LEASING

Residential Lease Program

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

Operating Leases

The following table summarizes "Solar power systems leased and to be leased, net" under operating leases on our Consolidated Balance Sheets as of December 30, 2018 and December 31, 2017:



	As of
(In thousands)	December 30, 2018			December 31, 2017
Solar power systems leased and to be leased, net^1,2:
Solar power systems leased	$	139,343		$	749,697
Solar power systems to be leased	12,158			26,830
	151,501			776,527
Less: accumulated depreciation and impairment³	(58,944		)	(407,309		)
Solar power systems leased and to be leased, net	$	92,557		$	369,218

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

²As of December 30, 2018 and December 31, 2017, we had pledged solar assets with an aggregate book value of zero and $112.4 million, respectively, to third-party investors as security for our contractual obligations. The book value of pledged assets represents assets legally held by the respective flip partnerships.

³For the year ended December 30, 2018, we recognized a non-cash impairment charge of $74.9 million on solar power systems leased and to be leased.

The following table presents our minimum future rental receipts on operating leases placed in service as of December 30, 2018:



(In thousands)	Fiscal 2019		Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Thereafter		Total
Minimum future rentals on operating leases placed in service¹	$	1,224	$	1,186	$	1,189	$	1,193	$	1,197	$	18,359	$	24,348

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

Sales-Type Leases

As of December 30, 2018 and December 31, 2017, our net investment in sales-type leases presented within "Accounts receivable, net" and "Long-term financing receivables, net" on our Consolidated Balance Sheets was as follows:



	As of
(In thousands)	December 30, 2018			December 31, 2017
Financing receivables, held for sale¹:
Minimum lease payments receivable²	$	43,939		$	690,249
Unguaranteed residual value	4,450			73,344
Unearned income	(8,859		)	(115,854		)
Allowance for estimated losses	(18,656		)	(297,972		)
Net financing receivables, held for sale	$	20,874		$	349,767
Net financing receivables - current, held for sale	$	1,282		$	19,095
Net financing receivables - non-current held for sale	$	19,592		$	330,672

¹As of December 30, 2018 and December 31, 2017, we had pledged financing receivables of zero and $113.4 million, respectively, to third-party investors as security for our contractual obligations. The book value of pledged assets represents assets legally held by the respective flip partnerships.

²Net of allowance for doubtful accounts amounting to $0.0 million and $6.1 million, as of December 30, 2018 and December 31, 2017, respectively.

As of December 30, 2018, future maturities of net financing receivables for sales-type leases were as follows:



(In thousands)	Fiscal 2019		Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Thereafter		Total
Scheduled maturities of minimum lease payments receivable¹	$	2,126	$	2,129	$	2,137	$	2,146	$	2,155	$	33,246	$	43,939

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

Impairment and Sale of Residential Lease Assets

In December 2017, the Board of Directors approved a future sale of a portion of our Residential Lease Portfolio that resulted in the sale of partial equity interests in SunStrong, our wholly owned subsidiary, to Hannon Armstrong on November 5, 2018 - See Note 4. Business Combinations and Divestitures for further details. We continue to retain certain residential assets on our consolidated financial statements as of December 30, 2018, which we expect to sell in 2019, and these assets have been tested for impairment as described below.

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

Financing receivables are generated by solar power systems leased to residential customers under sales-type leases. Financing receivables represent gross minimum lease payments to be received from customers over a period commensurate with the remaining lease term and the system's estimated residual value, net of unearned income and allowance for estimated losses. Our evaluation of the recoverability of these financing receivables is based on evaluation of the likelihood, based on current information and events, and whether we will be able to collect all amounts due according to the contractual terms of the underlying lease agreements. In accordance with this evaluation, we recognize an allowance for losses on financing receivables based on our estimate of the amount equal to the probable losses net of recoveries. The combination of the leased solar power systems discussed in the preceding paragraph together with the lease financing receivables is referred to as the "Residential Lease Portfolio."

In conjunction with our efforts to generate more available liquid funds and simplify our balance sheets, we made the decision to sell a portion of our interest in the Residential Lease Portfolio and engaged an external investment banker to assist with our related marketing efforts in the fourth quarter of fiscal 2017. As a result of these events, in the fourth quarter of fiscal 2017, we determined it was necessary to evaluate the potential for impairment in our ability to recover the carrying amount of our Residential Lease Portfolio.

In proceeding with the impairment evaluation, we determined that financing receivables related to sales-type leases, which were previously classified as held for investment, qualified as held for sale based on our decision to sell our interest in the Residential Lease Portfolio. Accordingly, we recognized an allowance for estimated losses for the amount by which cost exceeded fair value. In addition, we reviewed the cash flows we would expect to derive from the underlying asset that we recover from the lessees (unguaranteed residual value). Due to our planned sale of our Residential Lease Portfolio and based on the indication of value received, we determined that the decline in estimated residual value was other than temporary.

We performed a recoverability test for the assets subject to operating leases by estimating future undiscounted net cash flows expected to be generated by the assets, based on our own specific alternative courses of action under consideration. The alternative courses were either to sell or refinance the assets subject to operating leases, or hold the assets until the end of their previously estimated useful lives. Upon consideration of the alternatives, we considered the probability of selling the assets subject to operating leases and factored the indicative value obtained from a prospective purchaser together with the probability of retaining the assets and the estimated future undiscounted net cash flows expected to be generated by holding the assets until the end of their previously estimated useful lives in the recoverability test. Based on the evaluation performed, we determined that as of December 31, 2017, the estimate of future undiscounted net cash flows was insufficient to recover the carrying value of the assets subject to operating leases, and consequently performed an impairment analysis by comparing the carrying value of the assets to their estimated fair value.

We computed the fair value for the financing receivables associated with sales-type leases and long-lived assets subject to operating leases using consistent methodology and assumptions that market participants would use in their estimates of fair value. The estimates and judgments about future cash flows were made using an income approach defined as Level 3 inputs under fair value measurement standards. The impairment evaluation was based on the income approach (specifically a discounted cash flow analysis) and included assumptions for, among others, forecasted contractual lease income, lease expenses, residual value of these lease assets, long-term discount rates, and forecasted default rates over the lease term and discount rates, some of which require significant judgment by us.

We updated the impairment evaluation discussed above to include new leases that were placed in service since the last evaluation was performed. In accordance with such evaluation, we recognized a non-cash impairment charge of $189.7 million included in "Loss on sale and impairment of residential lease assets" on the Consolidated Statement of Operations for the year ended December 30, 2018. Due to the fact that the Residential Lease Portfolio assets are held in partnership flip structures with noncontrolling interests, we allocated a portion of the impairment charge related to such noncontrolling interests through the hypothetical liquidation at book value ("HLBV") method. The allocation method applied to the noncontrolling interests and redeemable noncontrolling interests resulted in a net gain of $9.6 million and a net gain of $150.6 million for the year ended December 30, 2018 and December 31, 2017, respectively. As a result, the net impairment charges attributable to our stockholders totaled $180.1 million and $473.7 million for the year ended December 30, 2018 and December 31, 2017, respectively, and were recorded within the SunPower Energy Services Segment.

The impairment evaluation includes uncertainty because it requires us to make assumptions and to apply judgment to estimate future cash flows and assumptions. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, and if and when a divestiture transaction occurs, the details and timing of which are subject to change as the final terms are negotiated between us and the intended purchaser, we may be exposed to additional impairment charges in the future, which could be material to the results of operations.

Sale-Leaseback Arrangements

We enter into sale-leaseback arrangements under which solar power systems are sold to third parties and subsequently leased back by us over lease terms of up to 25 years. Separately, we enter into sales of energy under power purchase agreements ("PPAs") with end customers, who host the leased solar power systems and buy the electricity directly from us under PPAs with terms of up to 25 years. At the end of the lease term, we have the option to purchase the systems at fair value or may be required to remove the systems and return them to the third parties.

We have classified our sale-leaseback arrangements of solar power systems not involving integral equipment as operating leases for which the deferred profit on the sale of these systems is recognized over the term of the lease. As of December 30, 2018, future minimum lease obligations associated with these systems were $65.9 million, which will be recognized over the minimum lease terms. Future minimum payments to be received from customers under PPAs associated with the solar power systems under sale-leaseback arrangements classified as operating leases will also be recognized over the lease terms of up to 25 years and are contingent upon the amounts of energy produced by the solar power systems.

Certain sale-leaseback arrangements of solar power systems involve integral equipment, as defined under the accounting guidance for such transactions, as we have continuing involvement with the solar power systems throughout the lease due to purchase option rights in the arrangements. As a result of such continuing involvement, we account for each of these transactions as a financing. Under the financing method, the proceeds received from the sale of the solar power systems are recorded by us as financing liabilities. The financing liabilities are subsequently reduced by our payments to lease back the solar power systems, less interest expense calculated based on our incremental borrowing rate adjusted to the rate required to prevent negative amortization. The solar power systems under the sale-leaseback arrangements remain on our Consolidated Balance Sheets and are classified within "Property, plant and equipment, net" (see "Note 6. Balance Sheet Components"). As of December 30, 2018, future minimum lease obligations for the sale-leaseback arrangements accounted for under the financing method were $509.9 million, which will be recognized over the lease terms of up to 30 years. During fiscal 2018 and 2017, we had net financing proceeds of $32.3 million, and $259.6 million respectively, in connection with these sale-leaseback arrangements. As of December 30, 2018 and December 31, 2017, the carrying amount of the sale-leaseback financing liabilities presented within "Other long-term liabilities" on our Consolidated Balance Sheets was $583.4 million and $479.6 million, respectively. See "Note 6. Balance Sheet Components" for additional details.