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Commitments and Contingencies
 9 Months Ended
Oct. 03, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
Facility and Equipment Leases

We lease certain facilities under non-cancellable operating leases from third parties. We also lease certain buildings under non-cancellable finance leases. Operating leases are subject to renewal options for periods ranging from one year to ten years.
We have disclosed quantitative information related to the lease contracts we have entered into as a lessee by aggregating the information based on the nature of asset such that the assets of similar characteristics and lease terms are shown within one single financial statement line item.

The table below presents the summarized quantitative information with regard to lease contracts we have entered into:

Three Months EndedNine Months Ended
(In thousands)October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Operating leases:
Operating lease expense$3,200 $3,524 $10,615 $10,458 
Sublease income(81)(111)(292)(166)
Rent expense$3,119 $3,413 $10,323 $10,292 
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases$3,473 $7,117 $12,073 $14,314 
Right-of-use assets obtained in exchange for leases $4,429 $8,362 $15,957 $21,786 
Weighted-average remaining lease term (in years) - operating leases6.17.56.17.5
Weighted-average discount rate - operating leases8.7 %9 %8.7 %9 %

The future minimum lease payments to be paid under non-cancellable leases in effect as of October 3, 2021, are as follows (in thousands):

As of October 3, 2021Operating Leases
2021 (remaining three months)$3,920 
202215,805 
202312,933 
20249,100 
20255,463 
Thereafter16,406 
Total lease payments63,627 
Less: imputed interest(14,919)
Total$48,708 

Purchase Commitments
 
Future purchase obligations under non-cancellable purchase orders and long-term supply agreements as of October 3, 2021 are as follows:

(In thousands)Fiscal 2021
(remaining three months)		Fiscal 2022Fiscal 2023Fiscal 2024Fiscal 2025Thereafter
Total1
Future purchase obligations$83,888 $125,175 $33,148 $1,710 $775 $5,307 $250,003 

1 Total future purchase obligations consisted of $25.8 million related to non-cancellable purchase orders and $224.2 million related to long-term supply agreements.
The future purchase obligations presented above primarily consist of commitments to purchase photovoltaic modules pursuant to the supply agreement with Maxeon Solar entered into on August 26, 2020, as amended, as well as commitments to purchase Module-Level Power Electronics ("MLPE") supplied by one vendor.

The terms of all our long-term supply agreements are reviewed annually by us and we assess the need for any accruals for estimated losses on adverse purchase commitments, such as lower of cost or net realizable value adjustments that will not be recovered by future sales prices, forfeiture of advanced deposits and liquidated damages, as necessary.

Product Warranties

The following table summarizes accrued warranty activities for the three and nine months ended October 3, 2021 and September 27, 2020:

Three Months EndedNine Months Ended
(In thousands)October 3, 2021September 27, 2020October 3, 2021September 27, 2020
Balance at the beginning of the period$66,785 $92,399 $81,877 $101,380 
Accruals for warranties issued during the period3,791 5,682 15,641 13,356 
Settlements and adjustments during the period(5,921)(9,688)(32,863)(26,343)
Balance at the end of the period$64,655 $88,393 $64,655 $88,393 

In some cases, we may offer customers the option to purchase extended warranties to ensure protection beyond the standard warranty period. In those circumstances, the warranty is considered a distinct service and we account for the extended warranty as a performance obligation and allocate a portion of the transaction price to that performance obligation. More frequently, customers do not purchase a warranty separately. In those situations, we account for the warranty as an assurance-type warranty, which provides customers with assurance that the product complies with agreed-upon specifications, and this does not represent a separate performance obligation. Such warranties are recorded separately as liabilities and presented within "accrued liabilities" and "other long-term liabilities" on our unaudited condensed consolidated balance sheets (see Note 4. Balance Sheet Components). Further, if we encounter issues related to the quality of our products or components of our products, we may institute corrective action plans, including proactive repair or replacement, delay or stop shipment of one or more products, the result of which may cause us to incur material costs and divert operational attention. We assess the impact of such issues and resulting warranty obligations on the sufficiency of our warranty accrual when the issue is known and amount to be incurred is probable and measurable.

Project Agreements with Customers

Project agreements entered into with our commercial and power plant customers often require us to undertake obligations including: (i) system output performance warranties, (ii) penalty payments or customer termination rights if the system we are constructing is not commissioned within specified time frames or other milestones are not achieved, and (iii) system put rights whereby we could be required to buy back a customer's system at fair value on specified future dates if certain minimum performance thresholds are not met for specified periods. Historically, our systems have generally performed above their performance warranty thresholds, and our output performance warranty payments to the customers have not been material. Also, there have been no cases in which we have had to buy back a system. As of October 3, 2021 and January 3, 2021, we had $7.5 million and $9.1 million, respectively, classified as "accrued liabilities," and $2.7 million and $3.1 million, respectively, classified as "other long-term liabilities" on our unaudited condensed consolidated balance sheets for such obligations.

Liabilities Associated with Uncertain Tax Positions
 
Total liabilities associated with uncertain tax positions were $15.0 million and $12.6 million as of October 3, 2021 and January 3, 2021, respectively. These amounts are included within "other long-term liabilities" on our unaudited condensed consolidated balance sheets in their respective periods as they are not expected to be paid within the next 12 months. Due to the complexity and uncertainty associated with our tax positions, we cannot make a reasonably reliable estimate of the period in which cash settlement, if any, would be made for our liabilities associated with uncertain tax positions in Other long-term liabilities.
Indemnifications
 
We are a party to a variety of agreements under which we may be obligated to indemnify the counterparty with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which we customarily agree to hold the other party harmless against losses arising from a breach of warranties, representations and covenants related to such matters as title to assets sold, negligent acts, damage to property, validity of certain intellectual property rights, non-infringement of third-party rights, and certain tax-related matters including indemnification to customers under Section 48(c) of the Internal Revenue Code of 1986, as amended, regarding solar commercial investment tax credits ("ITCs") and U.S. Treasury Department ("U.S. Treasury") cash grant payments under Section 1603 of the American Recovery and Reinvestment Act (each a "Cash Grant"). Further, in connection with our sale of residential lease assets in fiscal 2018 to SunStrong, we provide Hannon Armstrong indemnification related to cash flow losses arising from a recapture of California property taxes on account of a change in ownership, recapture of federal tax attributes and cash flow losses from leases that do not generate the promised savings to homeowners. The maximum exposure to loss arising from the indemnification for SunStrong is limited to the consideration received for the solar power systems. In each of these circumstances, payment by us is typically subject to the other party making a claim to us that is contemplated by and valid under the indemnification provisions of the particular contract, which provisions are typically contract-specific, as well as bringing the claim under the procedures specified in the particular contract. These procedures typically allow us to challenge the other party's claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third-party claims brought against the other party. Further, our obligations under these agreements may be limited in terms of activity (typically to replace or correct the products or terminate the agreement with a refund to the other party), duration or amount. In some instances, we may have recourse against third parties or insurance covering certain payments made by us.
 
In certain circumstances, we are contractually obligated to compensate customers and investors for losses they may suffer as a result of reductions in benefits received under ITCs and U.S. Treasury Cash Grant programs. The indemnity expires in conjunction with the statute of limitation and recapture periods in accordance with the underlying laws and regulations for such ITCs and related benefits. We apply for ITCs and Cash Grant incentives based on guidance provided by the Internal Revenue Service ("IRS") and the U.S. Treasury, which include assumptions regarding the fair value of the qualified solar power systems, among others. Certain of our development agreements, sale-leaseback arrangements, and financing arrangements with tax equity investors incorporate assumptions regarding the future level of incentives to be received, which in some instances may be claimed directly by our customers and investors. Generally, such obligations would arise as a result of reductions to the value of the underlying solar power systems as assessed by the IRS. At each balance sheet date, we assess and recognize, when applicable, the potential exposure from these obligations based on all the information available at that time, including any audits undertaken by the IRS. The maximum potential future payments that we could have to make under this obligation would depend on the difference between the eligible basis claimed on the tax filing for the solar energy systems sold or transferred to indemnified parties and the values that the IRS may determine as the eligible basis for the systems for purposes of claiming ITCs or Cash Grants. We use the eligible basis for tax filing purposes determined with the assistance of independent third-party appraisals to determine the ITCs that are passed through to and claimed by the indemnified parties. We continue to retain certain indemnities, specifically, around ITCs, Cash Grants and California property taxes, even after the underlying portfolio of assets is sold to a third party. For contracts that have such indemnification provisions, we recognize a liability under ASC 460, Guarantees, for the estimated premium that would be required by a guarantor to issue the same guarantee in a standalone arm’s-length transaction with an unrelated party. We recognize such liabilities at the greater of the fair value of the indemnity or the contingent liability required to be recognized under ASC 450, Contingencies. We initially estimate the fair value of any such indemnities provided based on the cost of insurance policies that cover the underlying risks being indemnified and may purchase such policies to mitigate our exposure to potential indemnification payments. After an indemnification liability is recorded, we derecognize such amount typically upon expiration or settlement of the arrangement. As of October 3, 2021 and January 3, 2021, our provision was $9.6 million and $9.4 million, respectively, primarily for tax-related indemnifications.
SunPower is party to various supply agreements (collectively, the “Hemlock Agreements”) with Hemlock Semiconductor Operations LLC (f/k/a Hemlock Semiconductor Corporation) and its affiliate, Hemlock Semiconductor, LLC, for the procurement of polysilicon. In connection with the Spin-Off, SunPower and Maxeon Solar entered into an agreement pursuant to which Maxeon Solar received SunPower’s rights under the Hemlock Agreements (including SunPower’s deposits and advanced payments thereunder) and, in return, Maxeon Solar agreed to perform all of SunPower’s existing and future obligations under the Hemlock Agreements (including all take-or-pay obligations). While, as we remain a party to the Hemlock Agreements, we may contractually be liable to the vendor in case of non-payment by Maxeon Solar, we do not believe we have any current exposure under the Hemlock Agreements as of the quarter ended October 3, 2021. Maxeon Solar's remaining obligations under the Hemlock Agreements amount to $31.6 million and $125.8 million for the remainder of fiscal 2021 and fiscal 2022, respectively. This is gross of prepayments of $61.6 million as of October 3, 2021. This indemnity qualifies for the criteria for accounting under the guidance in ASC 460 which requires us to recognize such liabilities at the greater of the fair value of the indemnity or the contingent liability required to be recognized under ASC 450, Contingencies. As of the quarter ended October 3, 2021, our exposure to potential indemnification payments is deemed immaterial based on the information available to us.

Pursuant to the Separation and Distribution Agreement entered into by us and Maxeon Solar, we also agreed to indemnify Maxeon Solar for any liabilities arising out of certain existing litigation relating to businesses contributed to Maxeon Solar in connection with the Spin-Off. We expect to be actively involved in managing this litigation together with Maxeon Solar. The indemnity qualifies for the criteria for accounting under the guidance in ASC 460 and we have recorded the liability of litigation of $4.3 million equal to the fair value of the guarantee provided as of the period ended October 3, 2021.

Legal Matters

We are a party to various litigation matters and claims that arise from time to time in the ordinary course of our business. While we believe that the ultimate outcome of such matters will not have a material adverse effect on us, their outcomes are not determinable and negative outcomes may adversely affect our financial position, liquidity, or results of operations.