our solar products. In addition, on-grid applications depend on access to the grid, which is also regulated by government entities. We anticipate that our solar power products and their installation will continue to be subject to oversight and regulation in accordance with federal, state, local and foreign regulations relating to construction, safety, environmental protection, utility interconnection and metering, trade, and related matters. It is difficult to track the requirements of individual states or local jurisdictions and design equipment to comply with the varying standards. In addition, the U.S., European Union and Chinese governments, among others, have imposed tariffs or are in the process of evaluating the imposition of tariffs on solar panels, solar cells, polysilicon, and potentially other components. These and any other tariffs or similar taxes or duties may increase the price of our solar products and adversely affect our efforts to reduce costs, which could harm our results of operations and financial condition. Any new regulations or policies pertaining to our solar power products may result in significant additional expenses to us, our resellers and our resellers’ customers, which could cause a significant reduction in demand for our solar power products.

 

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We may incur unexpected warranty and product liability claims that could materially and adversely affect our financial condition and results of operations.

Our current standard product warranty for our solar panels and their components includes a 25-year warranty period for defects in materials and for greater than promised declines in power performance. We believe our warranty offering is in line with industry practice. This long warranty period creates a risk of extensive warranty claims long after we have shipped product and recognized revenue. We perform accelerated life cycle testing that exposes our products to extreme stress and climate conditions in both environmental simulation chambers and in actual field deployments in order to highlight potential failures that could occur over the 25-year warranty period. We also employ measurement tools and algorithms intended to help us assess actual and expected performance; these attempt to compare actual performance against an expected performance baseline that is intended to account for many factors (like weather) that can affect performance. Although we conduct accelerated testing of our solar panels and components, they have not and cannot be tested in an environment that exactly simulates the 25-year warranty period and it is difficult to test for all conditions that may occur in the field. Further, there can be no assurance that our efforts to accurately measure and predict panel and component performance will be successful. We have sold products under our warranties since the early 2000s and have therefore not experienced the full warranty cycle.

Increases in the defect rate of our products could cause us to increase the amount of warranty reserves and have a corresponding material, negative impact on our results of operations. Further, potential future product failures could cause us to incur substantial expense to repair or replace defective products, and we have agreed in some circumstances to indemnify our customers and our distributors against liability from some defects in our solar products. A successful indemnification claim against us could require us to make significant damage payments. Repair and replacement costs, as well as successful indemnification claims, could materially and negatively impact our financial condition and results of operations.

Like other retailers, distributors, and manufacturers of products that are used by customers, we face an inherent risk of exposure to product liability claims in the event that the use of the solar power products into which our solar cells and panels are incorporated results in injury, property damage, or other damages. We may be subject to warranty and product liability claims in the event that our solar power systems fail to perform as expected or if a failure of our solar power systems or any component thereof results, or is alleged to result, in bodily injury, property damage or other damages. Since our solar power products are electricity-producing devices, it is possible that our systems could result in injury, whether by product malfunctions, defects, or other causes. In addition, since we only began selling our solar cells and solar panels in the early 2000s and the products we are developing incorporate new technologies, we cannot predict the extent to which product liability claims may be brought against us in the future or the effect of any resulting negative publicity on our business. Moreover, we may not have adequate resources to satisfy a successful claim against us. We rely on our general liability insurance to cover product liability claims. A successful warranty or product liability claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, product recalls and a negative impact on our goodwill and reputation, any of which could adversely affect our business, operating results and financial condition.

Our business could be adversely affected by seasonal trends and construction cycles.

Our business is subject to significant industry-specific seasonal fluctuations. There are various reasons for this seasonality, mostly related to economic incentives and weather patterns. For example, in European countries with feed-in tariffs, the construction of solar power systems may be concentrated during the second half of the calendar year, largely due to the annual reduction of the applicable minimum feed-in tariff and the fact that the coldest winter months in the Northern Hemisphere are January through March, which could lead to declining sales in cold-weather months.

 

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Risks Related to Our Liquidity

We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations and make adequate capital investments, as planned due to the general economic environment and the continued market pressure driving down the average selling prices of our solar power products, among other factors.

To develop or scale new products, including Maxeon 5 and 6 and next-generation Maxeon 7, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital and other investments in manufacturing technology, facilities and capital equipment, research and development, and product and process technology. Our manufacturing and assembly activities have required and will continue to require significant investment of capital and substantial engineering expenditures.

Our capital expenditures and use of working capital may be greater than we anticipate if sales and associated receipt of cash proceeds are delayed, or if we decide to accelerate increases in our manufacturing capacity internally or through capital contributions to joint ventures. In addition, we could in the future make additional investments in certain of our joint ventures or could guarantee certain financial obligations of our joint ventures, which could reduce our cash flows, increase our indebtedness and expose us to the credit risk of our joint venture partners. In addition, if our financial results or operating plans deviate from our current assumptions, we may not have sufficient resources to support our business plan.

We expect that we will manage our working capital requirements and fund our committed capital expenditures through our current cash and cash equivalents, cash generated from operations, and, in the future, funds available under the debt facilities entered into in connection with the spin-off. We may fail to obtain these debt facilities on acceptable terms, or at all, and the lenders under such debt may also require us to repay our indebtedness to them in certain events, including the event that our obligations under other indebtedness or contracts are accelerated and we fail to discharge such obligations. If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity investments or debt securities or obtain other debt financings. Market conditions, however, could limit our ability to raise capital by issuing new equity or debt securities at all or on acceptable terms, and lenders may be unwilling to lend funds at all or on acceptable terms. The sale of additional equity investments or convertible or exchangeable debt securities may result in additional dilution to our shareholders. Additional debt would result in increased expenses and could impose new restrictive covenants that may be different from those restrictions contained in the covenants under the debt agreements that we entered into in connection with the spin-off.

If we cannot generate sufficient cash flows, find other sources of capital to fund our operations, or make adequate capital investments to remain technologically and price competitive, we may need to sell additional equity investments or debt securities, or obtain other debt financings. If adequate funds from these or other sources are not available at all or on acceptable terms, our ability to fund our operations, develop and expand our manufacturing operations and distribution network, maintain our research and development efforts, meet our debt service obligations, or otherwise respond to competitive pressures could be significantly impaired. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

We will have the ability to incur a significant amount of debt following the spin-off. The incurrence of substantial indebtedness and other contractual commitments could adversely affect our business, financial condition, and results of operations, as well as our ability to meet our payment obligations under our debt or other contractual commitments.

Prior to the spin-off, we entered into financing arrangements pursuant to which we will have a total available borrowing capacity of up to $337.0 million that is in addition to debt that was then outstanding. Our debt could have material consequences on our future operations, including:

 

   

making it more difficult for us to meet our payment and other obligations under our outstanding debt;

 

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resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in all or a significant portion of our debt becoming immediately due and payable;

 

   

reducing the availability of our cash flows to fund working capital, capital expenditures and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;

 

   

limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and

 

   

placing us at a competitive disadvantage compared with our competitors that have less debt or have lower leverage ratios.

Our ability to meet our payment and other obligations under our debt instruments or other contractual commitments depends on our ability to generate significant cash flows, which, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flows from operations, or that future borrowings will be available to us under our existing or any future debt instruments or otherwise, in an amount sufficient to enable us to meet our payment obligations under our debt or other contractual obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flows to service our debt or make payments under our other contractual obligations, we may need to refinance or restructure our debt or seek to raise additional capital. There can be no assurance that we will be successful in any refinancing or restructuring effort.

We may be unable to raise the funds necessary to repurchase the convertible notes for cash following a fundamental change or pursuant to a mandatory redemption, or to pay any cash amounts due upon conversion.

Holders of our convertible notes may require us to repurchase their convertible notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the convertible notes to be repurchased, plus accrued and unpaid interest, if any. In addition, if the note valuation period conditions precedent have not been satisfied by November 16, 2020, then we will be required to redeem all of the convertible notes at a cash redemption price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. Furthermore, upon conversion of any convertible notes, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in Maxeon Solar shares. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase or redeem the convertible notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness restrict or may restrict our ability to repurchase or redeem the convertible notes when required or to pay the cash amounts due upon conversion. For example, certain of the debt financing arrangements that we entered into in connection with the spin-off require such debt to be repaid, or a consent from the lenders to be obtained, before we may repurchase or redeem the convertible notes in connection with a fundamental change or pursuant to a mandatory redemption. Our failure to repurchase or redeem convertible notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the convertible notes. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under our debt agreements.

We may be classified as a U.S. corporation for U.S. federal income tax purposes under Section 7874, which could result in Maxeon Solar being subject to U.S. federal income tax indefinitely.

Section 7874 of the Code may cause a corporation organized outside the United States to be treated as a U.S. corporation (and, therefore, taxable in the United States) unless one or more exceptions apply. The application of Section 7874 of the Code and its various exceptions are complex and subject to factual and legal uncertainties, with respect to some of which the U.S. Internal Revenue Service (“IRS”) has yet to issue guidance. Based on facts as they presently exist, we do not expect Section 7874 to apply to us. However, if we were to be treated as a U.S. corporation for U.S. federal income tax purposes, we would be subject to U.S. corporate income

 

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tax on our worldwide income and the income of our non-U.S. subsidiaries would be subject to U.S. tax when deemed recognized under the U.S. federal income tax rules for controlled foreign subsidiaries. See “Item 10.E. Taxation—Material U.S. Federal Income Tax Considerations—Treatment of Maxeon Solar as a U.S. Company for U.S. Federal Income Tax Purposes.”

Failure to meet hiring, capital spending and other requirements to utilize tax incentives provided to us in Singapore, Malaysia and the Philippines, or to avail ourselves of available tax incentives in other jurisdictions, could adversely affect our results.

As part of establishing our new corporate headquarters in Singapore, we expect to utilize incentives from Singapore’s Economic Development Board (“EDB”). This is anticipated to include favorable tax treatment and other forms of financial and operational support. Any such incentives will be contingent on our meeting hiring and capital expenditure requirements in Singapore. Failure to meet any conditions of our incentives in Singapore may result in us losing any tax benefits provided to us by the EDB, as well as being required to repay any previous tax benefits received, which could have an adverse effect on our business and operations.

We benefit from a tax holiday granted by the Malaysian government, subject to certain hiring, capital spending, and manufacturing requirements. This is scheduled to expire on June 30, 2021. We are in the process of negotiating with the Malaysia government to modify the requirements of the second five-year term because of the planned manufacturing expansion in Malaysia. If we do not continue to comply with the tax holiday’s requirements (or achieve a waiver therefrom), we could be retroactively and prospectively subject to statutory tax rates and repayment of certain incentives, which could negatively impact our business.

Our Philippine income tax holiday expired in 2020. However, we continue to qualify for a 5% preferential tax rate on gross income attributable to activities covered by our Philippine Economic Zone Authority (“PEZA”) registration. The Philippine net income attributable to all other activities is taxed at the statutory Philippine corporate income tax rate, which is currently 30%. We need to continue to comply with PEZA requirements and remain in good standing to utilize the 5% preferential tax rate. Failure to do so could negatively affect our Philippine business.

The 2019 Federal Act and Tax Reform and AHV Financing removed privileged corporate tax regimes in Switzerland. We previously benefitted from the auxiliary company status and were taxed at an effective tax rate of 11.5% in Switzerland. Starting January 1, 2020, we expect our Swiss subsidiary to be taxed at an effective tax rate of 14%.

More generally, with the finalization of specific actions contained within the Organization for Economic Development and Cooperation’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) study (“Actions”), many OECD countries have acknowledged their intent to implement the Actions and update their local tax regulations. Among the considerations required by the Actions is the need for appropriate local business operational substance to justify any locally granted tax incentives, such as those described above, and that the incentives are not determined to constitute “state aid” which would invalidate the incentive. If we fail to maintain sufficient operational substance or if the countries determine the incentive regimes do not conform with the BEPS regulations being considered for implementation, adverse material economic impacts may result.

Risks Related to Our Supply Chain

SunPower’s long-term, firm commitment polysilicon supply agreements could result in excess inventory, place us at a competitive disadvantage on pricing, have a negative impact on our liquidity or materially and adversely affect our results of operations.

We are dependent on our suppliers to provide us with the materials we need in our manufacturing processes. Due to an industry-wide shortage of polysilicon experienced prior to 2008, SunPower entered into long-term fixed supply agreements for polysilicon with two suppliers for periods of up to 10 years to match its estimated customer demand forecasts and growth strategy, and these agreements were thereafter extended from time to time. The long-term fixed supply agreements with one of the suppliers expired in the first quarter of fiscal 2019 and the

 

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agreements with the second supplier expire in the fourth quarter of fiscal 2022. SunPower is not permitted to cancel or exit these agreements prior to their expiration. We may negotiate with the second supplier to extend the timing of delivery and acceptance of polysilicon pursuant to the underlying contractual purchase obligations.

Pursuant to the agreements, SunPower purchases polysilicon that it delivers to third-party ingot and wafer manufacturers who sell wafers to SunPower that SunPower then uses in the manufacturing of its solar cells. At the time SunPower entered into the agreements, without sufficient polysilicon, some of those ingot and wafer manufacturers would not have been able to produce the wafers on which SunPower relies.

In connection with the spin-off, we will enter into an agreement with SunPower pursuant to which we will effectively receive SunPower’s rights under the continuing long-term fixed supply agreements (including SunPower’s deposits and advanced payments thereunder) and, in return, we will agree to perform all of SunPower’s existing and future obligations under the agreements (including all take-or-pay obligations). See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us—Back-to-Back Agreement.”

The price of polysilicon currently available in the market has decreased significantly below what is contemplated in the agreements, and our expenditures under the long-term fixed supply agreements with the remaining supplier may negatively impact our liquidity or put us at a disadvantage relative to our competitors. Specifically, the agreements provide for fixed or inflation-adjusted pricing, which has prevented SunPower, and is expected to prevent us, from benefiting from decreased polysilicon costs and has caused SunPower, and is expected to cause us, to purchase polysilicon at unfavorable pricing and payment terms relative to prices available in the market and payment terms available to our competitors. In addition, in the event that we have inventory in excess of short-term requirements of polysilicon in our manufacturing operations, in order to reduce inventory or improve working capital, we may, as SunPower has periodically done, elect to sell such inventory in the marketplace at prices below our purchase price, thereby incurring a loss. During the fiscal year ended December 29, 2019, we recognized charges of $56.5 million related to losses incurred as a result of ancillary sales to third parties of excess polysilicon procured under our long-term fixed supply agreements and we estimate that we paid $88.7 million above the current market price as we were bound by our long-term fixed supply agreements for polysilicon consumed in our manufacturing process. As of December 29, 2019, based on the then price of polysilicon available in the market, we estimated the remaining contractual commitments under SunPower’s long-term fixed supply agreements for polysilicon that is above market to be approximately $258.2 million, which we expect to incur from 2020 through 2022.

Further, because the agreements are “take or pay,” we could be required to purchase polysilicon from our supplier that is currently not required in our production plan to meet current demand, resulting in additional costs.

Additionally, in the event any of our suppliers experience financial difficulties or go into bankruptcy, it could be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments to those suppliers.

Any of the foregoing could materially harm our liquidity, financial condition and results of operations and could put us at a disadvantage relative to our competitors.

We will continue to be dependent on a limited number of third-party suppliers for certain raw materials and components for our products, which could prevent us from delivering our products to our customers within required timeframes and could in turn result in sales and installation delays, cancellations, penalty payments, and loss of market share.

We rely on a limited number of third-party suppliers for certain raw materials and components for our solar cells, panels and power systems, such as polysilicon, inverters and module material. If we fail to maintain our relationships with our suppliers or to build relationships with new suppliers, or if suppliers are unable to meet

 

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demand through industry consolidation, we may be unable to manufacture our products or our products may be available only at a higher cost or after a long delay.

To the extent the processes that our suppliers use to manufacture components are proprietary, we may be unable to obtain comparable components from alternative suppliers. In addition, the financial markets could limit our suppliers’ ability to raise capital if required to expand their production or satisfy their operating capital requirements. As a result, they could be unable to supply necessary raw materials, inventory and capital equipment which we would require to support our planned sales operations to us, which would in turn negatively impact our sales volume, profitability, and cash flows. The failure of a supplier to supply raw materials or components in a timely manner, or to supply raw materials or components that meet our quality, quantity and cost requirements, could impair our ability to manufacture our products or could increase our cost of production. If we cannot obtain substitute materials or components on a timely basis or on acceptable terms, we could be prevented from delivering our products to our customers within required timeframes.

Any such delays could result in sales and installation delays, cancellations, penalty payments or loss of revenue and market share, any of which could have a material adverse effect on our business, financial condition and results of operations.

Fluctuations in the demand for our products may cause impairment of our project assets and other long-lived assets or cause us to write off equipment or inventory, and each of these events could adversely affect our financial results.

In addition, if the demand for our solar products decreases, our manufacturing capacity could be underutilized, and we may be required to record an impairment of our long-lived assets, including facilities and equipment, which would increase our expenses. In improving our manufacturing processes consistent with our cost reduction roadmap, we could write off equipment that is removed from the manufacturing process. In addition, if product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record excess capacity charges, which could have a negative impact on our gross margin. Factory-planning decisions may shorten the useful lives of long-lived assets, including facilities and equipment, and cause us to accelerate depreciation. Each of the above events could adversely affect our future financial results.

Risks Related to Our Operations

Our success depends on the continuing contributions of our key personnel and our ability to attract and retain qualified personnel in our industry.

We rely heavily on the services of our key executive officers, and the loss of services of any principal member of our management team could adversely affect our operations. We are investing significant resources in recruiting and developing new members of management in connection with the spin-off. We also anticipate that over time we will need to hire a number of highly skilled technical, manufacturing, administrative, and accounting personnel. The competition for qualified personnel is intense in our industry. We may not be successful in attracting and retaining sufficient numbers of qualified personnel to support our anticipated growth. We cannot guarantee that any employee will remain employed with us for any definite period of time since many of our employees, including our key executive officers, serve at-will and may terminate their employment at any time for any reason.

We derive a significant portion of our revenues from our largest customers.

Historically, we have relied on a limited number of customers for a substantial portion of our revenue. During the year ended December 29, 2019, SunPower accounted for 35.6% of our total revenue. In addition, two other customers accounted for 20.4% and 13.6% of accounts receivable as of December 29, 2019. The loss of any of our significant customers, or the renegotiation of any of our customer agreements, could adversely affect our future financial results.

Because we rely on key customers for a significant portion of our revenues, we depend on the creditworthiness of these customers. If the financial condition of our customers declines, our credit risk could

 

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increase. Should one or more of our significant customers declare bankruptcy, it could adversely affect the collectability of our accounts receivable and affect our bad debt reserves and net income.

We have significant international activities and customers, which subject us to additional business risks, including logistical complexity and political instability.

A substantial portion of our sales are made to customers outside of the United States, and a substantial portion of our supply agreements are with supply and equipment vendors located outside of the United States. We have solar cell and module production lines located at our manufacturing facilities in France, Malaysia, Mexico, and the Philippines.

Risks we face in conducting business internationally include:

 

   

multiple, conflicting, and changing laws and regulations, export and import restrictions, employment laws, environmental protection, regulatory requirements, international trade agreements, and other government approvals, permits and licenses;

 

   

potential disruptions due to labor disputes;

 

   

difficulties and costs in staffing and managing foreign operations as well as cultural differences;

 

   

relatively uncertain legal systems, including potentially limited protection for intellectual property rights, and laws, changes in the governmental incentives we rely on, regulations and policies which impose additional restrictions on the ability of foreign companies to conduct business in certain countries or otherwise place them at a competitive disadvantage in relation to domestic companies;

 

   

inadequate local infrastructure and developing telecommunications infrastructures;

 

   

financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts receivable;

 

   

currency fluctuations, government-fixed foreign exchange rates, the effects of currency hedging activity, and the potential inability to hedge currency fluctuations;

 

   

political and economic instability, including wars, acts of terrorism, political unrest, boycotts, curtailments of trade and other business restrictions, as well as natural disasters or outbreaks of disease, such as the existing COVID-19 pandemic;

 

   

trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries; and

 

   

liabilities associated with compliance with laws (for example, foreign anti-bribery laws).

In addition, the temporary idling of our solar cell and module production lines at our manufacturing facilities, as well as certain modified business practices taken in response to the COVID-19 pandemic, have affected our ability to conduct our business operations around the globe.

We have a complex organizational structure involving many entities globally. This increases the potential impact of adverse changes in laws, rules and regulations affecting the free flow of goods and personnel, and therefore heightens some of the risks noted above. Further, this structure requires us to effectively manage our international inventory and warehouses. If we fail to do so, our shipping movements may not correspond with product demand and flow. Unsettled intercompany balances between entities could result, if changes in law, regulations or related interpretations occur, in adverse tax or other consequences affecting our capital structure, intercompany interest rates and legal structure. If we are unable to successfully manage any such risks, any one or more could materially and negatively affect our business, financial condition and results of operations.

We could be adversely affected by any violations of anti-bribery laws.

The countries in which we operate also have anti-bribery laws, some of which prohibit improper payments to government and non-government persons and entities. Our policies mandate compliance with these anti-

 

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bribery laws. We may acquire businesses that operate in parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. In addition, due to the level of regulation in our industry, our entry into new jurisdictions through internal growth or acquisitions requires substantial government contact where norms can differ from standards that exist in the United States and elsewhere. While we implement policies and procedures and conduct training that require and facilitate compliance with these anti-bribery laws, thereby mitigating the risk of violations of such laws, our employees, subcontractors and agents may take actions in violation of our policies and anti-bribery laws. Any such violation, even if prohibited by our policies, could subject us to criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition, cash flows, and reputation.

If we experience interruptions in the operation of our solar cell or module production lines, our revenue and results of operations may be materially and adversely affected.

If our solar cell or module production lines suffer problems that cause downtime, we might be unable to meet our production targets, which could adversely affect our business. Our manufacturing activities require significant management attention, a significant capital investment and substantial engineering expenditures.

The success of our manufacturing operations is subject to significant risks including:

 

   

cost overruns, delays, supply shortages, equipment problems and other operating difficulties;

 

   

custom-built equipment may take longer or cost more to engineer than planned and may never operate as designed;

 

   

incorporating first-time equipment designs and technology improvements, which we expect to lower unit capital and operating costs, but which may not be successful;

 

   

our ability to obtain or maintain third-party financing to fund capital requirements;

 

   

difficulties in maintaining or improving our historical yields and manufacturing efficiencies;

 

   

difficulties in protecting our intellectual property and obtaining rights to intellectual property developed by our manufacturing partners;

 

   

difficulties in hiring and retaining key technical, management, and other personnel;

 

   

impacts that may arise from, and actions taken in response to, natural disasters, epidemics or pandemics, including the temporary idling of our solar cell and module production lines located at our manufacturing facilities in France, Malaysia, Mexico and the Philippines consistent with actions taken or recommended by governmental authorities in connection with the COVID-19 pandemic;

 

   

potential inability to obtain, or obtain in a timely manner, financing, or approvals from governmental authorities for operations; and

 

   

tariffs imposed on imported solar cells and modules which may cause market volatility, price fluctuations, supply shortages, and project delays.

Any of these or similar difficulties may unexpectedly delay or increase costs of our supply of solar cells.

If we do not achieve satisfactory yields or quality in manufacturing our solar products, our sales could decrease and our relationships with our customers and our reputation may be harmed.

The manufacture of solar cells is a highly complex process. Minor deviations in the manufacturing process can cause substantial decreases in yield and in some cases, cause production to be suspended or yield no output. If we do not achieve planned yields, our product costs could increase and product availability could decrease, which could result in lower revenues than expected. In addition, in the process of transforming polysilicon into ingots, a significant portion of the polysilicon is removed in the process. In circumstances where we provide the

 

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polysilicon, if our suppliers do not have very strong controls in place to ensure maximum recovery and utilization, our economic yield can be less than anticipated, which could increase the cost of raw materials to us.

Additionally, products as complex as ours may contain undetected errors or defects, especially when first introduced. For example, our solar cells or solar panels may contain defects that are not detected until after they are shipped or are installed because we cannot test for all possible scenarios. These defects could cause us to incur significant warranty, non-warranty, recall and re-engineering costs, divert the attention of our engineering personnel from product development efforts, and significantly affect our customer relations and business reputation. If we deliver solar products with errors or defects, including cells or panels of third-party manufacturers, or if there is a perception that such solar products contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed. We could also be required to implement product recalls under applicable law, which could materially and adversely affect our results of operations and financial condition.

We obtain certain of our capital equipment used in our manufacturing process from sole suppliers and if this equipment is damaged or otherwise unavailable, our ability to deliver products on time could suffer, which in turn could result in order cancellations and loss of revenue.

Some of the capital equipment used in the manufacture of our solar power products has been developed and made specifically for us, is not readily available from multiple vendors and would be difficult to repair or replace if it were to become damaged or stop working. If any of these suppliers were to experience financial difficulties or go out of business, or if there were any damage to or a breakdown of our manufacturing equipment, our business could suffer. In addition, a supplier’s failure to supply this equipment in a timely manner, with adequate quality and on terms acceptable to us, could delay our future capacity expansion or manufacturing process improvements and otherwise disrupt our production schedule or increase our costs of production.

Fluctuations in foreign currency exchange rates and interest rates could adversely affect our business and results of operations.

We have significant sales globally, and we are exposed to movements in foreign exchange rates, primarily related to sales to European customers that are denominated in Euros. A depreciation of the Euro would adversely affect our margins on sales to European customers. When foreign currencies appreciate against the dollar, inventories and expenses denominated in foreign currencies become more expensive. An increase in the value of the dollar relative to foreign currencies could make our solar power products more expensive for international customers, thus potentially leading to a reduction in demand, our sales and profitability. As a result, substantial unfavorable changes in foreign currency exchange rates could have a substantial adverse effect on our financial condition and results of operations. Although we seek to reduce our currency exposure by engaging in hedging transactions where we deem it appropriate, we do not know whether our efforts will be successful. Because we hedge some of our expected future foreign exchange exposure, if associated revenues do not materialize, we could experience losses. In addition, any break-up of the Eurozone could disrupt our sales and supply chain, expose us to financial counterparty risk, and materially and adversely affect our results of operations and financial condition.

We are exposed to interest rate risk because many of our customers depend on debt financing to purchase our solar power systems. An increase in interest rates could make it difficult for our customers to obtain the financing necessary to purchase our solar power systems on favorable terms, or at all, and thus lower demand for our solar power products, reduce revenue and adversely affect our operating results. An increase in interest rates could lower a customer’s return on investment in a system or make alternative investments more attractive relative to solar power systems, which, in each case, could cause our customers to seek alternative investments that promise higher returns or demand higher returns from our solar power systems, which could reduce our revenue and gross margin and adversely affect our operating results. Our interest expense would increase to the extent interest rates rise in connection with our variable interest rate borrowings. Conversely, lower interest rates have an adverse impact on our interest income.

 

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Our use of joint ventures may expose us to risks associated with jointly owned investments.

We currently operate parts of our business through joint ventures with other companies, and we may enter into additional joint ventures and strategic alliances in the future. Joint venture investments may involve risks not otherwise present in investments made solely by us, including:

 

   

we may not control the joint ventures;

 

   

our joint venture partners may not agree to distributions that we believe are appropriate;

 

   

where we do not have substantial decision-making authority, we may experience impasses or disputes with our joint venture partners on certain decisions, which could require us to expend additional resources to resolve such impasses or disputes, including litigation or arbitration;

 

   

our joint venture partners may become insolvent or bankrupt, fail to fund their share of required capital contributions or fail to fulfil their obligations as a joint venture partner;

 

   

the arrangements governing our joint ventures may contain certain conditions or milestone events that may never be satisfied or achieved;

 

   

our joint venture partners may have business or economic interests that are inconsistent with ours and may take actions contrary to our interests;

 

   

we may suffer losses as a result of actions taken by our joint venture partners with respect to our joint venture investments;

 

   

it may be difficult for us to exit a joint venture if an impasse arises or if we desire to sell our interest for any reason; and

 

   

we may make capital investments in our joint ventures, which may limit our ability to apply our resources to other endeavors that we find attractive.

Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations. In addition, we may, in certain circumstances, be liable for the actions of our joint venture partners.

We depend on our Huansheng joint venture for our Performance Series solar panels and any failure to obtain sufficient volume or competitive pricing could significantly impact our revenues, ability to grow and damage our customer relationships.

We rely upon our Huansheng joint venture for our Performance Series modules. Huansheng operates as a stand alone entity and has control over its own assembly and testing capacity, delivery schedules, quality assurance, manufacturing yields and production costs. If the operations of our joint venture was disrupted or its financial stability impaired, or if it was unable or unwilling to devote supply to us in a timely manner, or at competitive prices, our business could suffer. We also risk customer delays resulting from an inability to move module production to an alternate provider, and it may not be possible to obtain sufficient capacity or comparable production costs at another facility in a timely manner. In addition, migrating our design methodology to third-party contract manufacturers or to a captive panel assembly facility could involve increased costs, resources and development time, and utilizing third-party contract manufacturers could expose us to further risk of losing control over our intellectual property and the quality of our solar panels. Any reduction in the supply of solar panels could impair our revenue by significantly delaying our ability to ship products and potentially damage our relationships with new and existing customers, any of which could have a material and adverse effect on our financial condition and results of operation.

While we believe we currently have effective internal control over financial reporting, we may identify a material weakness in our internal control over financial reporting that could cause investors to lose confidence in the reliability of our financial statements and result in a decrease in the value of our shares.

Our management is responsible for maintaining internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of combined financial

 

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statements for external purposes in accordance with GAAP. We need to continuously maintain our internal control processes and systems and adapt them as our business grows and changes. This process is expensive, time-consuming, and requires significant management attention. Furthermore, as we grow our business, our internal controls may become more complex and we may require significantly more resources to ensure they remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm identify material weaknesses in our internal controls, the disclosure of that fact, even if quickly remedied, may cause investors to lose confidence in our financial statements and the trading price of our shares may decline.

Remediation of a material weakness could require us to incur significant expense and if we fail to remedy any material weakness, our financial statements may be inaccurate, our ability to report our financial results on a timely and accurate basis may be adversely affected, our access to the capital markets may be restricted, the trading price of our shares may decline, and we may be subject to sanctions or investigation by regulatory authorities, including the SEC or NASDAQ. We may also be required to restate our financial statements from prior periods.

We may in the future be required to consolidate the assets, liabilities and financial results of certain of our existing or future joint ventures, which could have an adverse impact on our financial position, gross margin, and operating results.

The Financial Accounting Standards Board has issued accounting guidance regarding variable interest entities (“VIEs”) that could affect our accounting treatment of our existing and future joint ventures. To ascertain whether we are required to consolidate an entity, we determine whether it is a VIE and if we are the primary beneficiary in accordance with the accounting guidance. Factors we consider in determining whether we are the VIE’s primary beneficiary include the decision-making authority of each partner, which partner manages the day-to-day operations of the joint venture and each partner’s obligation to absorb losses or right to receive benefits from the joint venture in relation to that of the other partner. Changes in the financial accounting guidance, or changes in circumstances at each of these joint ventures, could lead us to determine that we have to consolidate the assets, liabilities and financial results of such joint ventures. The consolidation of our VIEs could have a material adverse impact on our financial position, gross margin and operating results and could significantly increase our indebtedness. In addition, we may enter into future joint ventures or make other equity investments, which could have an adverse impact on us because of the financial accounting guidance regarding VIEs.

Our manufacturing facilities, as well as the facilities of certain subcontractors and suppliers, are located in regions that are subject to epidemic or pandemic events, earthquakes, floods, and other natural disasters, and climate change and climate change regulation that could have an adverse effect on our operations and financial results.

Our manufacturing facilities are located in France, Malaysia, Mexico and the Philippines. Any significant epidemic or pandemic (including the ongoing COVID-19 pandemic), earthquake, flood, or other natural disaster in these countries or countries where our suppliers are located could materially disrupt our management operations and/or our production capabilities, could result in damage or destruction of all or a portion of our facilities and could result in our experiencing a significant delay in delivery, or substantial shortage, of our products and services. For example, ash and debris from volcanic activity at the Taal Volcano in the Philippines forced closures and evacuations of nearby areas in January 2020 and impacted our employees. In addition, the temporary idling of our solar cell and module production lines at our manufacturing facilities, as well as certain modified business practices taken in response to the COVID-19 pandemic, have affected our ability to conduct our business operations around the globe.

In addition, legislators, regulators, and non-governmental organizations, as well as companies in many business sectors, are considering ways to reduce green-house gas emissions. Further regulation could be forthcoming with respect to green-house gas emissions. Such regulations could result in regulatory or product standard requirements for our global business, including our manufacturing operations. Furthermore, the

 

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potential physical impacts of climate change on our operations may include changes in weather patterns (including floods, tsunamis, drought and rainfall levels), water availability, storm patterns and intensities, and temperature levels. These potential physical effects may adversely affect the cost, production, sales and financial performance of our operations.

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

We use, generate and discharge toxic, volatile, and otherwise hazardous chemicals and wastes in our research and development and manufacturing activities. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous substances could subject us to, among other matters, potentially significant monetary damages and fines or liabilities or suspensions in our business operations. In addition, if more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial. If we fail to comply with present or future environmental laws and regulations, we may be required to pay substantial fines, suspend production or cease operations, or be subjected to other sanctions.

Our insurance for certain indemnity obligations we have to our officers and directors may be inadequate, and potential claims could materially and negatively impact our financial condition and results of operations.

Pursuant to our constitution (the “Constitution”), we will indemnify our officers and directors for certain liabilities that may arise in the course of their service to us. Although we currently maintain director and officer liability insurance for certain potential third-party claims for which we are legally or financially unable to indemnify them, such insurance may be inadequate to cover certain claims, or may prove prohibitively costly to maintain in the future. In addition, we may choose to primarily self-insure with respect to potential third-party claims. If we were required to pay a significant amount on account of these liabilities for which we self-insured, our business, financial condition, and results of operations could be materially harmed.

Risks Related to Our Intellectual Property

We depend on our intellectual property, and we may face intellectual property infringement claims that could be time-consuming and costly to defend and could result in the loss of significant rights.

From time to time, we, our customers, or our third parties with whom we work may receive letters, including letters from other third parties, and may become subject to lawsuits with such third parties alleging infringement of their patents or other intellectual property rights. Additionally, we are required by contract to indemnify some of our customers and our third-party intellectual property providers for certain costs and damages of patent infringement in circumstances where our products are a factor creating the customer’s or these third-party providers’ infringement liability. This practice may subject us to significant indemnification claims by our customers and our third-party providers. We cannot assure investors that indemnification claims will not be made or that these claims will not harm our business, operating results or financial condition. Intellectual property litigation is very expensive and time-consuming and could divert management’s attention from our business and could have a material adverse effect on our business, operating results or financial condition. If there is a successful claim of infringement against us, our customers or our third-party intellectual property providers, we may be required to pay substantial damages to the party claiming infringement, stop selling products or using technology that contains the allegedly infringing intellectual property, or enter into royalty or license agreements that may not be available on acceptable terms, if at all. Parties making infringement claims may also be able to bring an action before the International Trade Commission that could result in an order stopping the importation into the United States of our solar products. Any of these judgments could materially damage our business. We may have to develop non-infringing technology, and our failure in doing so or in obtaining licenses to the proprietary rights on a timely basis could have a material adverse effect on our business, financial condition and results of operations.

 

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We may file claims against other parties for infringing our intellectual property that may be very costly and may not be resolved in our favor.

To protect our intellectual property rights and to maintain our competitive advantage, we may file suits against parties who we believe infringe or misappropriate our intellectual property. Intellectual property litigation is expensive and time consuming, could divert management’s attention from our business, and could have a material adverse effect on our business, operating results, or financial condition, and our enforcement efforts may not be successful. In addition, the validity of our patents may be challenged in such litigation. Our participation in intellectual property enforcement actions may negatively impact our financial results.

Our business is subject to a variety of U.S. and international laws, rules, policies, and other obligations regarding privacy, data protection, and other matters.

We are subject to U.S. and international laws relating to the collection, use, retention, security, and transfer of customer, employee, and business partner personally identifiable information (“PII”), including the European Union’s General Data Protection Regulation (“GDPR”), which came into effect in May 2018, and the California Consumer Privacy Act (“CCPA”), which came into effect on January 1, 2020. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between one company and its subsidiaries, and among the subsidiaries and other parties with which we have commercial relations. The introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations. Foreign data protection, privacy, and other laws and regulations, including GDPR, can be more restrictive than those in the United States. These U.S. federal and state and foreign laws and regulations, including GDPR which can be enforced by private parties or government entities, are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations, including GDPR, are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to inquiries or investigations, claims or other remedies, including fines, which may be significant, or demands that we modify or cease existing business practices.

A failure by us, our suppliers, or other parties with whom we do business to comply with posted privacy policies or with other U.S. or international privacy-related or data protection laws and regulations, including GDPR and CCPA, could result in proceedings against us by governmental entities or others, which could have a material adverse effect on our business, results of operations, and financial condition.

We rely substantially upon trade secret laws and contractual restrictions to protect our proprietary rights, and, if these rights are not sufficiently protected, our ability to compete and generate revenue, profit and cash flows could suffer.

We seek to protect our proprietary manufacturing processes, documentation, and other written materials primarily under trade secret and copyright laws. We also typically require employees, consultants, and third parties, such as our suppliers, vendors and customers, with access to our proprietary information to execute confidentiality agreements. The steps we take to protect our proprietary information may not be adequate to prevent misappropriation of our technology. Our systems may be subject to intrusions, security breaches, or targeted theft of our trade secrets. In addition, our proprietary rights may not be adequately protected because:

 

   

others may not be deterred from misappropriating our technologies despite the existence of laws or contracts prohibiting such misappropriation and information security measures designed to deter or prevent misappropriation of our technologies;

 

   

policing unauthorized use of our intellectual property may be difficult, expensive, and time-consuming, the remedy obtained may be inadequate to restore protection of our intellectual property, and moreover, we may be unable to determine the extent of any unauthorized use; and

 

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the laws of other countries in which we market our solar products, such as some countries in the Asia/Pacific region, may offer little or no protection for our proprietary technologies.

Reverse engineering, unauthorized copying, or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without compensating us for doing so. Our joint ventures or our partners may not be deterred from misappropriating our proprietary technologies despite contractual and other legal restrictions. Legal protection in countries where our joint ventures are located may not be robust and enforcement by us of our intellectual property rights may be difficult. As a result, our joint ventures or our partners could directly compete with our business. Any such activities or any other inabilities to adequately protect our proprietary rights could harm our ability to compete, to generate revenue, profit and cash flows, and to grow our business.

We may not obtain sufficient patent protection on the technology embodied in the solar products we currently or plan to manufacture and market, which could harm our competitive position and increase our expenses.

Although we substantially rely on trade secret laws and contractual restrictions to protect the technology in the solar products we currently manufacture and market, our success and ability to compete in the future may also depend to a significant degree upon obtaining patent protection for our proprietary technology. We currently own multiple patents and patent applications which cover aspects of the technology in the solar cells and solar panels that we currently manufacture and market. We intend to continue to seek patent protection for those aspects of our technology, designs, and methodologies and processes that we believe provide significant competitive advantages.

Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we seek or we may have to refile patent applications due to newly discovered prior art. In addition, any issued patents may be challenged, invalidated, or declared unenforceable, or even if we obtain an award of damages for infringement by a third party, such award could prove insufficient to compensate for all damages incurred as a result of such infringement.

The term of any issued patent is generally 20 years from its earliest filing date and if our applications are pending for a long time period, we may have a correspondingly shorter term for any patent that may issue. Our present and future patents may provide only limited protection for our technology and may be insufficient to provide competitive advantages to us. For example, competitors could develop similar or more advantageous technologies on their own or design around our patents. Also, patent protection in certain non-U.S. countries may not be available or may be limited in scope and any patents obtained may not be readily enforceable because of insufficient judicial effectiveness, making it difficult for us to aggressively protect our intellectual property from misuse or infringement by other companies in these countries. Our inability to obtain and enforce our intellectual property rights in some countries may harm our business. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations in general or in specific geographies that later turn out to be important.

We may not be able to prevent others from using trademarks which we hold or will hold in connection with their solar power products, which could adversely affect the market recognition of our name and our revenue, profits and cash flows.

We hold registered trademarks for Maxeon, SunPower and other marks, in certain countries, including, in the case of Maxeon, the United States. We have not registered, and may not be able to register, these trademarks in other key countries. In the foreign jurisdictions where we are unable to obtain or have not tried to obtain registrations, others may be able to sell their products using trademarks compromising or incorporating our chosen brands, which could lead to customer confusion. In addition, if there are jurisdictions where another proprietor has already established trademark rights in marks containing our chosen brands, we may face trademark disputes and may have to market our products with other trademarks or without our trademarks, which

 

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may undermine our marketing efforts. In addition, we may have difficulty in establishing strong brand recognition with consumers if others use similar marks for similar products.

We may be subject to breaches of our information technology systems, which could lead to disclosure of our internal information, damage our reputation or relationships with customers, and disrupt access to our online services. Such breaches could subject us to significant reputational, financial, legal, and operational consequences.

Our business requires us to use and store confidential and proprietary information, intellectual property, commercial banking information, personal information concerning customers, employees, and business partners, and corporate information concerning internal processes and business functions. Malicious attacks to gain access to such information affects many companies across various industries, including ours.

In certain instances, we use encryption and authentication technologies to secure the transmission and storage of data. These security measures may be compromised as a result of third-party security breaches, employee error, malfeasance, faulty password management, or other irregularity or malicious effort, and result in persons obtaining unauthorized access to our data.

We devote resources to network security, data encryption, and other security measures to protect our systems and data, but these security measures cannot provide absolute security. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, target end users through phishing and other malicious techniques, and/or may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventative measures. As a result, we have experienced breaches of our systems in the past, and we may experience a breach of our systems in the future that reduces our ability to protect sensitive data. In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our team members, contractors and temporary staff. If we experience, or are perceived to have experienced, a significant data security breach, fail to detect and appropriately respond to a significant data security breach, or fail to implement disclosure controls and procedures that provide for timely disclosure of data security breaches deemed material to our business, including corrections or updates to previous disclosures, we could be exposed to a risk of loss, increased insurance costs, remediation and prospective prevention costs, damage to our reputation and brand, litigation and possible liability, or government enforcement actions, any of which could detrimentally affect our business, results of operations, and financial condition.

We may also share information with contractors and third-party providers to conduct our business. While we generally review and typically request or require such contractors and third-party providers to implement security measures, such as encryption and authentication technologies to secure the transmission and storage of data, those third-party providers may experience a significant data security breach, which may also detrimentally affect our business, results of operations, and financial condition as discussed above.

We may be subject to information technology system failures or network disruptions that could damage our business operations, financial conditions, or reputation.

We may be subject to information technology system failures and network disruptions. These may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could result in delayed or canceled orders. System failures and disruptions could also impede the manufacturing and shipping of products, delivery of online services, transactions processing, and financial reporting.

 

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Risks Related to the Separation from SunPower

The spin-off may not be successful and as an independent, publicly traded company, we will not enjoy the same benefits that we did as a subsidiary of SunPower.

Upon consummation of the spin-off, we will be a standalone public company. The process of becoming a standalone public company may distract our management from focusing on our business and strategic priorities. Further, we may not be able to issue debt or equity on terms acceptable to us or at all and we may not be able to attract and retain employees as desired. We also may not fully realize the anticipated benefits of the separation and of being a standalone public company, or the realization of such benefits may be delayed, if any of the risks identified in this “Risk Factors” section, or other events, were to occur.

As a separate public company, we will be a smaller and less diversified company than SunPower, and we may not have access to financial and other resources comparable to those available to SunPower prior to the spin-off or enjoy certain other benefits that we did as a subsidiary of SunPower. We cannot predict the effect that the spin-off will have on our relationship with partners or employees or our relationship with government regulators. We may also be unable to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to the spin-off. Furthermore, as a less diversified company, we may be more likely to be negatively impacted by changes in global market conditions, regulatory reforms and other industry factors, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

We may not achieve some or all of the anticipated benefits of the spin-off, and the spin-off may adversely affect our business.

We may not be able to achieve some or all of the strategic, financial, operational, marketing or other benefits anticipated to result from the spin-off, or such benefits may be delayed or not occur at all. There is risk that we will not achieve the following anticipated benefits, among others, following the spin-off:

 

   

an increase in strategic agility across our manufacturing and technology value chains;

 

   

a distinct investment identity;

 

   

a more efficient allocation of capital due to increased business focus;

 

   

a direct access to capital markets;

 

   

an enhanced operational and management focus; and

 

   

a more direct alignment of incentives with performance objectives.

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others:

 

   

the spin-off will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business;

 

   

following the spin-off, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of SunPower;

 

   

the costs associated with being a standalone public company;

 

   

following the spin-off, our business will be less diversified than the SunPower business prior to the spin-off; and

 

   

the other actions required to separate our and SunPower’s respective businesses could disrupt our operations.

We cannot predict with certainty when the benefits anticipated from the spin-off will occur or the extent to which they will be achieved. If we fail to achieve some or all of the benefits anticipated to result from the spin-off, or if such benefits are delayed, our business, financial condition and results of operations could be adversely affected.

 

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Our historical financial information is not necessarily representative of the results we would have achieved as a standalone public company and may not be a reliable indicator of our future results.

Our historical financial statements have been derived (carved out) from the SunPower consolidated financial statements and accounting records, and these financial statements and the other historical financial information of Maxeon Solar included in this Form 20-F are presented on a combined basis. This combined information does not necessarily reflect the financial position, results of operations and cash flows we would have achieved as a standalone public company during the period presented, or those that we will achieve in the future.

This is primarily because of the following factors:

 

   

For the period covered by our combined financial statements, our business was operated within legal entities which hosted portions of other SunPower businesses.

 

   

Income taxes attributable to our business were determined using the separate return approach, under which current and deferred income taxes are calculated as if a separate tax return had been prepared in each tax jurisdiction. Actual outcomes and results could differ from these separate tax return estimates, including those estimates and assumptions related to realization of tax benefits within certain SunPower tax groups.

 

   

Our combined financial statements include an allocation and charges of expenses related to certain SunPower functions such as those related to financial reporting and accounting operations, human resources, real estate and facilities services, procurement and information technology. However, the allocations and charges may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for the period presented therein.

 

   

Our combined financial statements include an allocation from SunPower of certain corporate-related general and administrative expenses that we would incur as a publicly traded company that we have not previously incurred. The allocation of these additional expenses, which are included in the combined financial statements, may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for the period presented therein.

 

   

In connection with the spin-off, we expect to incur one-time costs after the consummation of the spin-off relating to the transfer of information technology systems from SunPower to us.

 

   

As part of SunPower, we historically benefited from discounted pricing with certain suppliers as a result of the buying power of SunPower. As a separate entity, we may not obtain the same level of supplier discounts historically received.

 

   

On July 17, 2020, we entered into debt financing arrangements pursuant to which we will have total available borrowing capacity of up to $337.0 million (in addition to debt that was then outstanding). The related interest expense associated with such debt, which is expected to be between $17.2 million and $21.5 million per year, is not reflected in our combined financial statements. Whether we will have borrowings outstanding under the credit facility as of the close of the transaction will depend on our operating and capital expenditure requirements at that time.

Therefore, our historical financial information may not necessarily be indicative of our future financial position, results of operations or cash flows, and the occurrence of any of the risks discussed in this “Risk Factors” section, or any other event, could cause our future financial position, results of operations or cash flows to materially differ from our historical financial information.

Our ability to operate our business effectively may suffer if we do not, quickly and cost effectively, establish our own administrative and support functions necessary to operate as a standalone public company.

In connection with our separation from SunPower, we are creating our own financial, administrative, corporate governance, and listed company compliance and other support systems, including for the services

 

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SunPower had historically provided to us, or expect to contract with third parties to replace SunPower systems that we are not establishing internally. We expect this process to be complex, time consuming and costly. In addition, we are also establishing or expanding our own tax, treasury, internal audit, investor relations, corporate governance, and listed company compliance and other corporate functions. These corporate functions fall beyond the scope of the operational service domains formerly provided by SunPower and will require us to develop new standalone corporate functions. We may need to make significant investments to replicate, or will need to outsource from other providers, these corporate functions to replace these additional corporate services that SunPower historically provided us prior to the spin-off. SunPower will continue to provide support for certain of our key business functions after the spin-off for approximately 12 months, with an option to extend such support for an additional six months by mutual written agreement, pursuant to the Transition Services Agreement and certain other agreements we will enter into with SunPower. Any failure or significant downtime in our own financial, administrative or other support systems or in the SunPower financial, administrative or other support systems during the transitional period in which SunPower provides us with support could negatively impact our results of operations or prevent us from paying our suppliers and employees, executing business combinations and foreign currency transactions or performing administrative or other services on a timely basis, which could negatively affect our results of operations.

Further, as a standalone public company, we will incur significant legal, accounting and other expenses that we did not incur as part of SunPower. The provisions of the Sarbanes-Oxley Act of 2002 (“SOX”), as well as rules subsequently adopted by the SEC and the NASDAQ, have imposed various requirements on public companies, including changes in corporate governance practices. For example, SOX requires, among other things, that we maintain and periodically evaluate our internal control over financial reporting and disclosure controls and procedures. In particular, we and our managers will have to perform system and process evaluation and testing of our and their internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of SOX.

Although we currently test our internal controls over financial reporting on a regular basis, we have done so in accordance with the financial reporting practices and policies of SunPower, not as a standalone entity. Doing so for ourselves will require our management and other personnel to devote a substantial amount of time to comply with these requirements and will also increase our legal and financial compliance costs. In particular, compliance with Section 404 of SOX will require a substantial accounting expense and significant management efforts. We cannot be certain at this time that all of our controls will be considered effective and our internal control over financial reporting may not satisfy the regulatory requirements when they become applicable to us.

The transitional services SunPower has agreed to provide us may not be sufficient for our needs. In addition, we or SunPower may fail to perform under various transaction agreements that will be executed as part of the spin-off or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

In connection with the spin-off, we and SunPower entered into a Separation and Distribution Agreement and will enter into various other agreements, including the Tax Matters Agreement, Employee Matters Agreement, Transition Services Agreement, Supply Agreement, Brand Framework Agreement, Cross License Agreement and Collaboration Agreement and other separation-related agreements. See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us.” Certain of these agreements will provide for the performance of key business services by SunPower for our benefit for a period of time after the spin-off. These services may not be sufficient to meet our needs and the terms of such services may not be equal to or better than the terms we may have received from unaffiliated third parties.

We will rely on SunPower to satisfy its performance and payment obligations under these agreements. If SunPower is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transitional agreements expire, we

 

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may not be able to operate our business effectively and this may have an adverse effect on our business, financial condition and results of operations. In addition, after our agreements with SunPower expire, we may not be able to obtain these services at as favorable prices or on as favorable terms.

The spin-off could result in significant tax liability to SunPower and us, and in certain circumstances, we could be required to indemnify SunPower for material taxes pursuant to indemnification obligations under the Tax Matters Agreement. In addition, we will agree to certain restrictions designed to preserve the tax treatment of the spin-off that may reduce our strategic and operating flexibility. Finally, in certain circumstances, SunPower could determine not to proceed with the spin-off.

It is a condition to the spin-off that SunPower receives a written opinion of Jones Day, counsel to SunPower (the “Tax Opinion”) to the effect that the spin-off should not result in any recognition of gain and loss to (and no amount should be includible in the income of) SunPower shareholders under Section 355 of the Code.

The Tax Opinion will be based on certain facts, assumptions and representations from, and undertakings by, SunPower and us and other relevant parties. The Tax Opinion may not be relied on if any of the facts, assumptions, representations or undertakings described therein are incorrect, incomplete or inaccurate or are violated in any material respect. For instance, the Tax Opinion relies on certain significant ownership interests in the resulting companies continuing after the distribution. Whether such ownership continues may be out of SunPower’s or Maxeon Solar’s control following the completion of the distribution. The Tax Opinion will not be binding in any court, and there can be no assurance that the relevant tax authorities or any court will not take a contrary position.

If the spin-off is determined not to qualify for the treatment described in the Tax Opinion, or if any conditions in the Tax Opinion are not observed, then SunPower could suffer adverse U.S. withholding tax consequences and, under certain circumstances, we could have an indemnification obligation to SunPower with respect to some or all of the resulting tax to SunPower under the Tax Matters Agreement we intend to enter into with SunPower, as described in “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us—Tax Matters Agreement.”

In addition, under the Tax Matters Agreement, we will agree to certain restrictions designed to preserve the tax-free nature of the distribution for U.S. federal income tax purposes to SunPower shareholders. These restrictions may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that might be beneficial and could discourage or delay strategic transactions that our shareholders may consider favorable. See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us—Tax Matters Agreement” for more information.

Risks Related to the Spin-Off and Ownership of Our Shares

The price of our shares after the spin-off may be volatile.

The market price for our shares may be volatile. This market volatility, as well as general economic, market or political conditions and the impacts of the COVID-19 pandemic, could reduce the market price of our shares in spite of our operating performance. In addition, if trading of our shares is substantially localized on the NASDAQ, we may not meet the liquidity or other criteria necessary for inclusion in various stock indices that are based on our trading volumes on another exchange. This could have a further negative impact on the price of our shares.

Furthermore, in the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business and financial results.

 

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Substantial sales of our shares may occur in connection with the spin-off, which could cause our share price to decline.

It is possible that some SunPower shareholders, including some of its larger shareholders, will sell their Maxeon Solar shares received in the spin-off if, for reasons such as our business profile or market capitalization as a standalone company, we do not fit their investment objectives, or they consider holding our shares to be impractical or difficult due to listing, tax or other considerations. The sales of significant amounts of our shares, or the perception in the market that this will occur, may decrease the market price of our shares.

Total’s and TZS’s expected significant ownership of our shares may adversely affect the liquidity and value of our shares.

As of the date of this Form 20-F, Total owns a significant percentage of shares of SunPower’s outstanding common stock. Because the spin-off will involve a pro rata distribution to SunPower shareholders, if Total retains this ownership percentage in SunPower until the record date for the spin-off then Total will own an equivalent percentage of Maxeon Solar shares immediately following the distribution but prior to the TZS investment. Furthermore, upon consummation of the spin-off and investment, Total will continue to, and TZS will, possess significant influence and control over our affairs. As long as each of Total and TZS owns a significant percentage of our shares, the ability of our other shareholders to influence matters requiring shareholder approval will be limited.

Additionally, Total’s and TZS’s share ownership and relationships with members of the Maxeon Solar Board could have the effect of preventing other shareholders from exercising significant control over our affairs, delaying or preventing a future change in control, impeding a merger, consolidation, takeover, or other business combination or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, limiting our financing options. These factors in turn could adversely affect the market price of our shares or prevent our shareholders from realizing a premium over the market price of our shares.

If a substantial number of Maxeon Solar shares become available for sale and are sold in a short period of time, the market price of Maxeon Solar shares could decline.

For two years after the Shareholders Agreement becomes effective, each of Total and TZS are required, subject to certain exceptions, to not dispose of Maxeon Solar shares if the disposition would cause either of them to hold less than 20% of the outstanding Maxeon Solar shares (determined as set forth therein) following such transaction. Further, Total is required to not dispose of any Maxeon Solar shares during that two-year period if immediately prior to such disposal it holds fewer shares than TZS or if the disposal would cause Total to hold fewer shares than TZS (again, subject to certain exceptions).

Notwithstanding the provisions of the Shareholders Agreement, under certain limited circumstances, each of Total and TZS have the ability to sell a substantial number of Maxeon Solar shares during the two-year period following the spin-off and thereafter. If our existing significant shareholders sell substantial amounts of Maxeon Solar shares in the market, the market price of Maxeon Solar shares could decrease significantly. The perception in the market that our existing significant shareholders might sell shares could also depress our share price. A decline in the price of Maxeon Solar shares may impede our ability to raise capital through the issuance of additional shares or other equity securities.

The combined post-spin-off value of our shares and the SunPower shares may not equal or exceed the aggregate pre-spin-off value of the SunPower shares and our shares.

After the spin-off, the SunPower shares will continue to be listed and traded on the NASDAQ. Our shares will be traded under the symbol “MAXN” on the NASDAQ. We have no current plans to apply for listing on any additional stock exchanges. As a result of the spin-off, SunPower expects the trading prices of SunPower shares

 

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in the regular-way market at market open on the trading day following the distribution date will be lower than the trading prices in the regular-way market at market close on the distribution date, because the trading prices will no longer reflect the value of the Maxeon Business. There can be no assurance that the aggregate market value of the SunPower shares and our shares following the spin-off and after giving effect to the investment by TZS will be higher than, equal to or lower than the market value of SunPower shares if the spin-off did not occur. This means, for example, that the combined trading prices of eight SunPower shares and one Maxeon Solar share after market open following the distribution date may be equal to, greater than or less than the trading prices of one SunPower share prior to the distribution date. In addition, your SunPower shares sold in the “ex-distribution” market (as opposed to the “regular-way market”) will reflect an ownership interest solely in SunPower and will not include the right to receive any of our shares in the spin-off, but may not yet accurately reflect the value of such SunPower shares excluding the Maxeon Business.

Your percentage ownership in Maxeon Solar may be diluted in the future.

In the future, we may issue additional shares in connection with acquisitions, capital markets transactions or otherwise, including equity awards that we will be granting to our directors, officers and employees and conditional capital we hold for purposes of our employee participation plans.

For example, on July 9, 2020, SunPower, Maxeon Solar and TZS entered into a Letter Agreement regarding Consent and Waiver Relating to Replacement Financing and Certain Other Matters, with respect to the Investment Agreement (the “Consent and Waiver”). Pursuant to the Consent and Waiver, the parties agreed to, among other things, certain changes to the form of Shareholders Agreement and certain related documents, which changes and related documents are intended to avoid any dilution to the rights of TZS as a result of a replacement financing contemplated by the Investment Agreement. See Item 7. “Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between Us and TZS and/or Total in Connection with TZS Investment—Dilution Protection Agreements.”

Our employees will have rights to purchase or receive our shares after the distribution as a result of the conversion of their SunPower equity awards into Maxeon Solar equity awards and the grant of Maxeon Solar equity awards, including restricted share units and performance share units, in each case, in order to preserve the aggregate value of the equity awards held by our employees immediately prior to the spin-off. See “Item 6. Directors, Senior Management and Employees—6.B. Compensation” for further detail on the awards that are expected to be granted in connection with the spin-off. As of the date of this Form 20-F, the exact number of our shares that will be subject to the converted and granted Maxeon Solar awards is not determinable, and, therefore, it is not possible to determine the extent to which your percentage ownership in us could be diluted as a result. It is anticipated that the Compensation Committee of the Maxeon Solar Board will grant additional equity awards to our employees and directors after the spin-off, from time to time, under our employee benefits plans. These additional awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our shares.

The effect of the physical delivery forward transaction, which is designed to facilitate transactions by which investors in the convertible notes may hedge their investments, may be to lower the market price of Maxeon Solar shares.

In connection with the issuance of the convertible notes, we entered into the physical delivery forward transaction with a physical delivery forward counterparty with respect to the physical delivery Maxeon Solar shares. To facilitate the physical delivery forward transaction, we intend to issue the physical delivery Maxeon Solar shares to the underwriters for no consideration to be sold during the note valuation period in a registered offering off of the Maxeon Form F-3 at prevailing market prices at the time of sale or at negotiated prices. The underwriters will receive all of the proceeds from the sale of such Maxeon Solar Shares. We will not receive any proceeds from the sale of such Maxeon Solar shares. Pursuant to the physical delivery forward transaction the physical delivery forward counterparty agreed to deliver such physical delivery Maxeon Solar shares to us or a

 

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third-party trustee designated by us for no consideration at or around the maturity of the convertible notes subject to the conditions set forth in the agreements governing the physical delivery forward transaction, including receipt of required shareholder approvals on an annual basis and subject under Singapore law to an aggregate limit of 20% as of the date of the annual shareholder purchase approval (calculated together with the number of ordinary shares to be purchased in connection with the prepaid forward transaction). The physical delivery forward transaction will become effective on the first day of the period (the “note valuation period”) of 15 consecutive VWAP trading days beginning on, and including, the later of (1) the fifth VWAP trading day immediately after the spin-off date; and (2) the VWAP trading day immediately after the first date on which certain conditions (the “note valuation period conditions precedent”) have been satisfied.

We have been informed that the physical delivery forward counterparty or one of its affiliates intends to use the short positions Maxeon Solar shares created by the physical delivery forward transaction to facilitate transactions by which investors in the convertible notes may hedge their investments through privately negotiated derivative transactions. As a result, our share price during the note valuation period might be lower than it would have been in the absence of the physical delivery forward transaction. This could result in a lower conversion price and higher conversion ratio for the convertible notes, which would result in greater dilution to holders of Maxeon Solar shares if the convertible notes are eventually converted. Further, the existence of the physical delivery forward transaction, the sales of Maxeon Solar shares in connection with the physical delivery forward transaction that may be effected, and the related derivative transactions, or any unwind of such derivative transactions, could cause the market price of Maxeon Solar shares to be lower over the term of the physical delivery forward transaction than it would have been in the absence of the physical delivery forward transaction, due to the effect of the increase in the number of outstanding Maxeon Solar shares or otherwise. For example, the market price of Maxeon Solar shares could be further negatively affected by these or other short sales of Maxeon Solar shares, including other sales by the purchasers of the convertible notes hedging their investment therein.

The prepaid forward transaction may affect the value of Maxeon Solar shares and may result in unexpected market activity in Maxeon Solar shares.

In connection with the issuance of the convertible notes, we entered into a privately negotiated forward-starting prepaid forward transaction with an affiliate of one of the initial purchasers, pursuant to which we will repurchase approximately $40 million worth of Maxeon Solar shares, subject to the conditions set forth in the agreements governing the prepaid forward transaction, including receipt of required shareholder approvals on an annual basis. The prepaid forward transaction will become effective on the first day of the note valuation period. The number of Maxeon Solar shares to be repurchased under the prepaid forward transaction will be determined based on the arithmetic average of the volume-weighted average prices per Maxeon Solar share over the note valuation period, subject to a floor price and subject under Singapore law to a limit in aggregate of no more than 20% of the total number of ordinary shares in our capital (calculated together with the number of ordinary shares to be repurchased in connection with the physical delivery forward transaction). Under the terms of the prepaid forward transaction, the prepaid forward counterparty will be obligated to deliver the number of Maxeon Solar shares underlying the transaction to us, or pay cash to the extent we fail to provide to prepaid forward counterparty evidence of a valid shareholder authorization, on or shortly after the maturity date of the convertible notes, subject to the ability of the prepaid forward counterparty to elect to settle all or a portion of the transaction early.

The number of shares that we will ultimately repurchase under the prepaid forward transaction, together with the physical delivery Maxeon Solar shares, will, initially, be no greater than the aggregate short positions of the purchasers of the convertible notes who engage in a convertible note arbitrage hedge strategy, will be subject to customary anti-dilution adjustments, and will in aggregate be no more than 20% of the total number of ordinary shares in our capital (in aggregate with the number of shares to be repurchased in connection with the prepaid forward transaction and the physical delivery forward transaction) ascertained as at the date of the shareholders’ authorization for the repurchase. In connection with the note valuation period, the initial purchasers in the convertible notes offering and their affiliates will allocate synthetic short positions to the purchasers of the

 

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convertible notes to hedge the convertible notes based on requests from such purchasers of the convertible notes. The prepaid forward transaction is generally expected to facilitate privately negotiated derivative transactions, including swaps, between the prepaid forward counterparty and investors in the convertible notes relating to Maxeon Solar shares by which those investors will establish short positions relating to Maxeon Solar shares and otherwise hedge their investments in the convertible notes concurrently with the note valuation period. The prepaid forward counterparty or its affiliates generally expect to, but are not required to, enter into privately negotiated derivative transactions with investors in the convertible notes during or shortly after the note valuation period.

The entry into the prepaid forward transaction with the prepaid forward counterparty and the entry by the prepaid forward counterparty into derivative transactions in respect of Maxeon Solar shares with the purchasers of the convertible notes could have the effect of increasing, or reducing the size of any decrease in, the price of Maxeon Solar shares during and/or shortly after, the note valuation period.

Neither we nor the prepaid forward counterparty will control how such investors may use such derivative transactions. In addition, such investors may enter into other transactions relating to Maxeon Solar shares or the convertible notes in connection with or in addition to such derivative transactions, including the purchase or sale of Maxeon Solar shares. As a result, the existence of the prepaid forward transaction, such derivative transactions and any related market activity could cause more purchases or sales of Maxeon Solar shares over the term of the prepaid forward transaction than there otherwise would have been had we not entered into the prepaid forward transaction. Such purchases or sales could potentially increase (or reduce the size of any decrease in) or decrease (or reduce the size of any increase in) the market price of Maxeon Solar shares.

In addition, the prepaid forward counterparty (or its affiliates) are likely to modify their hedge positions in respect of the prepaid forward transaction by entering into or unwinding various derivative transactions with respect to Maxeon Solar shares and/or by purchasing Maxeon Solar shares or other securities of us in secondary market transactions following the note valuation period and prior to maturity of the prepaid forward transaction (and are likely to do so during the final valuation period under the prepaid forward transaction and on or around any election by the prepaid forward counterparty to settle all or a portion of the prepaid forward transaction early).

The effect, if any, of any of these transactions and activities on the market price of Maxeon Solar shares will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of Maxeon Solar shares.

Adjustments by note investors of their hedging positions in Maxeon Solar shares and the expectation thereof may have a negative effect on the market price of Maxeon Solar shares.

The short positions for the number of Maxeon Solar shares underlying the prepaid forward transaction held by the prepaid forward counterparty and the short positions for the physical delivery Maxeon Solar shares held by the physical delivery forward counterparty are expected to be used by investors in the convertible notes to establish hedge positions with respect to Maxeon Solar shares through privately negotiated derivatives transactions and initially, the number of Maxeon Solar shares underlying any such derivatives transaction with any investor is not expected to exceed the number of Maxeon Solar shares underlying the convertible notes purchased by such investor in this offering. The number of Maxeon Solar shares to be offered in connection with the physical delivery forward transaction and the number of Maxeon Solar shares underlying the prepaid forward transaction may be more or less than the number of Maxeon Solar shares that will be needed in such hedging transactions. Any buying or selling of Maxeon Solar shares by investors in the convertible notes to adjust their hedge positions in connection with this offering or in the future may affect the price of Maxeon Solar shares. In addition, the existence of the convertible notes may also encourage short selling by market participants because the conversion of the convertible notes could depress the price of Maxeon Solar shares. The price of Maxeon Solar shares could be affected by possible sales of shares by investors who view the convertible notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity which we expect to occur involving Maxeon Solar shares.

 

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We do not intend to pay dividends on our shares and no assurance can be given that we will pay or declare dividends in the future.

For the foreseeable future, we intend to retain any earnings to finance the development of our business, and we do not anticipate paying any cash dividends on our shares, and no assurance can be given that we will pay or declare dividends in the future. The Maxeon Solar Board may, in its discretion, recommend the payment of a dividend in respect of a given fiscal year. However, the declaration, timing, and amount of any dividends to be paid by us following the spin-off will be subject to the approval of our shareholders at the relevant Annual General Meeting of shareholders. The determination of the Maxeon Solar Board as to whether to recommend a dividend and the approval of any such proposed dividend by our shareholders, will depend upon many factors, including our financial condition, earnings, corporate strategy, capital requirements of our operating subsidiaries, covenants, legal requirements and other factors deemed relevant by the Maxeon Solar Board and shareholders. See “Item 10. Additional Information—10.B. Memorandum and Articles of Association—Dividends” for more information.

Following the spin-off and TZS investment, Total and its affiliates will own approximately 36.7% of the voting power of outstanding Maxeon Solar shares and TZS will own approximately 28.8% of the voting power of outstanding Maxeon Solar shares, and the interests of Total and/or TZS may differ from the interests of other Maxeon Solar shareholders.

Although Total and its affiliates will no longer be a majority shareholder after the consummation of the spin-off and TZS investment, subject to the Shareholders Agreement, Total may still exercise significant influence over matters submitted to our shareholders for approval through its ownership of Maxeon Solar shares representing approximately 36.7% of the voting power of outstanding Maxeon Solar shares. Similarly, TZS may exercise significant influence over matters submitted to our shareholders for approval through its ownership of Maxeon Solar shares representing approximately 28.8% of the voting power of outstanding Maxeon Solar shares after its investment. While such percentages do not give effect to any shares to be issued pursuant to the physical delivery forward transaction, the dilution protection agreements that we expect to enter into with Total and TZS will allow them to maintain their respective percentage interests. See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between Us and TZS and/or Total in Connection with TZS Investment—Dilution Protection Agreements.

Total and/or TZS may have different interests than other Maxeon Solar shareholders on matters which may affect our operational and financial decisions. Among other things, their influence could delay, defer or prevent a sale of Maxeon Solar that other shareholders support, or, conversely, this influence could result in the consummation of such a transaction that other shareholders do not support. This concentrated influence could discourage a potential investor from seeking to acquire Maxeon Solar shares and, as a result, might harm the market price of Maxeon Solar shares.

We may not experience the same benefits from the support of our significant investors that we have historically received as a result of Total’s majority position in SunPower and the ownership of TZS by the Tianjin government.

Following the TZS investment, we will no longer be controlled by Total. As part of SunPower, which is currently majority-owned by Total, we have been able to benefit from Total’s financial strength and extensive business relationships. After the consummation of the spin-off, we may no longer experience these benefits. The Tianjin government, through Tianjin Zhonghuan Electronic and Information Group Co., Ltd. (the “TZ Group”), owns a substantial equity interest in TZS and has supported the development of solar technology, including through our Performance Line joint venture. The Tianjin Government has announced a sale of its interest in the TZ Group to a third party. While each of Total and TZS have agreed to retain their ownership interest in us of at least a specified percentage for two years after the Shareholders Agreement becomes effective, our diminished association with Total and the acquisition of the interest in the TZ Group by a third party could adversely affect the strategic commitment of our partners, future investment in our business, or our ability to attract new customers or maintain existing business relationships with customers, suppliers and other business partners, all of which could have a material adverse effect on our business, financial condition and results of operations.

 

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We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies that we have elected to comply with will make our ordinary shares less attractive to investors.

We are currently treated as an “emerging growth company” as defined in the JOBS Act and, as a result, are eligible for reduced disclosure requirements applicable to emerging growth companies until the earlier of the effective date of the spin-off and January 3, 2021.

We cannot predict if investors will find the Maxeon Solar shares less attractive because we have relied on the exemption that permits such reduced disclosure. If some investors find the Maxeon Solar shares less attractive as a result, there may be a less active trading market for the Maxeon Solar shares and our share price may be more volatile.

As of the date of the spin-off, we will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon consummation of the spin-off, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation FD, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers or controlled companies.

In addition, as a foreign private issuer, we will also be entitled to rely on exceptions from certain corporate governance requirements of the NASDAQ.

As a result, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

As a FPI, we are permitted and expect to follow certain home country corporate governance requirements in lieu of certain NASDAQ requirements applicable to domestic issuers.

As a FPI, and if our shares are approved for listing on the NASDAQ Global Select Market, we will be permitted to, and intend to, follow certain home country corporate governance requirements in lieu of certain NASDAQ requirements. Following our home country corporate governance requirements, as opposed to the requirements that would otherwise apply to a U.S. company listed on the NASDAQ, may provide less protection than is afforded to investors under the NASDAQ rules applicable to domestic issuers.

In particular, we expect to follow home country requirements instead of NASDAQ requirements otherwise applicable to U.S. companies regarding:

 

   

The NASDAQ’s requirement that a majority of the Maxeon Solar Board be “independent” as defined by the NASDAQ rules.

 

   

The NASDAQ’s requirement that an issuer provide for a quorum as specified in its bylaws for any meeting of the holders of ordinary shares, which quorum may not be less than 33 1/3% of the

 

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outstanding shares of an issuer’s voting ordinary shares. In compliance with Singapore law, our Constitution provides that two members of Maxeon Solar present shall constitute a quorum for a general meeting.

 

   

The NASDAQ’s requirement that all members of our Compensation Committee be “independent” as defined in the NASDAQ rules. While the Maxeon Solar Board will establish a Compensation Committee, Singapore law does not require us to maintain such a committee. Similarly, Singapore law does not require that we disclose information regarding third-party compensation of our directors or director nominees.

 

   

The NASDAQ’s requirement that our Nominating and Corporate Governance Committee be “independent” as defined in the NASDAQ rules. Singapore law does not require a Nominating and Corporate Governance Committee to be comprised entirely of independent directors, and nominations of persons for election to the Maxeon Solar Board will be recommended by our Nominating and Corporate Governance Committee whose members are not all independent directors as defined by the NASDAQ rules.

 

   

The NASDAQ’s requirement that issuers obtain shareholder approval prior to the issuance of securities in connection with certain acquisitions, changes of controls or private placements of securities, or the establishment or amendment of certain stock option, purchase or other compensation plans. Under Singapore law, new shares may be issued only with the prior approval of our shareholders in a general meeting. Approval, if granted, shall continue in force until the earlier of:

 

   

the conclusion of the next annual general meeting after the date on which the approval was given; and

 

   

the expiration of the period within which the next annual general meeting after that date is required by law to be held.

Any approval may be previously revoked by the company in a general meeting.

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant additional legal, accounting and other expenses.

We will be a foreign private issuer as of the date of the spin-off and therefore we will not be required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our status as a foreign private issuer, either (a) a majority of our shares must be directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States.

If we were to lose our foreign private issuer status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. For instance, we would be required to make changes in our corporate governance practices in accordance with various SEC and NASDAQ rules. The regulatory and compliance costs to us under U.S. securities laws when we would be required to comply with the reporting requirements applicable to a U.S. domestic issuer could be significantly higher than the costs we will incur as a foreign private issuer. As a result, a loss of foreign private issuer status could increase our legal and financial compliance costs and could make some activities highly time-consuming and costly. If we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it could make it more difficult and expensive for us to obtain director and officer liability insurance, and we could be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of the Maxeon Solar Board.

 

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We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our shares.

Based upon, among other things, the current and anticipated valuation of our assets and the composition of our income and assets, we do not believe we were a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the taxable year ended December 29, 2019 and we do not expect Maxeon Solar to be treated as a PFIC for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects. In addition, a separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current, or any future, taxable year. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75.0% of its gross income for such year is passive income or (ii) at least 50.0% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. For this purpose, we will be treated as owning our proportionate share of the businesses and earning our proportionate share of the income of any other business in which we own, directly or indirectly, at least 25.0% (by value) of the stock. Because the value of our assets for purposes of the PFIC test will generally be determined in part by reference to the market price of our shares, fluctuations in the market price of the shares may cause us to become a PFIC. In addition, changes in the composition of our income or assets may cause us to become a PFIC. As a result, dispositions of operating companies could increase the risk that we become a PFIC. If we are a PFIC for any taxable year during which a U.S. Holder holds a share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. For further information on such U.S. tax implications, see “Item 10.E. Taxation—Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

Risks Related to Being a Singapore Company

It may be difficult to enforce a judgment of U.S. courts for civil liabilities under U.S. federal securities laws against us, our directors or officers in Singapore.

We are incorporated under the laws of Singapore and certain of our officers and directors are or will be residents outside of the United States. Moreover, most of our assets are located outside of the United States. Although we are incorporated outside of the United States, we have agreed to accept service of process in the United States through our agent designated for that specific purpose.

There is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters, such that a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws, would, therefore, not be automatically enforceable in Singapore. Additionally, there is doubt whether a Singapore court may impose civil liability on us or our directors and officers who reside in Singapore in a suit brought in the Singapore courts against us or such persons with respect to a violation solely of the federal securities laws of the United States, unless the facts surrounding such a violation would constitute or give rise to a cause of action under Singapore law. Accordingly, it may be difficult for investors to enforce against us, our directors or our officers in Singapore, judgments obtained in the United States which are predicated upon the civil liability provisions of the federal securities laws of the United States.

We are incorporated in Singapore and our shareholders may have greater difficulty in protecting their interests than they would as shareholders of a corporation incorporated in the United States.

Our corporate affairs are governed by our Constitution and by the laws governing companies incorporated in Singapore. The rights of our shareholders and the responsibilities of the members of the Maxeon Solar Board under Singapore law are different from those applicable to a corporation incorporated in the United States. Therefore, our public shareholders may have more difficulty in protecting their interest in connection with actions taken by our management or members of the Maxeon Solar Board than they would as shareholders of a

 

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corporation incorporated in the United States. For information on the differences between Singapore and Delaware corporation law, see “Item 10.B. Memorandum and Articles of Association—Comparison of Shareholder Rights.”

Singapore corporate law may impede a take-over of our company by a third party, which could adversely affect the value of our shares.

The Singapore Take-overs Code and Sections 138, 139 and 140 of the SFA contain certain provisions that may delay, deter or prevent a future takeover or change in control of our company for so long as we remain a public company with more than 50 shareholders and net tangible assets of S$5 million (approximately $4 million USD) or more. Any person acquiring an interest, whether by a series of transactions over a period of time or not, either on his own or together with parties acting in concert with such person, in 30% or more of our voting shares, or, if such person holds, either on his own or together with parties acting in concert with such person, between 30% and 50% (both inclusive) of our voting shares, and such person (or parties acting in concert with such person) acquires additional voting shares representing more than 1% of our voting shares in any six-month period, must, except with the consent of the Securities Industry Council of Singapore, extend a mandatory take-over offer for all the remaining voting shares in accordance with the provisions of the Singapore Take-overs Code.

On January 30, 2020, the Securities Industry Council of Singapore waived the application of the Singapore Take-overs Code to us, subject to certain conditions. Pursuant to the waiver, for as long as we are not listed on a securities exchange in Singapore, and except in the case of a tender offer (within the meaning of U.S. securities laws) where the Tier 1 Exemption is available and the offeror relies on the Tier 1 Exemption to avoid full compliance with the tender offer regulations promulgated under the Exchange Act, the Singapore Take-overs Code shall not apply to us. In connection with receipt of the waiver, the SunPower Board submitted to the Securities Industry Council of Singapore a written confirmation to the effect that it is in the interests of SunPower shareholders who will become holders of Maxeon Solar shares as a result of the spin-off that a waiver of the provisions of the Singapore Take-overs Code is obtained. However, if the conditions for the waiver are no longer applicable, the Singapore Take-overs Code will be applicable and while the primary objective of the Singapore Take-overs Code is fair and equal treatment of all shareholders in a take-over or merger situation, its provisions may discourage or prevent certain types of transactions involving an actual or threatened change of control of our company. These legal requirements may impede or delay a take-over of our company by a third party, and thereby have a material adverse effect on the value of our shares. In addition, as the convertible notes are convertible into our ordinary shares, under the Singapore Take-overs Code (where the Singapore Take-overs Code may be applicable), if a take-over offer is made for the Maxeon Solar shares, a comparable offer has to be made for the convertible notes (so long as the convertible notes are outstanding) in accordance with the provisions of the Singapore Take-overs Code.

Under Singapore law, our directors have general authority to allot and issue new shares on terms and conditions and with any preferences, rights or restrictions as may be determined by the Maxeon Solar Board in its sole discretion.

Under Singapore law, we may only allot and issue new shares with the prior approval of our shareholders in a general meeting. Subject to the general authority to allot and issue new shares provided by our shareholders, the provisions of the Singapore Companies Act and our Constitution, the Maxeon Solar Board may allot and issue new shares on terms and conditions and with the rights (including preferential voting rights) and restrictions as they may think fit to impose. Any additional issuances of new shares by our directors could adversely impact the market price of our shares.

 

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ITEM 4. INFORMATION ON THE COMPANY

4.A. HISTORY AND DEVELOPMENT OF THE COMPANY

General Corporate Information

We are incorporated under the laws of Singapore in accordance with the Singapore Companies Act. We are currently registered with ACRA under “Maxeon Solar Technologies, Ltd.” We were formed by SunPower in connection with our separation from SunPower, for an unlimited duration, effective as of the date of our incorporation with ACRA on October 11, 2019.

We are domiciled in Singapore and our registered office is currently located at 8 Marina Boulevard #05-02, Marina Bay Financial Centre, 018981, Singapore, which also currently serves as our principal executive offices, and our telephone number is +65 6338 1888.

General Development of Business

We were incorporated under the laws of Singapore on October 11, 2019, to facilitate a proposed investment by TZS into the international portion of SunPower’s SunPower Technologies business unit (discussed in greater detail in Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between Us and TZS and/or Total in Connection with TZS Investment—Investment Agreement).

In the fourth quarter of 2018, SunPower reorganized its segment reporting to an upstream and downstream structure in connection with its efforts to improve operational focus and transparency, drive overhead accountability into segment operating results, and increase strategic agility across the value chain. Previously operating under three end-customer segments composed of its residential segment, commercial segment, and power plant segment, the new segmentation allowed SunPower to focus on its upstream business’s core strengths in manufacturing and technology and its downstream business’s core strength in offering complete solutions in residential and commercial markets.

Under the new segmentation, the SunPower Energy Services business unit referred to sales of solar energy solutions in the North America region previously included in the legacy residential and commercial segments, including direct sales of turn-key engineering, procurement and construction services, sales to SunPower’s third-party dealer network, sales of energy under power purchase agreements, storage solutions, cash sales and long-term leases directly to end customers, sales to resellers, and sales of global operations and maintenance services. The SunPower Technologies business unit referred to SunPower’s technology development, worldwide solar panel manufacturing operations, equipment supply to resellers, commercial and residential end-customers outside of North America, and worldwide power plant project development and project sales.

On November 11, 2019, SunPower announced plans to separate into two independent, publicly traded companies to leverage value chain specialization between its leading panel technology and manufacturing operations and its downstream solar systems and storage and energy services in North America. In connection with the spin-off, SunPower will contribute certain non-U.S. operations and assets of its SunPower Technologies business unit to us and then spin us off through a pro rata distribution to SunPower’s stockholders of 100% of SunPower’s interest in us. Upon consummation of the Transactions, the Maxeon Business will consist of SunPower’s technology and manufacturing upstream operations and international sales capabilities comprising substantially all of the international portion of its SunPower Technologies business unit.

Principal Capital Expenditures

Our capital expenditures amounted to $41.9 million and $39.6 million during the fiscal years ended December 29, 2019 and December 30, 2018, respectively, primarily consisting of expenditures related to the expansion of our solar cell manufacturing capacity. Our manufacturing and assembly activities have required and

 

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will continue to require significant investment of capital and substantial engineering expenditures. In addition, as of December 29, 2019, we expect total capital investments of approximately $75.0 million in fiscal year 2020, $160.0 million in fiscal year 2021 and $150.0 million in fiscal year 2022, focused on increasing our manufacturing capacity for our highest efficiency Maxeon 5 and 6 product platform and our new Performance Line (through an investment in our Huansheng joint venture), improving our current and next generation solar cell manufacturing technology, and advancing other projects. Our capital investments, which are subject to obtaining necessary board and regulatory approvals and lender consents, are expected to be funded with cash from operations or other available sources of liquidity.

Significant Acquisitions, Dispositions and other Events

In the past three years, SunPower has entered into certain acquisition and joint venture transactions that constitute a part of the Maxeon Business. In fiscal year 2017, SunPower entered into our Huansheng joint venture with TZS to manufacture Performance Line products in China. For more information, see “Item 4. Information on the Company—4.B. Business Overview – Our Products.”

In addition, we have made significant investments in certain of our manufacturing facilities to enhance our production capabilities. For more information, see “—Item 4.D. Property, Plants and Equipment—Major Facilities.”

The Spin-Off

Background

Since its initial public offering in 2005, SunPower has followed an integrated value-chain strategy. This structure served SunPower well during the period of early industry development where the capabilities of downstream system integrators were relatively immature. Since that time, the industry has grown by over 50 times in terms of annual shipment volume and the technology has become widely deployed with significant expertise across the entire value chain. Solar power is now the largest component of incremental global power generation capacity, and we expect that the scale of annual deployment will continue to grow in the future. We believe that, in this more mature phase of industry development, success will be driven by value chain specialization, technology innovation, and economies of scale. This logic, as well as reasons underlying the TZS investment, led to the decision to decouple the North American, largely downstream component of SunPower’s business from the global manufacturing and sales component.

Reasons for the Spin-Off

We and SunPower believe that the spin-off will provide a number of benefits to our business, to the business of SunPower and to SunPower shareholders. While the planned separation was principally structured to facilitate the anticipated investment by TZS into the Maxeon Business, we also believe that, as two distinct publicly traded companies, SunPower and Maxeon Solar will be better positioned to capitalize on significant growth opportunities and focus resources on their respective businesses and strategic priorities. SunPower and the SunPower Board considered a wide variety of factors in their initial evaluation of the proposed spin-off, including the following anticipated benefits:

 

   

Facilitation of TZS’s proposed investment into the Maxeon Business. The separation of the Maxeon Business from SunPower permits TZS to make a significant equity investment into the Maxeon Business through the purchase of new Maxeon Solar shares following the spin-off.

 

   

Accelerated scale-up of Maxeon 5 and 6 capacity due to the TZS investment, and resultant improved profitability. We expect that the investment will finance continued scale-up of Maxeon 5 and 6 capacity and development of Maxeon 7 technology, which we believe will allow us to increase our distributed generation market share and accelerate profit growth.

 

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Access to low-cost supply chain and equipment. We believe that the spin-off and the investment will give us greater access to the low-cost Asia-centric supply chain and equipment, which would in turn help drive manufacturing efficiencies and reduce costs.

 

   

Differentiated product platform and increased focus on established global channels. We believe the separation of Maxeon Solar and SunPower will permit each company to not only leverage their existing, well-established market channels but also to target distinct markets for their respective products and services through new differentiated sales and distribution channels.

 

   

Strategic supply relationships with SunPower and TZS. We will market our solar panels under the SunPower brand into the global solar power marketplace and into the United States and Canada through the Supply Agreement to be entered into with SunPower at the time of the spin-off. We also expect to leverage TZS’ valuable connections in Asia’s supply chain and distribution channels.

 

   

Enhanced strategic and management focus. As an independent, publicly traded company, we believe we can more effectively focus on our objectives and advance the strategic needs of our company.

 

   

More efficient allocation of capital due to increased business focus and direct access to capital markets as a separate publicly traded company. We expect that following the spin-off we will have opportunities to enhance our capital efficiency through direct access to the capital markets.

 

   

More direct alignment of incentives with performance objectives. We believe that operating as a separate publicly traded company will allow us to better align the incentives of our management team and employees with those of our shareholders.

Neither we nor SunPower can assure you that, following the spin-off, any of the benefits described above or otherwise described in this Form 20-F will be realized to the extent or at the time anticipated or at all. See also “Item 3. Key Information—3.D. Risk Factors.”

SunPower and the SunPower Board also considered a number of potentially negative factors in their initial evaluation of the potential spin-off, including the following:

 

   

Disruptions to the business as a result of the separation. The actions required to separate the respective businesses of SunPower and Maxeon Solar could disrupt the operation of the Maxeon Business;

 

   

Increased significance of certain costs and liabilities. Certain costs and liabilities that were otherwise less significant to SunPower as a whole will be more significant for us as a standalone company;

 

   

One-time costs of the spin-off or ongoing costs after the spin-off. We will incur costs in connection with the transition to being a standalone public company that may include accounting, tax, treasury, legal, and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel new to us, and costs to separate information systems;

 

   

Potential inability to realize anticipated benefits of the spin-off. We may not achieve the anticipated benefits of the spin-off for a variety of reasons, including, among others: (i) the spin-off will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing the Maxeon Business; (ii) following the spin-off, we may be more susceptible to market fluctuations and other adverse events than if it were still a part of SunPower; (iii) the costs associated with us being a standalone public company; (iv) following the separation, the Maxeon Business will be less diversified than the SunPower business prior to the separation; and (v) the other actions required to separate the respective businesses of us and SunPower could disrupt our operations; and

 

   

Our covenants and obligations pursuant to the Separation and Distribution Agreement, the Tax Matters Agreement and other agreements entered into in connection with the separation. We are and will be subject to numerous covenants and obligations arising out of agreements entered into in connection with the separation. For example, under the Tax Matters Agreement, we will agree to

 

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covenants and indemnification obligations designed to preserve the tax-free nature of the spin-off distribution to SunPower shareholders. These covenants and indemnification obligations may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that might be beneficial.

SunPower and the SunPower Board believe that the anticipated benefits of the spin-off outweigh these factors. However, the completion of the spin-off remains subject to the satisfaction, or waiver by the SunPower Board, of a number of conditions. See “—Conditions to the Spin-Off” below for additional detail.

When and How You Will Receive Maxeon Solar Shares

SunPower will distribute to holders of SunPower shares, as a pro rata dividend, one Maxeon Solar share for every eight SunPower shares such shareholders hold or have acquired and do not sell or otherwise dispose of prior to the close of business on August 17, 2020, the record date for the spin-off. The actual number of our shares that will be distributed will depend on the total number of issued SunPower shares (excluding treasury shares held by SunPower and its subsidiaries) as of the record date.

An application will be made to list our shares on the NASDAQ under the ticker symbol “MAXN.” Subject to official notice of issuance, our shares will trade and settle under ISIN code SGXZ25336314 and CUSIP code Y58473102.

Computershare Trust Company, N.A., as the SunPower share registrar and transfer agent will arrange for the distribution of our shares to holders of SunPower shares. For purposes of and following the spin-off, Computershare will act as our U.S. share registrar and transfer agent.

If SunPower shareholders own SunPower shares as of 5:00 p.m., New York City time, on the record date, the Maxeon Solar shares that SunPower shareholders are entitled to receive in the distribution will be issued electronically on the distribution date to SunPower shareholders in direct registration form or to SunPower shareholders’ bank or brokerage firm on SunPower shareholders’ behalf. If a SunPower shareholder is a registered holder of SunPower shares, Computershare will mail the SunPower shareholder a direct registration account statement that reflects the SunPower shareholder’s Maxeon Solar shares. If SunPower shareholders hold their SunPower shares through a bank or brokerage firm, their bank or brokerage firm will credit their account for their Maxeon Solar shares. Direct registration form refers to a method of recording securities ownership when no physical certificates are issued, as is the case in the distribution. If SunPower shareholders sell SunPower shares in the “regular-way” market (as opposed to the “ex-distribution” market) up to and including the distribution date, SunPower shareholders will be selling their right to receive Maxeon Solar shares in the distribution. Investors acquiring or selling SunPower shares on or around the record date in over-the-counter or other transactions not effected on the NASDAQ should ensure such transactions take into account the treatment of our shares to be distributed in respect of such SunPower shares in the spin-off. Please contact your bank or broker for further information if you intend to engage in any such transaction.

We expect to become a standalone public company, independent of SunPower, on August 26, 2020, the “proposed distribution date” for the spin-off, and our shares are expected to commence trading on a standalone basis on the NASDAQ at market open on August 27, 2020 (9:30 a.m., New York City, time on the NASDAQ).

Depending on your bank or broker and whether you hold SunPower shares, it is expected that your Maxeon Solar shares will be credited to your applicable securities account either on or shortly after the distribution date and that you will be able to commence trading your Maxeon Solar shares on the NASDAQ on August 27, 2020. See also “—Listing and Trading of Maxeon Solar Shares” below.

In the event there are any changes to the record date or the distribution date, or new material information relating to the distribution of our shares becomes available, SunPower will publish any such changes or updates in a press release that will also be furnished with the SEC by SunPower on a Form 8-K and by us on a Form 6-K. In addition, SunPower will give at least 10 calendar days’ notice of any changes to the record date to the NASDAQ in accordance with NASDAQ’s requirements.

 

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We are not asking SunPower shareholders to take any further action in connection with the spin-off. We are not asking you for a proxy and we request that you not send us a proxy. We are also not asking you to make any payment or surrender or exchange any of your SunPower shares for Maxeon Solar shares. Please see “—If You Hold SunPower Shares—Holders of SunPower Physical Share Certificates” below. The number of outstanding SunPower shares will not change as a result of the spin-off.

Holders of SunPower shares held in book-entry form with a bank or broker. Most SunPower shareholders hold their SunPower shares through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank’s or brokerage firm’s books. If a SunPower shareholder holds their SunPower shares through a bank or brokerage firm, their bank or brokerage firm will credit their account for the Maxeon Solar shares that they are entitled to receive in the distribution. If SunPower shareholders have any questions concerning the mechanics of having shares held in “street name,” they should contact their bank or brokerage firm.

Holders of SunPower physical share certificates. In connection with the spin-off, all registered SunPower shareholders holding physical share certificates will be issued Maxeon Solar shares in book-entry form only, which means that no physical share certificates will be issued. For questions relating to the transfer or mechanics of the distribution, please contact SunPower Share Registry by telephone at 1-877-373-6374 (in the United States) or 1-781-575-2879 (outside the United States) or by online inquiry at https://www-us.computershare.com/investor/Contact. For more information, see “Item 4. Information on the Company—4.A. History and Development of the Company—The Spin-Off—When and How You Will Receive Maxeon Solar Shares,” as well as “—Where can I get more information?” below.

See also “Summary—The Spin-Off—Questions and Answers about the Spin-Off—Where can I get more information?”

Trading Between the Record Date and the Distribution Date

We expect that, beginning on or shortly before the record date and continuing up to and including the distribution date, there will be two markets in SunPower shares on NASDAQ: a “regular-way” market and an “ex-distribution” market. SunPower shares that trade in the “regular-way” market will trade with an entitlement to Maxeon Solar shares distributed pursuant to the distribution. SunPower shares that trade in the “ex-distribution” market will trade without an entitlement to Maxeon Solar shares distributed pursuant to the distribution. Therefore, if SunPower shareholders sell SunPower shares in the “regular-way” market up to and including the distribution date, they will be selling their right to receive shares of our shares in the distribution.

If SunPower shareholders own SunPower shares at 5:00 p.m., New York City time, on the record date and sell those shares on the “ex-distribution” market up to and including the distribution date, they will receive Maxeon Solar shares that they are entitled to receive pursuant to their ownership as of the record date of the SunPower shares.

Furthermore, we expect that, beginning approximately two trading days before the record date and continuing up to the distribution date, there will be a “when-issued” market in our shares. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for our shares that will be distributed to SunPower shareholders on the distribution date. If SunPower shareholders owned SunPower shares at 5:00 p.m., New York City time, on the record date, they would be entitled to Maxeon Solar shares distributed pursuant to the distribution. SunPower shareholders may trade this entitlement to our shares, without SunPower shares they own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to Maxeon Solar shares is expected to end, and “regular-way” trading is expected to begin. If “when-issued” trading occurs, the listing for Maxeon Solar shares is expected to be under the trading symbol “MAXNV.” If the distribution does not occur, all “when-issued” trading will be null and void.

 

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Number of Maxeon Solar Shares You Will Receive

You will receive one Maxeon Solar share for every eight SunPower shares you hold or have acquired and do not sell or otherwise dispose of prior to the close of business on the record date.

Treatment of Fractional Shares

Computershare, the SunPower share registrar and transfer agent, will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. Computershare will send to each registered SunPower shareholder entitled to a fractional share a cash payment in lieu of that shareholder’s fractional share on or around September 9, 2020. If you hold your SunPower shares through the facilities of the DTC or otherwise through a bank, broker or other nominee, your custodian, bank, broker or nominee will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales of fractional shares. No interest will be paid on any cash you receive in lieu of a fractional share. The cash you receive in lieu of a fractional share will generally be taxable to you for U.S. federal income tax purposes and may, in certain circumstances, be taxable to you for Singapore income tax purposes. See “Item 10. Additional Information—10.E. Taxation—Material U.S. Federal Income Tax Considerations” and “—Material Singapore Tax Considerations” below for more information.

We anticipate that Computershare will make these payments on or around September 9, 2020. Computershare will, in its sole discretion, without any influence by SunPower or Maxeon Solar, determine when, how and at what price to sell the whole shares. Computershare is not an affiliate of either SunPower or Maxeon Solar.

Results of the Spin-Off

After the spin-off, we will be a standalone publicly traded company. Immediately following the spin-off and prior to the TZS investment, we expect to have approximately 21,260,733 Maxeon Solar shares outstanding based on the number of issued SunPower shares (excluding treasury shares held by SunPower and its subsidiaries) as of July 28, 2020. The actual number of our shares that SunPower will distribute in the spin-off will depend on the actual number of issued SunPower shares, excluding treasury shares held by SunPower and its subsidiaries, on the record date. The spin-off will not affect the number of outstanding SunPower shares or any rights of holders of any outstanding SunPower shares, although we expect the trading prices of SunPower shares in the “regular-way” market at market open on the trading day following the distribution date will be lower than the trading prices of SunPower shares in the “regular-way” market at market close on the distribution date, because the trading price of SunPower shares will no longer reflect the value of the Maxeon Business. In addition, your SunPower shares sold in the “ex-distribution” market (as opposed to the “regular-way” market) will trade without the entitlement to receive the distribution of our shares in the spin-off and will reflect an ownership interest solely in SunPower, but may not yet accurately reflect the value of such SunPower shares excluding the Maxeon Business.

On November 8, 2019 we entered into a Separation and Distribution Agreement with SunPower related to the separation and distribution, and we intend to enter into several other agreements with SunPower prior to completion of the spin-off to effect the separation and provide a framework for our relationship with SunPower after the spin-off. These agreements will govern the relationship between us and SunPower up to and after completion of the spin-off and allocate between us and SunPower various assets, liabilities, rights and obligations, including employee benefits, intellectual property, supply of designated products and tax-related assets and liabilities. We describe these arrangements in greater detail under “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us.”

Listing and Trading of Maxeon Solar Shares

As of the date of this Form 20-F, we are a wholly owned subsidiary of SunPower. Accordingly, no public market for our shares currently exists. We intend to list our shares on the NASDAQ under the symbol “MAXN.” We will use a specialist firm to make a market in our shares on the NASDAQ to facilitate sufficient liquidity and

 

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maintain an orderly market in our shares throughout normal NASDAQ trading hours. We anticipate that trading in our shares will begin on a “when-issued” basis approximately two trading days before the record date and will continue up to and through the distribution date and that “regular-way” trading in our shares will begin on the first trading day following the distribution date. If trading begins on a “when-issued” basis, you may purchase or sell our shares up to and through the distribution date, but your transaction will not settle until after the distribution date. We cannot predict the trading prices for our shares before, on or after the distribution date.

Computershare Trust Company, N.A. will act as our U.S. share registrar and transfer agent.

We currently expect that our issued shares will be held in the following forms:

 

   

Shares held via DTC. Holders may hold their entitlements to our shares in book-entry form via the DTC system through custody accounts with custodian banks or brokers that are direct participants in the DTC system. Such shares will be held in the name of DTC’s nominee, Cede & Co., through Computershare. Such holders’ entitlements to our shares will be recorded in their custodian banks’ or brokers’ records. Such holders may effect the transfer of their entitlements to our shares through their custodian banks or brokers and will receive written confirmations of any purchase or sales of our shares and any periodic account statements from such custodian banks or brokers.

 

   

Directly registered shares held through Computershare. Holders may directly hold their ownership interests in us in the form of book-entry shares that will be registered in the names of such holders directly on the books of Computershare. Holders will receive periodic account statements from Computershare evidencing their holding of our shares. Through Computershare, holders may effect transfers of our shares to others, including to banks or brokers that are participants in the DTC Direct Registration System.

Neither we nor SunPower can assure you as to the trading price of SunPower shares or of Maxeon Solar shares after the spin-off, or as to whether the combined trading prices of our shares and the SunPower shares after the spin-off will be less than, equal to or greater than the trading prices of SunPower shares prior to the spin-off. See “Item 3. Key Information—3.D. Risk Factors—Risks Related to the Spin-Off and Ownership of our Shares” for more detail.

Subject to any restrictions on the registration of shareholdings in our share register that may be included in our Constitution, the Maxeon Solar shares distributed to SunPower shareholders will be freely transferable, except for shares received by individuals who are our affiliates. Individuals who may be considered our affiliates after the spin-off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals may include some or all of our directors and executive officers. Individuals who are our affiliates will be permitted to sell their Maxeon Solar shares only pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from the registration requirements of the Securities Act, such as those afforded by Section 4(a)(1) of the Securities Act or Rule 144 thereunder.

Conditions to the Spin-Off

We expect that the spin-off will be effective on the distribution date, provided that the following conditions shall have been satisfied or waived by SunPower:

 

   

the consummation in all material respects of the Internal Transactions;

 

   

all corporate and other action necessary in order to execute, deliver and perform the Separation and Distribution Agreement and to consummate the transactions contemplated thereby by each of SunPower and Maxeon Solar having been obtained;

 

   

the receipt by SunPower of the written opinion of Jones Day regarding the qualification of the distribution as a transaction that should be generally tax-free to SunPower shareholders for U.S. federal income tax purposes under Section 355 of the Code;

 

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the SEC declaring this Form 20-F effective under the Exchange Act, and no stop order suspending the effectiveness of this Form 20-F being in effect and no proceedings for that purpose being pending before or threatened by the SEC;

 

   

copies of this Form 20-F, or notice of internet availability thereof, having been mailed to record holders of SunPower shares as of the record date for the spin-off;

 

   

the actions necessary or appropriate under U.S. federal, U.S. state or other securities laws or blue sky laws (and comparable laws under foreign jurisdictions) having been taken or made;

 

   

the receipt of all necessary government approvals required to consummate the spin-off having been obtained;

 

   

no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the spin-off being in effect;

 

   

our shares to be distributed to SunPower shareholders having been accepted for listing on the NASDAQ (subject to official notice of issuance); and

 

   

all of the conditions precedent to completion of the investment contemplated by the Investment Agreement having been satisfied or waived, including the funding into escrow of the final remaining portion of the TZS investment.

We are not aware of any material federal, foreign or state regulatory requirements with which we must comply, other than SEC rules and regulations, or any material approvals that we must obtain, other than the approval for listing of our shares and the SEC’s declaration of the effectiveness of this Form 20-F, in connection with the spin-off.

Reasons for Furnishing this Form 20-F

We are furnishing this Form 20-F solely to provide information to SunPower shareholders who will receive our shares in the spin-off. You should not construe this Form 20-F as an inducement or encouragement to buy, hold or sell any of our securities or any securities of SunPower. We believe that the information contained in this Form 20-F is accurate as of the date set forth on the cover. Changes to the information contained in this Form 20-F may occur after that date, and neither we nor SunPower undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.

 

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4.B. BUSINESS OVERVIEW

Overview

We are a global energy company, technology innovator, and manufacturer and marketer of premium solar panels headquartered in Singapore. We were incorporated on October 11, 2019 as a private Singapore company limited by shares for the purpose of facilitating a proposed investment by TZS into the international portion of SunPower’s Technologies business unit. We will own and operate solar cell and panel manufacturing facilities located in France, Malaysia, Mexico, and the Philippines, including the technology and manufacturing upstream operations and international sales capability, comprising substantially all of the international portion of SunPower’s SunPower Technologies business unit outside of the 50 United States, the District of Columbia, and Canada.

The TZS Investment

On November 11, 2019, SunPower announced plans to separate into two independent, publicly traded companies—Maxeon Solar, and SunPower, a distributed generation energy services company operating principally in the United States and Canada. Pursuant to the Separation and Distribution Agreement and the Investment Agreement (and subject to the terms and conditions thereof), SunPower will contribute certain non-U.S. operations and assets of its SunPower Technologies business unit to us, then spin us off through a pro rata distribution to its stockholders of 100% of SunPower’s interest in us. Immediately after the spin-off, TZS will purchase for $298.0 million shares that will, in the aggregate, represent approximately 28.848% of our outstanding shares after giving effect to the transactions. The spin-off is intended to be tax-free to SunPower shareholders for Singapore income and withholding tax purposes and for U.S. federal income tax purposes.

Our Markets

Solar has become one of the fastest growing renewable energy sources over the last few decades. According to recent estimates from Wood MacKenzie, through effective investments and projects, the solar market has achieved more than 600 GW of global installed capacity as of 2019, representing an average compound annual growth rate of 40% since 2009, with significant acceleration in the most recent years.

As solar technology has developed, manufacturing costs have declined and performance has improved. Today, solar power, together with enhanced balance of system technology, has among the lowest LCOE of all major energy sources.

In the long term, this trend is expected to continue and even accelerate, according to Bloomberg New Energy Finance. By 2050, solar technology is expected to represent more than 40% of global electricity capacity, with a balanced distribution among key regions worldwide—a significant increase compared to its current penetration of approximately 5% of global capacity.

We believe the following factors have driven and will continue to drive demand in the global solar power industry, including demand for our products:

 

   

solar generation costs have fallen to the point where solar power is one of the lowest cost electricity sources on a LCOE basis in certain regions;

 

   

renewable energy is one of the most relevant topics and targets of government incentives and policies as a result of increased concerns regarding climate change;

 

   

solar power is at the center of public discussion, which helps to grow public awareness of its advantages, such as peak energy generation, significantly smaller fuel and supply chain risk, sustainability from an environmental perspective, scalability and reliability;

 

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structural limitations for fossil fuel supply and issues around energy security increasing the long-term demand for alternative sources of energy;

 

   

significant secular increase in electricity demand; and

 

   

solar energy as a viable option to generate energy in developing countries, rural areas, and regions without indigenous fuel resources.

In connection with the spin-off, we will enter into the Supply Agreement with SunPower pursuant to which SunPower will purchase, and we will sell, certain designated products for use in residential and commercial solar applications in Canada and the United States (excluding Puerto Rico, American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands) (which we refer to as the “Domestic Territory”). The Supply Agreement will have a two-year term, starting on the distribution date. The parties must attempt to negotiate an extension or replacement of the Supply Agreement prior to the end of the initial term, but neither party is obligated to agree to any such extension or replacement. Under the Supply Agreement, SunPower will be required to purchase, and we will be required to supply, minimum volumes of products during each calendar quarter of the term. For 2020, the minimum volumes will be specifically enumerated for different types of products, and for each subsequent period, the minimum volumes will be established based on SunPower’s forecasted requirements, but will need to meet a minimum threshold relative to the prior year’s volume. The parties will be subject to reciprocal penalties for failing to purchase or supply, as applicable, the minimum product volumes. The Supply Agreement will also include reciprocal exclusivity provisions that, subject to certain exceptions, will prohibit SunPower from purchasing the products (or competing products) from anyone other than us, and will prohibit us from selling such products to anyone other than SunPower. The exclusivity provisions only relate to products for the Domestic Territory. The exclusivity provisions will last for two years for products sold into the residential market and through SunPower’s dealer channel in the Domestic Territory, and one year for products sold directly by SunPower to end users for use in other applications, including multiple-user, community solar products. The exclusivity provisions will not apply to off-grid applications, certain portable or mobile small-scale applications (including applications where solar cells are integrated into consumer products), or power plant, front-of-the-meter applications where the electricity generated is sold to a utility or other reseller.

For 2020, the purchase price for each product will be fixed based on its power output (in watts), subject to certain adjustments. For subsequent periods, the purchase price will be set based on a formula and fixed for the covered period, subject to certain adjustments. We are obligated to provide the products with customary warranties for quality and performance, conforming to all specifications and legal requirements.

Our Business

Following the spin-off, we will be one of the world’s leading global manufacturers and marketers of premium solar technology. We have developed and maintained this leadership position through decades of technological innovation and investment, in addition to the development of sales and distribution channels supplying customers in more than 100 countries on six continents. We will own and operate solar cell and panel manufacturing facilities located in France, Malaysia, Mexico and the Philippines, as well as participate in a joint venture for panel manufacturing in China with TZS. During the fiscal year ended December 29, 2019, 23.9% of our sales (by megawatt) were to North America, 28.1% to EMEA, 42.8% to Asia Pacific and 5.2% to other markets. During the fiscal year ended December 30, 2018, 34.6% of our sales (by megawatt) were to North America, 35.8% to EMEA, 28.6% to Asia Pacific and 1.0% to other markets.

Our primary products are the Maxeon Line of IBC solar cells and panels, and the Performance Line (formerly, “P-Series”) of shingled solar cells and panels. We believe the Maxeon Line of solar panels are the highest-efficiency solar panels on the market with an aesthetically pleasing design, and the Performance Line of solar panels offer a high-value, cost-effective solution for large-scale applications compared to conventional solar panels. The Maxeon Line, which includes Maxeon 2 (marketed as E-Series in the United States), Maxeon 3

 

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(marketed as X-Series in the United States) and Maxeon 5 (marketed as A-Series in the United States) solar panels, is primarily targeted at residential and small-scale commercial customers across the globe. The Performance Line was initially targeted at the large-scale commercial and utility-scale power plant markets, but has proven to be attractive to our customers in the distributed generation markets as well. During the fiscal year ended December 29, 2019, approximately 48.3% of our sales were products in our Maxeon Line and the other 51.7% were products in our Performance Line, with 63.4% of our total volume sold for distributed generation applications and approximately 36.6% for power plant applications. During the fiscal year ended December 30, 2018, approximately 73.8% of our sales were products in our Maxeon Line and the other 26.2% were products in our Performance Line, with 67.0% of our total volume sold for distributed generation applications and approximately 33.0% for power plant applications.

Our proprietary technology platforms, including the Maxeon Line and Performance Line, target distinct market segments, serving both the distributed generation and power plant markets. This ability to address the full market spectrum allows us to benefit from a range of diverse industry drivers and retain a balanced and diversified customer base.

We believe that our Maxeon Line of IBC technology stands apart from the competition in key metrics that our customers value, including efficiency, energy yield, reliability and aesthetics. We believe the combination of these characteristics enables the delivery of an unparalleled product and value proposition to our customers. Our Maxeon 3 and 5 panels deliver 55% more energy in any given amount of roof space over the first 25 years, as compared to conventional panels.

Our Performance Line technology is designed to deliver higher performance than using conventional panels. This is possible due to several patented features and improvements we have employed in our product. One of our main differentiators from the competition is our shingled design, which delivers approximately 5% higher efficiency than mono-PERC panels due to its reduced electrical resistance and more light absorption given the absence of reflective copper lines and less white space. In addition, our Performance Line’s robust shingled cells and advanced encapsulant are highly resistant to thermal stresses, humidity, and potential-induced degradation.

Our Strengths

We believe the following strengths of our business distinguish us from our competitors, enhance our leadership position in our industry and position us to capitalize on the expected continued growth in our market:

 

   

Leading provider of premium solar technology. Our established leadership position in solar technology is grounded in over 35 years of experience. Over that time, our solar technology has been awarded over 800 patents. We have also made substantial investments in research and development, having invested more than $462.0 million since 2007 which is more than any other crystalline panel manufacturer. Together, these factors have allowed us to create truly differentiated products which have maintained a 25% relative efficiency advantage over the industry average solar panel efficiency since 2012.

 

   

Established unique sales, marketing, and distribution channels in each of our key markets. We have built relationships with dealer/installers, distributors, and white label partners globally to ensure reliable distribution channels for our products. As examples, we have over 370 sales and installation partners in the Asia Pacific region, over 750 in the Europe, Middle East and Africa region, and 25 in Latin America. In North America, we have a two-year renewable exclusive contract with SunPower for our products to be used in its distributed generation business.

 

   

Well-positioned to capture growth across solar markets. We believe solar growth will be driven by strong expansion in both distributed generation and power plant applications. Over the past three years we grew our total MW deployed by over 99% in EU distributed generation markets, and by a multiple of three in Australia. We also believe that our technology, with superior efficiency and lower degradation rates, provides significant advantages to customers in the distributed generation market.

 

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Unique cutting edge innovative technology. Our Maxeon 3 and 5 panels have the highest cell efficiency among panels currently in commercial production. We also believe that our current technology stands apart from the competition on every meaningful performance metric, including efficiency, energy yield, reliability and aesthetics. Additionally, our Performance Line shingled cell technology delivers 13% more power compared to conventional panels, allowing us to achieve a diverse sales base across both distributed generation and the utility power plant markets.

 

   

Strategic partnerships with top tier companies worldwide. Our strategic relationship with SunPower provides valuable access to a leading solar distribution business in North America and a market-leading brand platform for international market growth. We have a historical supply relationship with Total S.A., who is active in the global downstream solar market, and who will be one of our major shareholders after the spin-off. We also seek to have strategic partnerships across the business chain, as exemplified by our relationship with TZS, which provides valuable connections in Asia’s supply chain and distribution channels, as well as research and development collaboration between companies pushing the technological frontier.

 

   

Unmatched investment in research and development, translating into next-generation leading products. Our superior technology has been key to our leadership position. Through efficient, disciplined and business-oriented investments, we were able to develop patent-protected technology which we expect to leverage in our next-generation products. Our Maxeon 7 panels are expected to achieve an even higher efficiency while allowing for reduced costs given its dramatically simplified process. We expect this next-generation solar panel to achieve superior performance at commodity costs, unlocking mass market adoption and commercialization through multiple pathways.

 

   

Recent revenue and earnings growth has driven improved financial returns. We have significantly increased our distributed generation sales over the last several years. This top line increase has been coupled with accelerated margin expansion through innovations in both our Maxeon and Performance Line technologies. Our larger operating scale and simpler manufacturing processes have driven this margin expansion.

 

   

Experienced management team. We have a strong and experienced management team. Our Chief Executive Officer, Jeff Waters, has served as Chief Executive Officer of SunPower’s SunPower Technologies business unit since January 2019 and has 15 years of experience as an executive in the technology industry. Our Chief Financial Officer, Joanne Solomon, is a seasoned executive with more than 30 years of experience and joined the company in January 2020 and most recently served since 2017 as Chief Financial Officer for Katerra Inc. Our Chief Legal Officer, Lindsey Wiedmann, has been with SunPower for a decade and will lead our global legal and sustainability teams. Our Chief Operations Officer, Markus Sickmoeller, is responsible for manufacturing, quality, supply chain, cell technology deployment and environment, health and safety globally after joining SunPower in late 2015 to start the Maxeon 3 cell factory in the Philippines. Peter Aschenbrenner, our Chief Strategy Officer, has more than 40 years of solar industry experience.

Our Strategy

We are strategically positioned to deploy advanced solar technologies at scale. We draw on 35 years of technology innovation around high-performance solar products and well-established global channels as we separate from SunPower into an independent publicly traded company. Upon consummation of the spin-off, our primary focus will include:

 

   

Increasing the production capacity of Maxeon 5 and 6. The brownfield build-out of Maxeon 5 and 6, leveraging existing facilities and operational expertise combined with increased scale and simplified process, is expected to deliver 50% reductions in capital intensity and factory space requirements as well as reduced cell conversion cost (as compared to the Maxeon 2 technology that it is replacing).

 

   

Maxeon 7 future opportunity. Maxeon 7, currently in development, has the potential to achieve further process simplification and reduction in capital expenditures and cell conversion cost.

 

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Enhancing our access to the low-cost Asia-centric supply chain and expanding our global channels to market. We will have access to our strategic partner TZS’s knowledge of upstream supply markets and distribution channels in Asia. In addition, we will be able to leverage access to TZS’s silicon wafers to enhance our Performance Line and Maxeon Line technologies.

 

   

Optimizing our strategic supply relationships with SunPower and Huansheng. We believe that the maintenance and optimization of our current strategic supply relationships are crucial to support our current global leadership position along with maintaining our exposure to key and growing markets worldwide.

 

   

Leveraging our established distributed generation channels to drive continued growth. As a leading distributed generation player, we have a robust sales and marketing platform to access key markets around the world. The expansion of this network is a vital element for future growth.

 

   

Enhancing our financial performance through our superior technology, manufacturing processes and strategy. We believe we have the ability to translate our superior technology into strong financial returns as we couple our premium average selling prices with enhanced manufacturing processes and a scalable low-cost footprint, resulting in rapidly expanding margins and cash generation.

 

   

Increasing our capital efficiency and establishing direct access to capital markets. As part of the planned separation, we seek to enhance our capital efficiency, as well as improve strategic alignment with our stakeholders through direct access to capital markets. Initial funding of full technological transformation to Maxeon 5 and 6 is key to growing our market leading position.

With our corporate headquarters in Singapore and existing manufacturing facilities in Malaysia, the Philippines, and China (through our joint venture Huansheng), we believe our significant Asian presence will help strengthen relationships and sourcing arrangements across our supply chain as well as provide us access to the large Chinese solar market. Following the investment from TZS, we expect to increase our Performance Line capacity in the joint venture to eight gigawatts and convert our Fab 3 manufacturing facility from Maxeon 2 to Maxeon 5 and 6 manufacturing capacity. As of December 29, 2019, we had over 1.5 gigawatts of manufacturing capacity and contractual access to over 1.3 gigawatts of Performance Series supply from our Huansheng joint venture.

Our Industry

The solar power industry manufactures and deploys solar panels and systems across a range of end-use applications. With estimated current annual shipment volumes in excess of 110 gigawatts, solar power comprises the largest fraction of newly installed global electric power generation equipment. The two primary application segments are distributed generation (“DG”), mainly for residential and commercial rooftops systems, and UPP for large ground mounted power generation systems. During 2019, total industry shipment volume mix was approximately 46% DG and 54% UPP according to Wood MacKenzie. The solar panel manufacturing industry is fragmented, with no player holding a market share of over 10% of 2019 shipments according to PV Infolink. Nine of the top ten (by volume) manufacturers are based in China.

The market for electric generation products is heavily influenced by federal, state and local government laws, regulations and policies concerning the electric utility industry globally, as well as policies promulgated by electric utilities. The market for electric generation equipment is also influenced by trade and local content laws, regulations and policies. In addition, on-grid applications depend on access to the grid, which is also regulated by government entities.

Our Products

Solar panels are made using solar cells electrically connected together and encapsulated in a weatherproof panel. Solar cells are semiconductor devices that convert sunlight into direct current electricity. Our solar cells

 

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are designed without highly reflective metal contact grids or current collection ribbons on the front of the solar cell, which provides additional efficiency and allows our solar cells to be assembled into solar panels with a more uniform appearance. Our Maxeon 3 (marketed as X-Series in the United States) solar panels, made with our Maxeon 3 solar cells, have demonstrated panel efficiencies exceeding 22% in high-volume production. In fiscal year 2016, one of our standard production modules set a world record for aperture area efficiency as tested by the National Renewable Energy Laboratory. We believe our Maxeon 3 solar panels are the highest efficiency solar panels available for the mass market, incorporating Gen 3 solar cells with average efficiency of over 25%. Because our solar cells are more efficient relative to conventional solar cells, when our solar cells are assembled into panels, the assembly cost per watt is less because more power is incorporated into a given size panel. Higher solar panel efficiency allows installers to mount a solar power system with more power within a given roof or site area and can reduce per watt installation costs. Our suite of solar panels provides customers a variety of features to fit their needs, including the SunPower Signature black design which allows the panels to blend seamlessly into the rooftop. Both our Maxeon 3 and Maxeon 2 (marketed as E-Series in the United States) panels have proven performance with low levels of degradation, as validated by third-party performance tests. Our latest technology, Maxeon 5 and 6 (marketed as A-Series in the United States), offers solar cell efficiency of up to 25%, roughly in line with our Maxeon 3 technology. When fully ramped, we expect Maxeon 5 and 6 panels to be significantly less expensive to manufacture than Maxeon 2 and Maxeon 3 technology. We plan to transform our legacy Maxeon 2 production capacity in Fab 3 to Maxeon 5 and 6. We expect to retrofit Fab 3 with approximately 500 megawatts of Maxeon 5 and 6 capacity.

Since fiscal year 2016, we launched a line of solar panels under the P-Series and Performance product names, which is now referred to as our Performance Line of solar panels. These products utilize a proprietary manufacturing process to assemble conventional silicon solar cells into panels with increased efficiency and reliability compared with conventional panels. Performance Line solar panels are produced by Huansheng, a Yixing, China based joint venture in which we will own a 20% equity stake at the time of distribution. Huansheng currently has a capacity to produce approximately 1.9 gigawatts per year of Performance Line solar panels and has indicated that it plans to expand capacity to approximately 8 gigawatts per year by 2021. We have the right, but not the obligation, to take up to 33% of Huansheng’s capacity for sale directly into global DG markets outside of China and power plant markets in the United States and Mexico regions, and a further 33% for sale into global power plant markets with the exception of China, the United States and Mexico through a marketing joint venture in which we own an 80% stake.

Currently our sales volume is approximately evenly divided between our Maxeon and Performance Lines, with the former products being sold primarily into the residential and small commercial markets, and the latter products being sold primarily into the large-scale commercial and power plant markets.

We generally provide a 25-year standard warranty for the solar panels that we manufacture for defects in materials and workmanship, as well as warrant a certain minimum level of power output and degradation rate. The warranty provides that we will repair or replace any defective solar panels during the warranty period. Warranties of 25 years from solar panel suppliers are standard in the solar industry.

Principal Markets

During the fiscal year ended December 29, 2019, 23.9% of our MW sold were to North America, 28.1% to EMEA, 42.8% to Asia Pacific and 5.2% to other markets. During the fiscal year ended December 30, 2018, 34.6% of our MW sold were to North America, 35.8% to EMEA, 28.6% to Asia Pacific and 1.0% to other markets. Accordingly, more than 75% of MW sold during the fiscal year ended December 29, 2019 was made into markets outside of North America. While we expect that North America will continue to represent a key market for us, we anticipate continuing to sell the majority of our products outside of North America in the future.

The Maxeon Line, which includes our Maxeon 2, Maxeon 3 and Maxeon 5 and 6 solar panels, is primarily targeted at residential and commercial customers across the globe. The Performance Line was initially targeted at

 

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the large-scale commercial and utility-scale power plant markets, but has proven to be attractive to our customers in the distributed generation markets as well. During the fiscal year ended December 29, 2019, approximately 48.3% of our sales were products in our Maxeon Line and the other 51.7% were products in our Performance Line, with 63.4% of our total volume sold for distributed generation applications and approximately 36.6% for power plant applications. During the fiscal year ended December 30, 2018, approximately 73.8% of our sales were products in our Maxeon Line and the other 26.2% were products in our Performance Line, with 67.0% of our total volume sold for distributed generation applications and approximately 33.0% for power plant applications.

Research and Development

We engage in extensive research and development efforts to improve solar cell efficiency and solar panel performance through the enhancement of our existing products, development of new techniques, and by reductions in manufacturing cost and complexity. Our research and development group works closely with our manufacturing facilities, equipment suppliers and customers to improve solar cell design and to lower solar cell, solar panel and system product manufacturing and assembly costs. In addition, we have dedicated employees who work closely with our current and potential suppliers of crystalline silicon, a key raw material used in the manufacture of solar cells, to develop specifications that meet our standards and ensure high quality while at the same time controlling costs. We anticipate collaborating with SunPower in the future to develop new solar cell technologies through the Collaboration Agreement, with early stage research conducted in SunPower’s Silicon Valley research and development labs and commercialization-focused development and deployment innovation conducted in our fabs and international research facilities. We are also planning to create a research and development laboratory in Singapore that we expect will enable even greater access to the rich solar talent base in Singapore, the rest of Asia and Australia.

Manufacturing and Supplies

Manufacturing

We currently operate solar cell manufacturing facilities in the Philippines and Malaysia and solar cell assembly facilities in Mexico and France. We regularly evaluate our manufacturing capabilities in support of anticipated demand for our products and from time to time may determine to upgrade and expand, relocate or to shut down one or more facilities as opportunities to streamline our manufacturing operations become apparent.

As part of the solar panel manufacturing process, polysilicon is melted and grown into crystalline ingots and sliced into wafers by business partners specializing in those processes. The wafers are processed into solar cells in our manufacturing facilities located in the Philippines and Malaysia.

During fiscal year 2017, we completed the construction of the Maxeon 3 solar cell manufacturing facility that we own and operate in the Philippines which has an annual capacity of approximately 500 megawatts. The Maxeon 2 solar cell manufacturing facility we own and operate in Malaysia has a total rated annual capacity of over 700 megawatts and is currently being upgraded to over 500 megawatts of Maxeon 5 capacity.

We use our solar cells to manufacture Maxeon 5 and 6, Maxeon 3 and Maxeon 2 solar panels at our solar panel assembly facilities located primarily in Mexico and France. Our solar panel assembly facilities currently have a combined total rated annual capacity that matches our cell manufacturing capacity.

Supplies

We source the materials and components for our solar cells and panels both internally and from third-party suppliers based on quality, performance, and cost considerations. We typically assemble proprietary components, while we purchase generally available components from third-party suppliers. In a few cases, proprietary

 

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components are sole sourced. While we secure supply of these specific components, we may face production disruptions if the supplier is not fulfilling its obligations, and adoption of new tariffs between different countries may negatively affect the cost of some materials.

We purchase polysilicon, ingots, wafers and solar cells from various manufacturers on both a contracted and a purchase order basis. We work with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale. Crystalline silicon is the principal commercial material for solar cells and is used in several forms, including single-crystalline, or monocrystalline silicon, multi-crystalline, or polycrystalline silicon, ribbon and sheet silicon, and thin-layer silicon. Our solar cell value chain starts with high purity silicon called polysilicon. Polysilicon is created by refining quartz or sand.

Polysilicon is a critical raw material used in the production of our photovoltaic products. To maintain competitive manufacturing operations, we depend on our suppliers to timely deliver polysilicon in sufficient quantities and of appropriate quality. SunPower has historically purchased polysilicon that it resold to third-party ingot and wafer manufacturers who delivered wafers to SunPower that SunPower then used in the manufacturing of solar cells. We intend to continue this practice following the spin-off.

Due to a shortage of polysilicon experienced in the industry prior to 2008, SunPower entered into long-term fixed supply agreements for polysilicon with two suppliers for periods of up to 10 years to match its estimated customer demand forecasts and growth strategy, and these agreements were thereafter extended from time to time. The long-term fixed supply agreements with one of the suppliers expired in the first quarter of fiscal 2019 and the agreements with the second supplier currently expire in the fourth quarter of fiscal 2022. SunPower is not permitted to cancel or exit these agreements prior to their expiration. The agreements are structured as “take or pay” agreements that specify future quantities of polysilicon required to be purchased and the pricing of polysilicon required to be supplied. The agreements also provide for penalties or forfeiture of advanced deposits in the event SunPower terminates the arrangement. Additionally, under the agreements, SunPower is required to make prepayments to the suppliers over the term of the agreements.

As a result of an increase in industry-wide polysilicon manufacturing capacity and a decrease in global demand for polysilicon, polysilicon prices decreased significantly over the past decade. SunPower negotiated with the polysilicon suppliers to reduce the purchase price for a substantial amount of polysilicon supplied pursuant to those agreements. Nevertheless, the purchase prices under SunPower’s remaining long-term fixed supply agreements continue to be higher than polysilicon prices currently available in the market.

In connection with the spin-off, we will enter into an agreement with SunPower pursuant to which we will effectively receive SunPower’s rights under the continuing long-term fixed supply agreements (including SunPower’s deposits and advanced payments thereunder) and, in return, we will agree to perform all of SunPower’s existing and future obligations under the agreements (including all take-or-pay obligations). See “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party Transactions—Agreements Between SunPower and Us—Back-to-Back Agreement.”

The agreements with the remaining supplier provide for fixed or inflation-adjusted pricing and have prevented SunPower, and are expected to prevent us, from benefiting from decreased polysilicon costs and have caused SunPower, and are expected to cause us, to purchase polysilicon at unfavorable pricing and payment terms relative to prices available in the market and payment terms available to our competitors. In addition, in the event that we have inventory in excess of short-term requirements of polysilicon in our manufacturing operations, in order to reduce inventory or improve working capital, we may, as SunPower has periodically done, elect to sell such inventory in the marketplace at prices below our purchase price, thereby incurring a loss.

As of December 29, 2019, future purchase obligations under the long-term fixed supply agreements totaled $348.6 million and advance payment obligations to suppliers totaled $121.4 million, of which $107.4 million is classified as Advances to suppliers, current portion in our Combined Balance Sheets. See “Note 8. Commitments and Contingencies” for outstanding future purchase commitments.

 

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During the fiscal year ended December 29, 2019, we recognized charges of $56.5 million related to losses incurred as a result of ancillary sales to third parties of excess polysilicon procured under our long-term fixed supply agreements. In addition, we estimate that we paid $88.7 million above the market price of polysilicon consumed in our manufacturing process, which is the difference between our contractual cost under the long-term fixed supply agreements and the price of polysilicon available in the market as derived from publicly available information, multiplied by the volume of polysilicon we have consumed. As of December 29, 2019, based on the then price of polysilicon available in the market, we estimated the remaining contractual commitments under SunPower’s long-term fixed supply agreements for polysilicon that is above market to be approximately $258.2 million, which we expect to incur from 2020 through 2022. A hypothetical 10% increase or decrease in polysilicon prices would cause our estimated total loss to decrease or increase, respectively, by approximately $9.0 million.

For more information about risks related to our supply chain and risks related to the Maxeon Business generally, see “Item 3. Key Information—3.D. Risk Factors.”

Key Corporate Functions

In connection with the spin-off, we will create standalone corporate and support functions for our business and operations. Key corporate functions are expected to include tax, treasury, accounting, internal audit, investor relations, human resources, communications, legal and corporate governance, information technology, facilities, and administrative support services.

For a period of one year beginning on the date of the distribution (with an option to extend for up to an additional 180 days by mutual written agreement of us and SunPower), SunPower will continue to provide and/or make available various administrative services and assets to us pursuant to the Transition Services Agreement. Services to be provided by SunPower to us will include certain services related to finance, accounting, business technology, human resources information systems, human resources, facilities, document management and record retention, relationship and strategy management and module operations, technical and quality support. In consideration for such services provided by SunPower, we will pay a fee to SunPower for the services provided in an amount intended to allow SunPower to recover all of its direct and indirect costs incurred in providing those services, plus a standard markup, and subject to a 25% increase following an extension of the initial term (unless otherwise mutually agreed to by us and SunPower).

Intellectual Property

We rely on a combination of patent, copyright, trade secret, trademark, and contractual protections to establish and protect our proprietary rights. We typically require our business partners to enter into confidentiality and non-disclosure agreements before we disclose any sensitive aspects of our solar cells, technology, or business plans. We typically enter into proprietary information agreements with employees, consultants, vendors, customers, and joint venture partners.

We own multiple patents and patent applications that cover aspects of the technology in the solar cells and panels that we currently manufacture and market. We continue to file for and receive new patent rights on a regular basis. The lifetime of a utility patent typically extends for 20 years from the date of filing with the relevant government authority. We assess appropriate opportunities for patent protection of those aspects of our technology, designs, methodologies, and processes that we believe provide significant competitive advantages to us, and for licensing opportunities of new technologies relevant to our business. As of December 29, 2019, we licensed from SunPower 314 patents and 137 pending patent applications in the United States. We held 581 patents and 456 pending patent applications in jurisdictions other than the United States. While patents are an important element of our intellectual property strategy, our business as a whole is not dependent on any one

 

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patent or any single pending patent application. We additionally rely on trade secret rights to protect our proprietary information and know-how. We employ proprietary processes and customized equipment in our manufacturing facilities. We therefore require employees and consultants to enter into confidentiality agreements to protect them.

When appropriate, we enforce our intellectual property rights against other parties. For more information about risks related to our intellectual property, see “Item 3. Key Information—3.D. Risk Factors.”

Competition

The market for solar electric power technologies is competitive and continually evolving, resulting in price reductions in the market and reduced margins which may continue and could lead to loss of market share. Our solar power products and systems compete with many competitors in the solar power market, including, but not limited to: Hanwha QCELLS Corporation, JA Solar Holdings Co., Trina Solar Ltd., Jinko Solar, First Solar Inc., Canadian Solar Inc., Panasonic, LG Solar and LONGi Solar.

In addition, universities, research institutions, and other companies have brought to market alternative technologies, such as thin-film solar technology, which compete with our photovoltaic technology in certain applications. Furthermore, the solar power market in general competes with other energy providers such as electricity produced from conventional fossil fuels supplied by utilities and other sources of renewable energy, including wind, hydro, biomass, solar thermal, and emerging distributed generation technologies such as micro-turbines, sterling engines and fuel cells.

In the large-scale on-grid solar power systems market, we face direct competition from a number of companies, including those that manufacture, distribute, or install solar power systems as well as construction companies that have expanded into the renewable sector. In addition, we will occasionally compete with distributed generation equipment suppliers.

We believe that the key competitive factors in the market for solar power systems include:

 

   

total system price;

 

   

LCOE evaluation;

 

   

customer cost of energy evaluation;

 

   

power efficiency and performance;

 

   

aesthetic appearance of solar panels and systems;

 

   

interface with standard mounting systems;

 

   

strength of distribution relationships;

 

   

commercial payment terms;

 

   

established sales channels to customers;

 

   

timeliness of new product introductions; and

 

   

warranty protection, quality, and customer service.

We believe that we can compete favorably with respect to each of these elements, although we may be at a disadvantage in comparison to larger companies with broader product lines, greater technical service and support capabilities, and financial resources. See “Item 3. Key Information—3.D. Risk Factors” for more detail.

 

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Government Regulation

Public Policy Considerations

Different public policy mechanisms have been used by governments to accelerate the adoption and use of solar power. Examples of customer-focused financial mechanisms include capital cost rebates, performance-based incentives, feed-in tariffs, tax credits, renewable portfolio standards, net metering, and carbon regulations. Some of these government mandates and economic incentives are scheduled to be reduced or to expire, or could be eliminated altogether. Capital cost rebates provide funds to customers based on the cost and size of a customer’s solar power system. Performance-based incentives provide funding to a customer based on the energy produced by their solar power system. Feed-in tariffs pay customers for solar power system generation based on energy produced, at a rate generally guaranteed for a period of time. Tax credits reduce a customer’s taxes at the time the taxes are due. Renewable portfolio standards mandate that a certain percentage of electricity delivered to customers come from eligible renewable energy resources. Net metering allows customers to deliver to the electric grid any excess electricity produced by their on-site solar power systems, and to be credited for that excess electricity at or near the full retail price of electricity. Carbon regulations, including cap-and-trade and carbon pricing programs, increase the cost of fossil fuels, which release climate-altering carbon dioxide and other greenhouse gas emissions during combustion.

In addition to the mechanisms described above, in Europe, the European Commission has mandated that its member states adopt integrated national climate and energy plans aimed at increasing their renewable energy targets to be achieved by 2030, which could benefit the deployment of solar.

Environmental Regulations

We use, generate, and discharge toxic, volatile, or otherwise hazardous chemicals and wastes in our research and development, manufacturing, and construction activities. We are subject to a variety of foreign, U.S. federal and state, and local governmental laws and regulations related to the purchase, storage, use, and disposal of hazardous materials. We believe that we have all environmental permits necessary to conduct our business and expect to obtain all necessary environmental permits for future activities. We believe that we have properly handled our hazardous materials and wastes and have appropriately remediated any contamination at any of our premises. For more information about risks related to environmental regulations, see “Item 3. Key Information—3.D. Risk Factors.”

Legal Proceedings

We are a party to various litigation matters and claims that arise from time to time in the ordinary course of our business. Further, certain legal claims and litigation involving the Maxeon Business will be retained by SunPower after the spin-off. While we believe that the ultimate outcome of such matters will not have a material adverse effect on us, their outcomes are not determinable and negative outcomes may adversely affect our financial position, liquidity, or results of operations.

In addition, in connection with the separation, we entered into a Separation and Distribution Agreement pursuant to which SunPower has agreed to indemnify us for certain litigation claims in which we or one of our subsidiaries is named as a defendant or party.

 

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4.C. ORGANIZATIONAL STRUCTURE

Organizational Structure

We are currently a wholly owned subsidiary of SunPower. Following the spin-off, we will be a separate, standalone company independent of SunPower. SunPower will not retain any ownership interest in us. See Item 4. “Information on the Company—4.B. Business Overview” for additional information.

Significant Subsidiaries

Below is a list of subsidiaries that will have total assets exceeding 10% of our combined assets, or sales and operating revenues in excess of 10% of our combined sales, immediately following the spin-off:

 

Name

   Country of
Incorporation
   % of Equity
Interest
 

SunPower Philippines Manufacturing Ltd.

   Cayman Islands      100  

SunPower Malaysia Manufacturing Sdn. Bhd.

   Malaysia      100  

SunPower Systems Sarl

   Switzerland      100  

SunPower Energy Solutions France SAS

   France      100  

SunPower Systems International Limited

   Hong Kong      80  

4.D. PROPERTY, PLANTS AND EQUIPMENT

Our corporate headquarters is located in Singapore. The principal office for our international operations, which is also our registered office, is located in Singapore.

We believe that our current manufacturing and production facilities have adequate capacity for our medium-term needs. To ensure that we have sufficient manufacturing capacity to meet future production needs, we regularly review the capacity and utilization of our manufacturing facilities. The Malaysia Atomic Energy Licensing Board, Malaysian Investment Development Authority, Malaysia Department of Environment, Mexico Secretaria de Proteccion al Ambiente, Philippines Department of Environment and Natural Resources, Laguna Lake Development Authority, Philippines Economic Zone Authority, Philippines Department of Health/Food and Drugs Authority and other regulatory agencies regulate the approval for use of manufacturing facilities for photovoltaic products and equipment, and compliance with these regulations may require a substantial amount of validation time prior to start-up and approval. Accordingly, it is important to our business that we ensure we have sufficient manufacturing capacity to meet our future production needs.

Major Facilities

The following table sets forth our most significant facilities as of December 29, 2019:

 

Location

   Size of Site
(in square
feet)
     Held      Lease
Term
  

Major Activity

France

     27,000        Leased      2023    Global support offices

France

     42,000        Owned      NA    Solar module assembly facility

France

     36,000        Owned      NA    Solar module assembly facility

Malaysia

     885,000        Owned      NA    Solar cell manufacturing facility

Mexico

     191,000        Leased      2026    Solar module assembly facility

Mexico

     320,000        Leased      2021    Solar module assembly facility

Philippines

     641,000        Owned      NA    Former solar cell manufacturing facility

Philippines

     132,000        Owned      NA    Former solar module assembly facility

Philippines

     280,000        Leased      2024    Solar cell manufacturing support and storage facility

Philippines

     390,000        Owned      NA    Solar cell manufacturing facility

Philippines

     65,000        Owned      NA    Global support offices

 

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In addition to these facilities, we are also in the process of procuring space for our principal executive offices in Singapore.

We believe that we have satisfactory title to our plants and facilities in accordance with standards generally accepted in our industry. We believe that all of our current production facilities are in good operating condition. As of December 29, 2019, the combined net book value of our property, plant and equipment was $281.2 million.

Environmental Matters

We integrate core values of environmental protection into our business strategy to protect the environment, to add value to the business, manage risk and enhance our reputation.

We are subject to laws and regulations concerning the environment, safety matters, regulation of chemicals and product safety in the countries where we manufacture and sell our products or otherwise operate our business. As a result, we have established internal policies and standards that aid our operations in systematically identifying relevant hazards, assessing and mitigating risks and communicating risk information. These internal policies and standards are in place to ensure our operations comply with relevant environmental, health and safety laws and regulations, and that periodic audits of our operations are conducted. The potential risks we identify are integrated into our business planning, including investments in reducing safety and health risks to our associates and reducing our impact on the environment. We have also dedicated resources to monitor legislative and regulatory developments and emerging issues to anticipate future requirements and undertake policy advocacy when strategically relevant.

4.E. UNRESOLVED STAFF COMMENTS

Not applicable.

 

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5.A. OPERATING RESULTS

This operating and financial review should be read together with the section captioned “Selected Financial Data,” “Item 4. Information on the Company—4.B. Business Overview” and the combined financial statements and condensed combined financial statements of the Maxeon Business and the related notes to those statements included elsewhere in this Form 20-F. Our reference to the combined financial statement(s) includes the relevant condensed combined financial statement(s) for the periods presented throughout the rest of this section. Among other things, those financial statements include more detailed information regarding the basis of preparation for the following information. The combined financial statements of the Maxeon Business have been prepared in accordance with GAAP. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Form 20-F, our actual results may differ materially from those anticipated in these forward-looking statements. Please see “Special Note About Forward-Looking Statements” in this Form 20-F.

Proposed Separation From SunPower

On November 11, 2019, SunPower announced its intention to separate into two independent publicly traded companies: one comprising its solar panel cell and solar manufacturing operations and supply to resellers and commercial and residential end customers outside of the Domestic Territory, which will conduct business as Maxeon Solar Technologies, Ltd., a company incorporated under the laws of Singapore and currently a wholly owned subsidiary of SunPower, and one comprising its solar panel manufacturing operations, equipment supply, and sales of energy solutions and services in the Domestic Territory, including direct sales of turn-key engineering, procurement and construction services, sales to its third-party dealer network, sales of energy under power purchase agreements, storage and services solutions, cash sales and long-term leases directly to end customers, which will continue as SunPower Corporation.

SunPower entered into the Investment Agreement with us, TZS and, for the limited purposes set forth therein, Total. In addition, SunPower entered into the Separation and Distribution Agreement with us.

Pursuant to the Separation and Distribution Agreement and the Investment Agreement: (1) SunPower will contribute certain non-U.S. operations and assets of its SunPower Technologies business unit to us (referred to as the “separation”), (2) SunPower will then spin us off through a pro rata distribution to its shareholders of 100% of its interest in us (referred to as the “distribution” and together with the separation, the “spin-off”), and (3) immediately after the distribution, TZS will purchase from us (referred to as the “investment,” and together with the spin-off, the “Transactions”) shares that will, in the aggregate, represent approximately 28.848% of our outstanding shares after giving effect to the Transactions for $298 million. The spin-off is intended to be tax-free to SunPower shareholders for Singapore income and withholding tax purposes and for U.S. federal income tax purposes.

In connection with the Transactions and concurrently with the distribution, we and SunPower will also enter into the Ancillary Agreements, that will govern relationships between us and SunPower following the distribution. In addition, at the closing of the Investment, TZS, Total and Maxeon Solar will enter into a Shareholders Agreement (the “Shareholders Agreement”).

The process of completing the proposed separation has been and is expected to continue to be time-consuming and involves significant costs and expenses. We expect to incur separation costs of up to $25.0 million during fiscal year 2020. As of March 29, 2020, we also expect capital investments of approximately $230.0 million to ramp up production of our next generation technology through fiscal year 2021.

Additionally, following the spin-off, we must maintain an independent corporate overhead. Due to the loss of economies of scale and the necessity of establishing independent functions for each company, the separation from SunPower into two independent companies is expected to result in total dis-synergies of approximately $10.0 million annually, which costs are primarily associated with corporate functions such as finance, legal, information technology and human resources.

 

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Due to the scale of SunPower’s businesses and its global footprint (among other factors), the separation process is extremely complex and requires effort and attention from employees throughout SunPower’s organization. For example, employees of the business that will become part of Maxeon Solar must be transitioned to new payroll and other benefit platforms. Outside the organization, SunPower must notify and establish separation readiness among customers, business partners and suppliers so that business relationships all over the world may continue seamlessly following the completion of the separation. Administratively, the separation involves the establishment of new customer and supplier accounts, new bank accounts, legal reorganizations and contractual assignments in various jurisdictions throughout the world, and the creation and maintenance of separation management functions, to plan and execute the separation process in a timely fashion. For more information on the risks involved in the separation process, see “Risk Factors—Risks Related to the Separation.”

Basis of Presentation

Standalone financial statements have not been historically prepared for our business. Our combined financial statements have been derived from the consolidated financial statements and accounting records of SunPower as if it operated on its own during the period presented and were prepared in accordance with GAAP. The primary basis for presenting consolidated financial statements is when one entity has a controlling financial interest in another entity. As there is no controlling financial interest present between or among the entities that comprise our business, we are preparing our financial statements on a combined basis. SunPower’s investment in our business is shown in lieu of equity attributable to Maxeon Solar as there is no consolidated entity for which SunPower holds an equity interest in. SunPower’s investment represents its interest in the recorded net assets of Maxeon Solar.

Our Combined Statements of Operations include all sales and costs directly attributable to Maxeon Solar, including costs for facilities, functions and services used by Maxeon Solar. The Combined Statements of Operations also reflect allocations of general corporate expenses from SunPower including, but not limited to, executive management, finance, legal, information technology, employee benefits administration, treasury, risk management, procurement, and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenue or headcount as relevant measures. Management of Maxeon Solar and SunPower consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, Maxeon Solar. The allocations may not, however, reflect the expense we would have incurred as a standalone company for the period presented. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

For further information on the basis of presentation of the combined financial statements see “Note 1. Background and Basics of Presentation” to our combined financial statements included elsewhere in this Form 20-F.

Items You Should Consider When Evaluating Our Combined Financial Statements and Assessing Our Future Prospects

Our results of operations, financial position and cash flows could differ from those that would have resulted if we operated autonomously or as an entity independent of SunPower in the periods for which the combined financial statements and the unaudited condensed combined financial statements are included in this Form 20-F, and such information may not be indicative of our future operating results or financial performance. As a result, you should consider the following facts when evaluating our historical results of operations and assessing our future prospects:

 

   

For the period covered by our combined financial statements, our business was operated within legal entities which hosted portions of other SunPower businesses. For example, certain assets, liabilities and results of operations of subsidiaries related to worldwide power plant project development, project sales will remain with SunPower and are not included in these combined financial statements as they are not core to our historical and future business.

 

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For annual reporting purposes, income taxes attributable to our business have been determined using the separate return approach, under which current and deferred income taxes are calculated as if a separate tax return had been prepared in each tax jurisdiction. In various tax jurisdictions, our and SunPower’s businesses operated within the same legal entity and certain SunPower subsidiaries were part of SunPower’s tax group. This required an assumption that the subsidiaries and operations of Maxeon Solar in those tax jurisdictions operated on a standalone basis and constitute separate taxable entities. Actual outcomes and results could differ from these separate tax return estimates, including those estimates and assumptions related to realization of tax benefits within SunPower’s tax groups.

 

   

For interim reporting purposes, income taxes attributable to our business have been determined in accordance with FASB guidance for interim reporting of income tax, under which we have computed our provision for income taxes based on a projected annual effective tax rate while excluding loss jurisdictions which cannot be benefited. Our projected effective tax rate is based on forecasted annualized results which may fluctuate significantly in future periods, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable duration and severity of the COVID-19 pandemic on our operating results.

 

   

Our combined financial statements also include an allocation from SunPower for certain management and support functions that we would incur as a publicly traded company that we have not previously incurred. These costs include, but are not limited to, executive management, finance, legal, information technology, employee benefits administration, treasury, risk management, procurement, and other shared services. The allocation of these additional expenses, which are included in the combined financial statements, may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for the period presented.

 

   

In December 2015, SunPower issued $425.0 million in principal amount of 4.00% debentures due 2023 (the “4.00% debentures due 2023”), the proceeds of which were used to finance the solar cell manufacturing facility in the Philippines which relates to our historical business. As the 4.00% debentures due 2023 are legal obligations of SunPower and will not be transferred to us, they are not reflected in our Combined Balance Sheets and Condensed Combined Balance Sheets in the periods presented. However, the $17.0 million of interest expense and the $2.5 million of debt issuance cost amortization associated with the 4.00% debentures due 2023 are reflected in our Combined Statements of Operations and Condensed Combined Statements of Operations to reflect our historical cost of doing business. This cost may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for the period presented nor future periods.

 

   

We expect to incur one-time costs after the consummation of the spin-off relating to the transfer of information technology systems from SunPower to us.

 

   

As part of SunPower, we historically benefited from discounted pricing with certain suppliers as a result of the buying power of SunPower. As a separate entity, we may not obtain the same level of supplier discounts historically received.

 

   

Prior to the spin-off, as part of the separation, a Maxeon Solar subsidiary intends to issue a promissory note for a principal amount of $100.0 million to SunPower in exchange for certain intellectual property necessary for the operation of the Maxeon Business. The promissory note is to be repaid to SunPower by the Maxeon Solar subsidiary in connection with the spin-off with a combination of cash on hand and funds received in connection with the spin-off. In addition, on July 17, 2020, we entered into debt financing arrangements pursuant to which we will have a total available borrowing capacity of up to $337.0 million (in addition to debt that was then outstanding). The related interest expense associated with such debt, which is expected to be between $17.2 million and $21.5 million per year, is not reflected in our combined financial statements. As of the close of the spin-off, we are not expected to have any borrowings outstanding but this may change depending on our operating and capital expenditure requirements in the future.

 

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The preparation of financial statements requires management to make certain estimates and assumptions, either at the balance sheet date or during the period that affects the reported amounts of assets and liabilities as well as expenses. In particular, due to the fact that the presented combined financial statements have been carved out from SunPower financial statements, actual outcomes and results could differ from those estimates and assumptions as indicated in the critical accounting policies and estimates section of this Form 20-F. See “Note 1. Background and Basis of Presentation” to our combined financial statements included elsewhere in this Form 20-F and in the “Critical Accounting Policies and Significant Estimates” section within this Item 5.A.

Overview

We are in the business of solar panel cell and solar manufacturing operations and supply to resellers and commercial and residential end customers outside of the Domestic Territory, which will conduct business as Maxeon Solar Technologies, Ltd., a company incorporated under the laws of Singapore and currently a wholly owned subsidiary of SunPower. We sell our solar panels and balance of system components primarily to dealers, project developers, system integrators and distributors, and recognize revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. There are no rights of return. Other than standard warranty obligations, there are no significant post-shipment obligations (including installation, training or customer acceptance clauses) with any of our customers that could have an impact on revenue recognition. Our revenue recognition policy is consistent across all geographic areas.

See “Note 4. Revenue from Contracts with Customers” to our combined financial statements. Our combined financial statements have been derived from the consolidated financial statements and accounting records of SunPower.

During the fiscal quarter ended March 29, 2020 and fiscal year 2019, we had sales of $69.0 million and $426.5 million, respectively, to SunPower representing the sale of solar modules to SunPower based on transfer prices determined based on management’s assessment of market-based pricing terms.

Unit of Power

When referring to our facilities’ manufacturing capacity, and total sales, the unit of electricity in watts for kilowatts (“KW”), megawatts (“MW”), and gigawatts (“GW”) is direct current (“DC”), unless otherwise noted as alternating current (“AC”).

Levelized Cost of Energy (“LCOE”)

LCOE is an evaluation of the life-cycle energy cost and life-cycle energy production of an energy producing system. It allows alternative technologies to be compared across different scales of operation, investment or operating time periods. It captures capital costs and ongoing system-related costs, along with the amount of electricity produced, and converts them into a common metric. Key drivers for LCOE measures for photovoltaic products include panel efficiency, capacity factors, reliable system performance, and the life of the system.

Customer Cost of Energy (“CCOE”)

Our customers are focused on reducing their overall cost of energy by intelligently integrating solar and other distributed generation sources, energy efficiency, energy management, and energy storage systems with their existing utility-provided energy. The CCOE measurement is an evaluation of a customer’s overall cost of energy, taking into account the cost impact of each individual generation source (including the utility), energy storage systems, and energy management systems. The CCOE measurement includes capital costs and ongoing operating costs, along with the amount of electricity produced, stored, saved, or re-sold, and converts all of these variables into a common metric. The CCOE metric allows customers to compare different portfolios of generation sources, energy storage, and energy management, and to tailor their solution towards optimization.

 

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Seasonal Trends and Economic Incentives

Our business is subject to industry-specific seasonal fluctuations including changes in weather patterns and economic incentives, among others. Sales have historically reflected these seasonal trends with the largest percentage of total revenues realized during the last two quarters of a fiscal year. The installation of solar power components and related revenue may decline during cold and/or rainy winter months. In the United States, many customers make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons.

Trends and Uncertainties

Demand

We are in the process of addressing many challenges facing our business. Our business is subject to industry-specific seasonal fluctuations including changes in weather patterns and economic incentives, among others. Sales have historically reflected these seasonal trends with the largest percentage of total revenues realized during the last two quarters of a fiscal year. The installation of solar power components and related revenue may decline during cold and/or rainy winter months.

During fiscal year 2018 we faced market challenges, including competitive solar product pricing pressure including the impact of tariffs imposed pursuant to Section 201 and Section 301 of the Trade Act of 1974. On January 23, 2018, President Trump issued Proclamation 9693, which approved recommendations to provide relief to U.S. manufacturers and imposed safeguard tariffs on imported solar cells and modules, based on the investigations, findings, and recommendations of the International Trade Commission. The tariffs went into effect on February 7, 2018. While solar cells and modules based on IBC technology, like our Maxeon 3, Maxeon 2 and related products, were granted exclusion from these safeguard tariffs on September 19, 2018, our solar products based on other technologies continue to be subject to the safeguard tariffs. Additionally, the USTR initiated an investigation under Section 301 of the Trade Act of 1974 into the government of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The USTR imposed additional import duties of up to 25% on certain Chinese products covered by the Section 301 remedy. These tariffs include certain solar power system components and finished products, including those purchased from our suppliers for use in our products and used in our business. Imposition of these tariffs—on top of anti-dumping and countervailing duties on Chinese solar cells and modules, imposed under the prior administration—has resulted and is likely to continue to result in a wide range of impacts to the U.S. solar industry, global manufacturing market and our business, including market volatility, price fluctuations, and demand reduction. Uncertainties associated with the Section 201 and Section 301 trade cases prompted us to adopt a restructuring plan and implement initiatives to reduce operating expenses and cost of revenue overhead and improve cash flow. During fiscal year 2018, we incurred total tariff charges of approximately $42.5 million. During fiscal year 2019, we incurred total tariff charges of approximately $4.6 million. During the fiscal quarters ended March 29, 2020 and March 31, 2019, we incurred tariff charges of approximately $0.2 million and $2.0 million, respectively.

We continue to focus on investments that we expect will offer the best opportunities for growth including our industry-leading Maxeon 5 and 6 cell and panel technology.

Supply

We continue to focus on producing our new lower cost, high efficiency Performance Line of solar panels, which will enhance our ability to rapidly expand our global footprint with minimal capital cost.

We continue to see significant and increasing opportunities in technologies and capabilities adjacent to our core product offerings that can significantly reduce our customers’ CCOE, including the integration of energy storage and energy management functionality into our systems, and have made investments to realize those

 

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opportunities, enabling our customers to make intelligent energy choices by addressing how they buy energy, how they use energy, and when they use it. We have added advanced module-level control electronics to our portfolio of technology designed to enable longer series strings and significant balance of system components cost reductions in large arrays. We currently offer solar panels that use microinverters designed to eliminate the need to mount or assemble additional components on the roof or the side of a building and enable optimization and monitoring at the solar panel level to ensure maximum energy production by the solar system.

We continue to improve our unique, differentiated solar cell and panel technology. We emphasize improvement of our solar cell efficiency and LCOE and CCOE performance through enhancement of our existing products, development of new products and reduction of manufacturing cost and complexity in conjunction with our overall cost-control strategies. We are now producing our solar cells with over 25% efficiency in the lab and have reached production panel efficiencies over 24%.

We previously reduced our overall solar cell manufacturing output in an ongoing effort to match profitable demand levels, with increasing bias toward our highest efficiency Maxeon 3 and Maxeon 5 and 6 products, which utilizes our latest solar cell technology, and our Performance Line of solar panels, which utilize conventional cell technology that we purchase from third parties in low-cost supply chain ecosystems such as China. SunPower previously closed our Fab 2 cell manufacturing facility and our panel assembly facility in the Philippines and are focusing on our latest generation, lower cost panel assembly facilities in Mexico. As part of this realignment, we reduced our back-contact panel assembly capacity and increased production of our new Performance Line of solar panels.

We are focused on reducing the cost of our solar panels, including working with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale and reducing manufacturing cost and complexity in conjunction with our overall cost-control strategies. We believe that the global demand for solar panels is highly elastic and that our aggressive, but achievable, cost reduction roadmap will reduce installed costs for our customers and drive increased demand for our solar panels.

We also work with our suppliers and partners to ensure the reliability of our supply chain. We have contracted with some of our suppliers for multi-year supply agreements, under which we have annual minimum purchase obligations. For more information about our purchase commitments and obligations, see “Liquidity and Capital Resources—Contractual Obligations”, “Note 8. Commitments and Contingencies” to our combined financial statements and “Note 6. Commitments and Contingencies” to our condensed combined financial statements included elsewhere in this Form 20-F.

We currently believe our supplier relationships and various short- and long-term contracts will afford us the volume of material and services required to meet our planned output; however, we face the risk that the pricing of our long-term supply contracts may exceed market value. For example, we purchase our polysilicon under fixed-price long-term supply agreements. When the purchases under these agreements significantly exceed market value they may result in inventory write-downs based on expected net realizable value. Additionally, existing arrangements from prior years have resulted in above current market pricing for purchasing polysilicon, resulting in inventory losses we have realized. For several years, we have elected to sell polysilicon inventory in excess of short-term needs to third parties at a loss, and may enter into further similar transactions in future periods.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” included elsewhere in this Form 20F.

Impairment of Manufacturing Assets

In the second quarter of fiscal year 2018, SunPower announced its proposed plan to transition its corporate structure into upstream and downstream business units, and its long-term strategy to upgrade its IBC technology

 

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to A–Series (Maxeon 5). Accordingly, SunPower expected to upgrade the equipment associated with its manufacturing operations for the production of Maxeon 5 and 6 over the next several years. In connection with these planned changes that would impact the utilization of its manufacturing assets, continued pricing challenges in the industry, as well as the then ongoing uncertainties associated with the Section 201 trade case, SunPower determined indicators of impairment existed and therefore performed a recoverability test by estimating future undiscounted net cash flows expected to be generated from the use of these asset groups. Based on its fixed asset investment recoverability test performed, SunPower determined that its estimate of future undiscounted net cash in-flows was insufficient to recover the carrying value of the upstream business unit’s assets and consequently performed an impairment analysis by comparing the carrying value of the asset group to its estimated fair value.

Consistent with its accounting practices, in estimating the fair value of the long-lived assets, SunPower made estimates and judgments that it believes reasonable market participants would make. The impairment evaluation utilized a discounted cash flow analysis inclusive of assumptions for forecasted profit, operating expenses, capital expenditures, remaining useful life of its manufacturing assets, and a discount rate, as well as market and cost approach valuations performed by a third party valuation specialist, all of which require significant judgment by SunPower management. In accordance with this evaluation, SunPower recognized a non-cash impairment charge of $369.2 million during its fiscal quarter ended July 1, 2018. Out of SunPower’s impairment charge, we recognized $367.9 million, of which $354.8 million, $12.8 million, and $0.3 million were allocated to “Impairment of manufacturing assets,” “Research and development” and “Sales, general and administrative,” respectively, in our Combined Statement of Operations for the year ended December 30, 2018. There were no significant impairment charges recorded in fiscal year 2019 as well as during the three months ended March 29, 2020 and March 31, 2019.

Critical Accounting Policies and Significant Estimates

Our significant accounting policies are set out in “Note 1. Background and Basis of Presentation” to our combined financial statements included elsewhere in this Form 20-F, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our audited combined carve-out financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are those that reflect significant judgments or uncertainties, and which could potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates and judgments or require us to revise the carrying value of our assets or liabilities as of the date of issuance of this Form 20-F. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

There were no other significant changes in our critical accounting estimates during the fiscal quarter ended March 29, 2020 compared to those described below.

Basis of Presentation

Standalone financial statements have not been historically prepared for our business. Our combined financial statements have been derived from the consolidated financial statements and accounting records of SunPower as if we had operated on our own during the period presented and were prepared in accordance with GAAP. The primary basis for presenting consolidated financial statements is when one entity has a controlling financial interest in another entity. As there is no controlling financial interest present between or among the

 

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entities that comprise SunPower’s Maxeon Business, we are preparing the financial statements of the Company on a combined basis. SunPower’s investment in our business is shown in lieu of equity attributable to us as there is no consolidated entity in which SunPower holds an equity interest. SunPower’s investment represents its interest in the recorded net assets of the Company. See “Note 10. Transactions with Parent and Net Parent Investment” to our combined financial statements and “Note 8. Transactions with Parent and Net Parent Investment” to our condensed combined financial statements.

Our Combined Statements of Operations and Condensed Combined Statements of Operations include all sales and costs directly attributable to us, including costs for facilities, functions and services used by us. The Combined Statements of Operations and Condensed Combined Statements of Operations also reflect allocations of general corporate expenses from SunPower including, but not limited to, executive management, finance, legal, information technology, employee benefits administration, treasury, risk management, procurement, and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenue or headcount as relevant measures. Management of Maxeon Solar and SunPower consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, us. The allocations may not, however, reflect the expense we would have incurred as a standalone company for the period presented. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

The following paragraphs describe the significant estimates and assumptions applied by management in the preparation of the combined financial statements.

The combined financial statements include the assets and liabilities of SunPower’s subsidiaries that are attributable to our business, representing its solar cell and panel manufacturing operations and activities outside the Domestic Territory. These subsidiaries were previously included in SunPower’s SunPower Technologies Segment (“SunPower Technologies”). While also included in SunPower Technologies, the assets, liabilities and results of operations of subsidiaries related to worldwide power plant project development, project sales, and operations associated with the Hillsboro, Oregon, solar cell manufacturing facility acquired from SolarWorld Americas in 2018 (the “Oregon Operations”) are excluded from our combined financial statements as they are not core to our historical and future business, and the Oregon Operations are retained by SunPower.

The assets and liabilities included in the Combined Balance Sheets and the Condensed Combined Balance Sheets were measured at the carrying amounts recorded in SunPower’s consolidated financial statements. Assets and liabilities were included within our financial statements to the extent that we were the legal owner of the asset or the primary obligor of the liability. Assets and liabilities that form a component of SunPower’s business may also be recognized in our financial statements to the extent that the assets and liabilities were directly attributable to our business or were exclusively used in or created by our historical operations.

The combined financial statements include third-party debt and the related interest expense when we were the legal obligor of the debt and when the borrowings were directly attributable to or incurred on behalf of us. SunPower’s long-term debt has not been attributed to us for the period presented because SunPower’s borrowings are not our legal obligation. In December 2015, SunPower issued $425.0 million in principal amount of its 4.00% senior convertible debentures due 2023 (the “4.00% debentures due 2023”), the proceeds of which were used to finance our solar cell manufacturing facility in the Philippines which relates to our historical business. As such, interest and other costs associated with the 4.00% debentures due 2023 are reflected in the Combined Statements of Operations and Condensed Combined Statements of Operations. However, as the 4.00% debentures due 2023 are legal obligations of SunPower and will not be transferred to us, they are not reflected in our Combined Balance Sheets and Condensed Combined Balance Sheets.

SunPower manages its global currency exposure by engaging in hedging transactions where management deems appropriate. This includes derivatives not designated as hedging instruments consisting of forward and

 

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option contracts used to hedge re-measurement of foreign currency denominated monetary assets and liabilities primarily for intercompany transactions, receivables from customers, and payables to third parties. Our combined financial statements include these hedging instruments to the extent the derivative instrument was designated as a hedging instrument of a hedged item (e.g., inventory) that is included in the combined financial statements. Any changes in fair value of the hedging instrument previously recognized in SunPower’s accumulated other comprehensive income for cash flow hedges are also included.

SunPower maintains various stock-based compensation plans at a corporate level. Our employees participate in those programs and a portion of the cost of those plans is included in our combined financial statements. SunPower also has defined benefit plans at a subsidiary level for certain non-U.S. employees. Where a legal entity within us sponsors the plan, the related financial statement amounts are included in the combined financial statements following the single employer accounting model.

As described in “Note 13. Income Taxes” to our combined financial statements included elsewhere in this Form 20-F, in accordance with FASB guidance, current and deferred income taxes and related tax expense have been determined based on our standalone results by applying Accounting Standards Codification No. 740, Income Taxes (“ASC 740”). As a result of applying ASC 740 to our operations in each country using the separate return approach, under which current and deferred income taxes are calculated as if a separate tax return had been prepared in each tax jurisdiction. In various tax jurisdictions, SunPower and SunPower’s businesses operated within the same legal entity and certain SunPower’s subsidiaries were part of SunPower’s tax group. This required an assumption that the subsidiaries and operations of Maxeon Solar in those tax jurisdictions operated on a standalone basis and constitute separate taxable entities. Actual outcomes and results could differ from these separate tax return estimates, including those estimates and assumptions related to realization of tax benefits within SunPower’s tax groups. Uncertain tax positions represent those tax positions to which we are the primary obligor and are evaluated and accounted for as uncertain tax positions pursuant to ASC 740. Determining which party is the primary obligor to the taxing authority is dependent on the specific facts and circumstances of their relationship to the taxing authority.

As described in “Note 11. Income Taxes” to our condensed combined financial statements included elsewhere in this Form 20-F, income taxes attributable to our business have been determined in accordance with FASB guidance for interim reporting of income tax, under which we have computed our provision for income taxes based on a projected annual effective tax rate while excluding loss jurisdictions which cannot be benefited. Our projected effective tax rate is based on forecasted annualized results which may fluctuate significantly in future periods, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable duration and severity of the COVID-19 pandemic on our operating results. Current income tax liabilities related to entities which file jointly with SunPower and which transactions are not related to Maxeon Solar are assumed to be immediately settled with SunPower through Net Parent investment in the Condensed Combined Balance Sheets and the Net Parent contribution in the Condensed Combined Statements of Cash Flows.

Management believes that all allocations have been performed on a reasonable basis and reflect the services received by us, the cost incurred on behalf of us and our assets and liabilities. Although, the combined financial statements reflect management’s best estimate of all historical costs related to us, this may, however, not necessarily reflect what the results of operations, financial position, or cash flows would have been had we been a separate entity, nor our future results as it will exist upon completion of the proposed separation.

Revenue Recognition

We sell our solar panels and balance of system components primarily to dealers, project developers, system integrators and distributors, and recognize revenue at a point in time when control of such products transfers to the customer, which generally occurs upon shipment or delivery depending on the terms of the contracts with the customer. In determining the transaction price for revenue recognition, we evaluate whether the price is subject

 

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to refund or adjustment in determining the consideration to which we expect to be entitled. There are no rights of return; however, we may be required to pay consideration to the customer in certain instances of delayed delivery. We then allocate the transaction price to each distinct performance obligation based on their relative standalone selling price. Other than standard warranty obligations, there are no significant post-shipment obligations (including installation, training or customer acceptance clauses) with any of our customers that could have an impact on revenue recognition. Our revenue recognition policy is consistent across all geographic areas.

Allowance for Doubtful Accounts

For the fiscal years ended December 29, 2019 and December 30, 2018 and the three-month period ended March 31, 2019, we maintained allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. A considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts receivable. We make our estimates of the collectability of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends.

Effective December 30, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02, and ASU 2020-03 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. We recognize an allowance for credit loss at the time a receivable is recorded based on our estimate of expected credit losses and adjust this estimate over the life of the receivable as needed. We evaluate the aggregation and risk characteristics of a receivable pool and develop loss rates that reflect historical collections, current forecasts of future economic conditions over the time horizon we are exposed to credit risk, and payment terms or conditions that may materially affect future forecasts.

Inventories

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

We evaluate whether losses should be accrued on long-term inventory purchase commitments that may arise from firm, non-cancellable, and unhedged commitments for the future purchase of inventory items. Such losses are measured in the same way as inventory losses.

Under the long-term fixed supply agreements for polysilicon between SunPower and certain suppliers, pricing for purchases of polysilicon and specified quantities are set forth in the agreements. As a result of the significant declines in the prices of polysilicon available in the market due to an increase in industry-wide polysilicon manufacturing capacity and a decrease in global demand for polysilicon, the purchase prices set forth in the agreements currently exceed prices available in the market.

We evaluate the terms of our long-term inventory purchase agreements with suppliers, including joint ventures, for the procurement of polysilicon, ingots, wafers, and solar cells and establish accruals for estimated

 

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losses on adverse purchase commitments as necessary, such as lower of cost or net realizable value adjustments, forfeiture of advanced deposits and liquidated damages. Obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials, and actual consumption of these ordered materials are compared to expected demand regularly. We anticipate total obligations related to long-term supply agreements for inventories will be realized because quantities were less than our expected demand for our solar power products for the foreseeable future and because the raw materials subject to these long-term supply agreements are not subject to spoilage or other factors that would deteriorate its usability; however, if raw materials inventory balances temporarily exceed near-term demand, we may elect to sell such inventory to third parties to optimize working capital needs. In addition, because the purchase prices required by our long-term polysilicon agreements are significantly higher than current prices for similar materials available in the market, if we are not able to profitably utilize this material in our operations or elect to sell near-term excess, we may incur additional losses. Other market conditions that could affect the realizable value of our inventories and are periodically evaluated by us 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 price of polysilicon available in the market as compared to the price in our fixed-price arrangements, and product merchantability, among other factors. If, based on assumptions about expected demand and market conditions, we determine that the cost of inventories exceeds its net realizable value or inventory is excess or obsolete, or we enter into arrangements with third parties for the sale of raw materials that do not allow us to recover our current contractually committed price for such raw materials, we record a write-down or accrual 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, we may have higher gross margins when products that have been previously written down are sold in the normal course of business

Long-Lived Assets

We evaluate our long-lived assets, including property, plant and equipment, and other intangible assets with finite lives, for impairment whenever events or changes in circumstances arise. This evaluation includes consideration of technology obsolescence that may indicate that the carrying value of such assets may not be recoverable. The assessments require significant judgment in determining whether such events or changes have occurred. Factors considered important that could result in an impairment review include significant changes in the manner of use of a long-lived asset or in its physical condition, a significant adverse change in the business climate or economic trends that could affect the value of a long-lived asset, significant under-performance relative to expected historical or projected future operating results, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

For purposes of the impairment evaluation, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We exercise judgment in assessing such groupings and levels. We then compare the estimated future undiscounted net cash flows expected to be generated by the asset group (including the eventual disposition of the asset group at residual value) to the asset group’s carrying value to determine if the asset group is recoverable. If our estimate of future undiscounted net cash flows is insufficient to recover the carrying value of the asset group, we record an impairment loss in the amount by which the carrying value of the asset group exceeds the fair value. Fair value is generally measured based on (i) internally developed discounted cash flows for the asset group, (ii) third-party valuations, and (iii) quoted market prices, if available. If the fair value of an asset group is determined to be less than its carrying value, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs.

 

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Product Warranties

We generally provide a 25-year standard warranty for the solar panels that we manufacture for defects in materials and workmanship. The warranty provides that we will repair or replace any defective solar panels during the warranty period. Warranties of 25 years from solar panel suppliers are standard in the solar industry.

The warranty excludes system output shortfalls attributable to force majeure events, customer curtailment, irregular weather, and other similar factors. In the event that the system output falls below the warrantied performance level during the applicable warranty period, and provided that the shortfall is not caused by a factor that is excluded from the performance warranty, the warranty provides that we will pay the customer a liquidated damage based on the value of the shortfall of energy produced relative to the applicable warrantied performance level.

We maintain reserves to cover the expected costs that could result from these warranties. Our expected costs are generally in the form of product replacement or repair. Warranty reserves are based on our best estimate of such costs and are recognized as a cost of revenue. We continuously monitor product returns for warranty failures and maintain a reserve for the related warranty expenses based on various factors including historical warranty claims, results of accelerated lab testing, field monitoring, vendor reliability estimates, and data on industry averages for similar products. Due to the potential for variability in these underlying factors, the difference between our estimated costs and our actual costs could be material to our combined financial statements. If actual product failure rates or the frequency or severity of reported claims differ from our estimates or if there are delays in our responsiveness to outages, we may be required to revise our estimated warranty liability. Historically, warranty costs have been within our expectations.

Stock-Based Compensation

Our employees have historically participated in SunPower’s stock-based compensation plans. Stock-based compensation expense has been allocated to us based on the awards and terms previously granted to our employees as well as an allocation of SunPower’s corporate and shared functional employee expenses. The stock-based compensation expense is based on the measurement date fair value of the award and is recognized only for those awards expected to meet the service and performance vesting conditions on a straight-line basis over the requisite service period of the award. Stock-based compensation expense is determined at the aggregate grant level for service-based awards and at the individual vesting tranche level for awards with performance and/or market conditions. The forfeiture rate is estimated based on SunPower’s historical experience.

Restructuring Charges

We record charges associated with SunPower -approved restructuring plans to reorganize one or more of our business segments, to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes and accelerate innovation. Restructuring charges can include severance costs in connection with the termination of a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs. We record restructuring charges based on estimated employee terminations and site closure and consolidation plans. We accrue for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on existing plans, historical experiences and negotiated settlements.

Investments in Equity Interests

Investments in entities in which we can exercise significant influence, but do not own a majority equity interest or otherwise control, are accounted for under the equity method. We record our share of the results of these entities as “Equity in earnings (losses) of unconsolidated investees” on the Combined Statements of

 

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Operations and Condensed Combined Statements of Operations. We monitor our investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the entities and record reductions in carrying values when necessary. The fair value of privately held investments is estimated using the best available information as of the valuation date, including current earnings trends, undiscounted cash flows, and other company specific information, including recent financing rounds.

Accounting for Income Taxes

Our operations have historically been included in the tax returns filed by the respective SunPower entities of which our businesses are a part. Income tax expense and other income tax related information contained in these combined financial statements are presented on a separate return basis as if we filed our own tax returns. The separate return method applies the accounting guidance for income taxes to the standalone financial statements as if we were a separate taxpayer and a standalone enterprise for the period presented. Current income tax liabilities related to entities which file jointly with SunPower are assumed to be immediately settled with SunPower through Net Parent investment in the Combined Balance Sheets and Condensed Combined Balance Sheets and the Net Parent contribution in the Combined Statements of Cash Flows and Condensed Combined Statements of Cash Flows.

We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

We record accruals for uncertain tax positions when we believe that it is not more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We make adjustments to these accruals when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of adjustments for uncertain tax positions, as well as any related interest and penalties.

As applicable, interest and penalties on tax contingencies are included in “Benefit from (provision for) income taxes” in the Combined Statements of Operations and Condensed Combined Statements of Operations and such amounts were not material for the period presented. In addition, foreign exchange gains (losses) may result from estimated tax liabilities, which are expected to be settled in currencies other than the U.S. dollar.

The Tax Act and Jobs Act of 2017 (the “Tax Act”) also included a provision to tax Global Intangible Low-Taxed Income (“GILTI”) of foreign subsidiaries in excess of a deemed return on their tangible assets. Pursuant to the SEC guidance on accounting for the Tax Act, corporations are allowed to make an accounting policy election to either (i) recognize the tax impact of GILTI as a period cost (the “period cost method”) or (ii) account for GILTI in the corporation’s measurement of deferred taxes (the “deferred method”). In the fourth quarter of the fiscal year 2018, SunPower elected to recognize the tax impact of GILTI as a period cost under the period cost method.

The interim income tax expense and other income tax related information contained in these condensed combined financial statements are calculated in accordance with FASB guidance for interim reporting of income tax, based on a projected annual effective tax rate while excluding loss jurisdictions which cannot be benefited. Our projected effective tax rate is based on forecasted annualized results which may fluctuate significantly in future periods, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable duration and severity of the COVID-19 pandemic on our operating results. Current income tax liabilities related to entities which file jointly with SunPower are assumed to be immediately settled with SunPower through Net Parent investment in the Condensed Combined Balance Sheets and the Net Parent contribution in the Condensed Combined Statements of Cash Flows.

 

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Variable Interest Entities (“VIE”)

We regularly evaluate our relationships and involvement with unconsolidated VIEs and our other equity and cost method investments, to determine whether we have a controlling financial interest in them or have become the primary beneficiary, thereby requiring us to consolidate their financial results into our financial statements. If we determine that we hold a variable interest, we then evaluate whether we are the primary beneficiary. If we determine that we are the primary beneficiary, we will consolidate the VIE. The determination of whether we are the primary beneficiary is based upon whether we have the power to direct the activities that most directly impact the economic performance of the VIE and whether we absorb any losses or receive any benefits that would be potentially significant to the VIE.

Components of Results of Operations

The following section describes certain line items in our Combined Statements of Operations and Condensed Combined Statements of Operations:

Revenue

We recognize revenue from the sale of solar panels and related solar system components, primarily to dealers, system integrators and distributors, and in some cases on a multi-year, firm commitment basis. For a discussion of how and when we recognize revenue, see “Critical Accounting Estimates-Revenue Recognition.”

Cost of Revenue

We generally recognize our cost of revenue in the same period that we recognize related revenue. Cost of revenue includes actual cost of material, labor and manufacturing overhead incurred for revenue-producing units shipped. Cost of revenue also includes associated warranty costs and other costs. The cost of solar panels is the single largest cost element in our cost of revenue. Our cost of solar panels consists primarily of: (i) polysilicon, silicon ingots and wafers used in the production of solar cells, (ii) other materials and chemicals including glass, frame, and backing, and (iii) direct labor costs and assembly costs. Other factors that contribute to our cost of revenue include salaries and personnel-related costs, depreciation, facilities related charges, freight, as well as charges related to sales of raw material inventory and write-downs.

Impairment of Manufacturing Assets

As discussed above, SunPower recognized a non-cash impairment charge of $369.2 million during its fiscal quarter ended July 1, 2018. Out of SunPower’s impairment charge, we recognized $367.9 million, of which $354.8 million was allocated to “Impairment of manufacturing assets” in our Combined Statement of Operations during the year ended December 30, 2018. There were no significant impairment charges recorded in fiscal year 2019 as well as in the three months ended March 29, 2020.

Gross (Loss) Profit

Our gross (loss) profit is affected by a number of factors, including average selling prices for our solar power components, our product mix, our actual manufacturing costs, the utilization rate of our solar cell manufacturing facilities, inventory net realizable value charges, losses on third party polysilicon sales, and actual overhead costs.

Research and Development

Research and development expense consists primarily of salaries and related personnel costs, depreciation and impairment of equipment, and the cost of solar panel materials, various prototyping materials, and services used for the development and testing of products. Research and development expense is reported net of contributions under collaborative arrangements.

 

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Sales, General and Administrative

Sales, general and administrative expense consists primarily of salaries and related personnel costs, professional fees, bad debt expenses, and other selling and marketing expenses.

Restructuring

Restructuring expense in fiscal years 2018 and 2019 consist mainly of costs associated with our December 2016 and February 2018 restructuring plans aimed to realign our downstream investments, optimize our supply chain, and reduce operating expenses in response to expected near-term challenges. Charges in connection with these plans consist primarily of severance benefits, and lease and related termination costs. See “Note 7. Restructuring” to our combined financial statements. Restructuring benefits for the fiscal year ending December 29, 2019 was $0.5 million. There were no significant restructuring expenses recorded in the three months ended March 29, 2020.

Other Expense, Net

Interest expense primarily relates to debt under SunPower’s senior convertible debentures. SunPower’s long-term debt has not been attributed to us for the period presented because SunPower’s borrowings are not our legal obligation. In December 2015, SunPower issued $425.0 million in principal amount of the 4.00% debentures due 2023, the proceeds of which were used to finance Fab 4, which relates to our business. As such, our interest and other costs associated with the 4.00% debentures due 2023 are reflected in the Combined Statements of Operations and Condensed Combined Statements of Operations. However, as the debentures are legal obligations of SunPower and will not be transferred to us, they are not reflected in our Combined Balance Sheets and Condensed Combined Balance Sheets. See further discussion on the basis of presentation of the combined financial statements under “Note 1. Background and Basis of Presentation” to our combined financial statements.

Other, net includes gains or losses on foreign exchange and derivatives.

Income Taxes

The Tax Act was enacted on December 22, 2017. The Tax Act provided for numerous significant tax law changes and modifications, including the reduction of the U.S. federal corporate income tax rate from 35% to 21%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creation of new taxes on certain foreign sourced earnings. In accordance with accounting standard ASC 740, Income Taxes, companies are required to recognize the tax law changes in the period of enactment. The SEC staff issued SAB 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SunPower provided a reasonable estimate of the effects of the Tax Act in its financial statements in 2017. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. SunPower completed its analysis based on legislative updates currently available and reported the changes to the provisional amounts previously recorded which did not impact our income tax provision. SunPower also confirmed that the Tax Act does not impact its expectations of actual cash payments for income taxes in the foreseeable future.

Deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax bases of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude that it is more likely than not that some portion or all deferred tax assets will be realized.

We currently benefit from a preferential tax rate of 5% in the Philippines in accordance with our registration with the PEZA after the tax holiday expired at the end of 2019. We also benefit from a tax holiday granted by the

 

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Malaysian government to our former joint venture AUOSP (now our wholly owned subsidiary, SunPower Malaysia Manufacturing Sdn. Bhd.) subject to certain hiring, capital spending, and manufacturing requirements. We are subject to the statutory tax rate after the 2019 Switzerland tax reform that eliminated the auxiliary company designation starting fiscal 2020. For additional information see “Note 2. Summary of Significant Accounting Policies” and “Note 13. Income Taxes” to our combined financial statements.

Equity in Earnings (Losses) of Unconsolidated Investees

Equity in earnings (loss) of unconsolidated investees represents our reportable share of earnings (loss) generated from entities in which we own an equity interest accounted for under the equity method.

Net Loss Attributable to Noncontrolling Interests

We determined that we hold controlling interests in certain less-than-wholly owned entities and have fully consolidated these entities as a result. Noncontrolling interests represent the portion of net assets in these consolidated subsidiaries that are not attributable, directly or indirectly, to us. Net losses attributable to the noncontrolling interests represent the portion of our net loss allocated to the noncontrolling interests.

Results of Operations

Set forth below is a discussion of our results of operations for the periods indicated.

Revenues and Cost of Revenue

 

     Three Months Ended     Fiscal Year Ended  
     March 29,
2020
    March 31,
2019
    December 29,
2019
    December 30,
2018
 
(in thousands)    (Unaudited)              

Revenues

   $ 227,640     $ 229,071     $ 1,198,301     $ 912,313  

Cost of revenue

   $ 224,408     $ 264,632     $ 1,200,610     $ 1,007,474  

As a percentage of total revenue

     99     116     100     110

Gross (loss) profit percentage

     1     (16 )%      (<1 %)      (10 )% 

Three Months Ended March 29, 2020 Compared to Three Months Ended March 31, 2019

During the three months ended March 29, 2020, we recognized revenue from sales of modules and components of $227.6 million, of which $69.0 million, or 30.3% of total revenue, represented sales of solar modules to SunPower using transfer prices determined based on management’s assessment of market-based pricing terms. Except for revenue transactions with SunPower, as of March 29, 2020, we had one customer that accounted for at least 10% of revenue. As of March 29, 2020, SunPower accounted for 11.9% of accounts receivable. In addition, two customers accounted for 34.4% and 15.9% of accounts receivable as of March 29, 2020. No other customers accounted for 10% or more of accounts receivable. The decrease of $1.4 million in revenues was primarily due to lower volume of module sales in Europe and Asia, partially offset by increased sales to SunPower of $8.8 million during the three months ended March 29, 2020 as compared to March 31, 2019.

During the three months ended March 29, 2019, we recognized revenue for sales of modules and components from contracts with customers of $229.1 million, of which $60.2 million, or 26.3% of total revenue, represented the sale of solar modules to SunPower using transfer prices determined based on management’s assessment of market-based pricing terms. Except for revenue transactions with SunPower, as of March 31, 2019, we had no other customers that accounted for at least 10% of revenue.

 

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Cost of revenue was $224.4 million in the three months ended March 29, 2020 and includes $2.0 million related to losses incurred as a result of ancillary sales to third parties of excess polysilicon procured under the long-term fixed supply agreements. In addition, we estimated that we paid $15.3 million above the current market price for polysilicon as we were bound by our long-term fixed supply agreements for polysilicon consumed in our manufacturing process, which is the difference between our contractual cost under the long-term fixed supply agreements and the price of polysilicon available in the market as derived from publicly available information, multiplied by the volume of polysilicon we have consumed. The remainder of cost of revenue includes actual cost of material, labor and manufacturing overhead incurred for revenue-producing units shipped, and associated warranty costs. The decrease of $40.2 million in cost of revenue was primarily due to lower volume of module sales in Europe and Asia, offset by a recorded excess capacity costs of $9.7 million during the three months ended March 29, 2020, a majority of which was attributable to the temporary idling of our manufacturing facilities in France, Malaysia, Mexico, and the Philippines, to comply with local government authorities’ public health measures following the outbreak of COVID-19 pandemic. We will continue to monitor the impact of COVID-19 on our operating results.

Cost of revenue was $264.6 million in the three months ended March 29, 2019 and includes tariff-related charges of $2.1 million and $28.3 million related to losses incurred as a result of ancillary sales to third parties of excess polysilicon procured under the long-term fixed supply agreements. In addition, we estimated that we paid $28.3 million above the current market price for polysilicon as we were bound by our long-term fixed supply agreements for polysilicon consumed in our manufacturing process, which is the difference between our contractual cost under the long-term fixed supply agreements and the price of polysilicon available in the market as derived from publicly available information, multiplied by the volume of polysilicon we have consumed. The remainder of cost of revenue includes actual cost of material, labor and manufacturing overhead incurred for revenue-producing units shipped, and associated warranty costs.

Fiscal Year Ended December 29, 2019 Compared to Year Ended December 30, 2018

During the year ended December 29, 2019, we recognized revenue from sales of modules and components of $1.2 billion, of which $426.5 million, or 35.6% of total revenue, represented sales of solar modules to SunPower using transfer prices determined based on management’s assessment of market-based pricing terms. Except for revenue transactions with SunPower, as of December 29, 2019, we had no customers that accounted for at least 10% of revenue. As of December 29, 2019, SunPower accounted for 33.7% of accounts receivable. In addition, two customers accounted for 20.4% and 13.6% of accounts receivable as of December 29, 2019. No other customers accounted for 10% or more of accounts receivable. The increase of $286.0 million in revenues was primarily due to higher volume of module sales in Europe and Asia as well as increased sales to SunPower of $38.0 million in 2019 as compared to 2018.

During the year ended December 30, 2018, we recognized revenue for sales of modules and components from contracts with customers of $912.3 million, of which $388.5 million, or 42.6% of total revenue, represented the sale of solar modules to SunPower using transfer prices determined based on management’s assessment of market-based pricing terms. Except for revenue transactions with SunPower, as of December 30, 2018, we had no other customers that accounted for at least 10% of revenue. As of December 30, 2018, SunPower accounted for 28.2% of accounts receivable. In addition, one other customer accounted for 12.6% of accounts receivable as of December 30, 2018. No other customers accounted for 10% or more of accounts receivable.

Cost of revenue was $1.2 billion in fiscal year 2019 and includes $56.5 million related to losses incurred as a result of ancillary sales to third parties of excess polysilicon procured under the long-term fixed supply agreements. In addition, we estimated that we paid $88.7 million above the current market price for polysilicon as we were bound by our long-term fixed supply agreements for polysilicon consumed in our manufacturing process, which is the difference between our contractual cost under the long-term fixed supply agreements and the price of polysilicon available in the market as derived from publicly available information, multiplied by the volume of polysilicon we have consumed. The remainder of cost of revenue includes actual cost of material,

 

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labor and manufacturing overhead incurred for revenue-producing units shipped, and associated warranty costs. The increase of $193.1 million in cost of revenue was primarily due to higher volume of module sales in Europe and Asia.

Cost of revenue was $1.0 billion in fiscal year 2018 and includes tariff-related charges of $42.5 million and $31.6 million related to losses incurred as a result of ancillary sales to third parties of excess polysilicon procured under the long-term fixed supply agreements. In addition, we estimated that we paid $59.4 million above the current market price for polysilicon as we were bound by our long-term fixed supply agreements for polysilicon consumed in our manufacturing process, which is the difference between our contractual cost under the long-term fixed supply agreements and the price of polysilicon available in the market as derived from publicly available information, multiplied by the volume of polysilicon we have consumed. The remainder of cost of revenue includes actual cost of material, labor and manufacturing overhead incurred for revenue-producing units shipped, and associated warranty costs.

In fiscal year 2020, we expect an increase in revenues and a reduction in cost of revenue as a percentage of total revenues from the sales of our Maxeon 5 and 6 cell and panel technology which is expected to have lower manufacturing cost yet offering higher efficiency compared to our current technology.

Revenues by Geography

 

     Three Months Ended     Fiscal Year Ended  
     March 29,
2020
    March 31,
2019
    December 29,
2019
    December 30,
2018
 
(in thousands)    (Unaudited)              

United States

   $ 70,467     $ 64,442     $ 433,293     $ 397,160  

As a percentage of total revenue

     31     28     36     44

France

   $ 27,435     $ 39,564     $ 138,423     $ 170,468  

As a percentage of total revenuee

     12     17     12     19

China

   $ 538     $ 26,547     $ 119,010     $ 15,467  

As a percentage of total revenue

     —       12     10     2

Japan

   $ 34,118     $ 14,523     $ 90,837     $ 82,313  

As a percentage of total revenue

     15     6     8     9

Rest of world

   $ 95,082     $ 83,995     $ 416,738     $ 246,905  

As a percentage of total revenue

     42     37     34     26
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 227,640     $ 229,071     $ 1,198,301     $ 912,313  
  

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended March 29, 2020 Compared to Three Months Ended March 31, 2019

Revenues are attributed to U.S. and international geographies primarily based on the destination of the shipments. The $70.5 million in sales attributed to the U.S. includes $69.0 million in sales to SunPower for the three months ended March 29, 2020. The $64.4 million in sales attributed to the U.S. includes $60.2 million in sales to SunPower for the three months ended March 31, 2019.

Fiscal Year Ended December 29, 2019 Compared to Year Ended December 30, 2018

Revenues are attributed to U.S. and international geographies primarily based on the destination of the shipments. The $433.3 million in sales attributed to the U.S. includes $426.5 million in sales to SunPower for the fiscal year ended December 29, 2019. The $397.2 million in sales attributed to the U.S. includes $388.5 million in sales to SunPower for the fiscal year ended December 30, 2018.

 

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Impairment of Manufacturing Assets and Gross (Loss) Profit

 

     Three Months Ended      Fiscal Year Ended  
     March 29,
2020
     March 31,
2019
     December 29,
2019
     December 30,
2018
 
(in thousands)    (Unaudited)                

Impairment of manufacturing assets

   $ —        $ —        $ —        $ 354,768  

As a percentage of total revenue

     —          —          —          39

Gross (loss) profit

   $ 3,232      $ (35,561    $ (2,309    $ (449,929

Three Months Ended March 29, 2020 Compared to Three Months Ended March 31, 2019

There was no significant impairment of manufacturing assets during the three months ended March 29, 2020 and March 31, 2019.

Fiscal Year Ended December 29, 2019 Compared to Year Ended December 30, 2018

SunPower recognized a non-cash impairment charge of $369.2 million related to manufacturing assets during its fiscal quarter ended July 1, 2018. Out of SunPower’s impairment charge, we recognized $367.9 million of which $354.8 million was allocated to “Impairment of manufacturing assets” in our Combined Statements of Operations during the year ended December 30, 2018.

Operating Expenses

Operating expenses includes allocations of general corporate expenses from SunPower including, but not limited to, executive management, finance, legal, information technology, employee benefits administration, treasury, risk management, procurement, and other shared services. These allocations were made on a direct usage basis when identifiable, with the remainder allocated on the basis of revenue or headcount as relevant measures. Management of Maxeon Solar and SunPower consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, us. The allocations may not, however, reflect the expense we would have incurred as a standalone company for the period presented, nor our future results upon completion of the proposed separation. Actual costs that may have been incurred if we had been a standalone company, and future costs, would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure.

 

     Three Months Ended     Fiscal Year Ended  
     March 29,
2020
    March 31,
2019
    December 29,
2019
    December 30,
2018
 
(in thousands)    (Unaudited)              

Operating expenses:

        

Research and development

   $ 8,570     $ 7,502     $ 36,997     $ 50,031  

As a percentage of total revenue

     4     3     3     5

Sales, general and administrative

     24,242       20,813       96,857       82,041  

As a percentage of total revenue

     11     9     8     9

Restructuring (benefits) charges

     —         (605     (517     7,766  

As a percentage of total revenuee

     0     <1     <1     1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 33,812     $ 27,710     $ 133,337     $ 139,838