Equity Investments

3 Months Ended

Apr. 03, 2022

Equity Method Investments and Joint Ventures [Abstract]

EQUITY INVESTMENTS

Our equity investments consist of equity investments with readily determinable fair value, investments without readily determinable fair value, equity investments accounted for using the fair value option, and equity method investments.

Our share of earnings (losses) from equity investments accounted for under the equity method is reflected as “Equity in earnings (losses) of unconsolidated investees” in our condensed consolidated statements of operations. Mark-to-market gains and losses on equity investments with readily determinable fair value are reflected as “other, net” under other income (expense), net in our condensed consolidated statements of operations. The carrying value of our equity investments, classified as “other long-term assets” on our condensed consolidated balance sheets, are as follows:


	As of
(In thousands)	April 3, 2022		January 2, 2022
Equity investments with readily determinable fair value:
Enphase Energy, Inc.	$	308,835	$	457,352
Total equity investments with readily determinable fair value 1	308,835		457,352
Equity investments without readily determinable fair value:

OhmConnect investment2	5,000		—
Sea Bright investment3	2,000		—
Other equity investments without readily determinable fair value	809		807
Total equity investments without readily determinable fair value	7,809		807
Equity investments with fair value option:
SunStrong Capital Holdings, LLC	8,374		8,374
Dorado Development Partners, LLC	154		—
SunStrong Partners, LLC	—		—
Total equity investment with fair value option	8,528		8,374
Total equity investments	$	325,172	$	466,533

1 During the three months ended April 3, 2022, we sold one million shares of Enphase common stock for cash proceeds. As of April 3, 2022, we had 1.5 million shares of Enphase common stock, all of which are within current assets as short-term investments. Refer to Note 7. Fair Value Measurements and Note 4. Balance Sheet Components for details.

2 During the three months ended April 3, 2022, we made an equity investment in OhmConnect, Inc. (“OhmConnect”) of $5.0 million cash in exchange for an equity interest of 1.8% at the time of purchase. The investment is accounted for as an equity investment without readily determinable fair value in accordance with the guidance in ASC 321, Investments - Equity Securities.

3 During the three months ended April 3, 2022, we made an equity investment in Sea Bright Solar, Inc. (“Sea Bright”) to purchase 20% of the outstanding equity of Sea Bright, and paid a consideration of $2.0 million. In accordance with the guidance in ASC 323, Investments - Equity Method and Joint Ventures, this investment is accounted for as an equity method investment without readily determinable fair value as we exercise significant influence.

Variable Interest Entities (“VIEs”)

A VIE is an entity that has either (i) insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) equity investors who lack the characteristics of a controlling financial interest.

We follow guidance on the consolidation of VIEs that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct activities that most significantly impact the investees' economic performance, including powers granted to the investees' governing board and, to a certain extent, a company's economic interest in the investee. We analyze our investments in VIEs and classify them as either unconsolidated VIEs or consolidated VIEs (refer to our Form 10-K for the fiscal year ended January 2, 2022 for further details on our various VIE arrangements).

Unconsolidated VIEs

In March 2022, we entered into a joint venture with Hannon Armstrong and SunStrong to form Dorado DevCo, a jointly-owned entity, to hold our residential lease solar power projects. Similar to our prior joint ventures for residential lease assets, SunPower and Hannon Armstrong will make total capital contributions of up to $7.9 million into Dorado DevCo for 50% effective equity interest, each. SunStrong, our existing joint venture with Hannon Armstrong was appointed as a manager of the entity. We also entered into a development asset purchase agreement to provide development services for solar power systems sold into the fund.

With respect to our interest in Dorado DevCo, we determined there is not sufficient equity at risk in the joint venture, thus, we determined the joint venture is a VIE as considered under the guidance in ASC 810, Consolidation. Based on the assessment of the required criteria for consolidation, we determined that SunStrong, as the manager of Dorado DevCo, has the power to make decisions over activities that significantly affect Dorado DevCo and subsidiaries. We and Hannon Armstrong do not have the power to unilaterally make decisions that affect the performance of the investee, and we do not have kick-out rights to unilaterally buyout the other party's equity interests, while Hannon Armstrong has a right to purchase our equity interest of the investee. In addition, much of our exposure to absorb the losses of the VIE that could potentially be significant to the VIE, or the right to receive the economic interest from the VIE, is in our capacity as a developer and service provider, where we provide development services at market terms. Therefore, we concluded we are not the primary beneficiary of the investee.

During the first quarter of fiscal 2022, we made a $0.2 million capital contribution in the equity method investee. The investment contributed to our equity investment balance in SunStrong and is classified in “other long-term assets” on our condensed consolidated balance sheets.

We have elected the FVO in accordance with the guidance in ASC 825, Financial Instruments, for our investments in SunStrong, SunStrong Partners, and Dorado DevCo, our unconsolidated VIEs. Refer to Note 7. Fair Value Measurements.

Summarized Financial Information of Unconsolidated VIEs

The following table presents summarized financial statements for SunStrong, a significant investee, based on unaudited information provided to us by the investee:1


	Three Months Ended
(In thousands)	April 3, 2022		April 4, 2021
Summarized statements of operations information:
Revenues	$	36,156	$	33,097
Gross (loss) income	(974)		1,214
Net income (loss)	1,753		(45,789)


	As of
(In thousands)	April 3, 2022		January 2, 2022
Summarized balance sheet information:
Current assets	$	88,086	$	93,722
Long-term assets	1,658,386		1,626,125
Current liabilities	62,029		65,872
Long-term liabilities	1,317,835		1,295,540

1 Note that amounts are reported one quarter in arrears as permitted by applicable guidance.

Related-Party Transactions with Investees

Related-party transactions and balances with SunStrong and SunStrong Partners are as follows:


	As of
(In thousands)	April 3, 2022		January 2, 2022
Accounts receivable	$	25,982	$	28,900

Accrued liabilities	53		53
Contract liabilities	29,426		17,442


	Three Months Ended
(In thousands)	April 3, 2022		April 4, 2021
Revenues and fees received from investees for products/services	$	45,520	$	49,647

Consolidated VIEs

For Solar Sail LLC (“Solar Sail”) and Solar Sail Commercial Holdings, LLC (“Solar Sail Commercial”), joint ventures with Hannon Armstrong, our consolidated VIEs, total revenue was $4.3 million and $3.6 million for the three months ended April 3, 2022 and April 4, 2021, respectively. The assets of these consolidated VIEs are restricted for use only by the particular investee and are not available for our general operations. As of April 3, 2022, we had $66.3 million of assets from the consolidated VIEs.