XML 31 R15.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

9 Months Ended

Oct. 01, 2023

FAIR VALUE MEASUREMENTS

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement (observable inputs are the preferred basis of valuation):

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.

•Level 3 — Prices or valuations that require management inputs that are both significant to the fair value measurement and unobservable.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We measure certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period.

The following tables summarize our assets and liabilities measured at fair value on a recurring basis:


	October 1, 2023
(In thousands)	Carrying Value		Total Fair Value		Level 3		Level 2		Level 1
Assets
Cash and cash equivalents:
Money market funds	$	30,000	$	30,000	$	—	$	—	$	30,000
Loan receivables held for sale, net	15,443		17,116		—		17,116		—


Other long-term assets:
Equity investments with FVO	29,594		29,594		29,594		—		—

Interest rate swaps	3,712		3,712		—		3,712		—
Total assets	$	78,749	$	80,422	$	29,594	$	20,828	$	30,000
Liabilities
Accrued liabilities:
Interest rate swaps	$	90	$	90	$	—	$	90	$	—
Total liabilities	$	90	$	90	$	—	$	90	$	—


	January 1, 2023
(In thousands)	Carrying Value		Total Fair Value		Level 3		Level 2		Level 1
Assets
Cash and cash equivalents:
Money market funds	$	297,474	$	297,474	$	—	$	—	$	297,474



Other long-term assets:
Equity investments with FVO	18,346		18,346		18,346		—		—
Equity investments with readily determinable fair value	132,480		132,480		—		—		132,480
Interest rate swaps	2,293		2,293		—		2,293		—
Total assets	$	450,593	$	450,593	$	18,346	$	2,293	$	429,954

Money market funds

During fiscal 2022, we entered into investments in money market funds with Bank of America. As of October 1, 2023, we recorded an amount of $30.0 million within “cash and cash equivalents” in our consolidated balance sheets for our investments held in the money market funds. The money market funds are classified within Level 1 in the fair value hierarchy as we value the funds using observable inputs that reflect quoted prices for securities with identical characteristics.

Loan receivables held for sale, net

Loan receivables held for sale are recorded in the condensed consolidated balance sheets at the net present value when originated, and subsequently measured at lower of cost or fair value on a loan-by-loan basis until the loan receivables are sold. Fair value of our loan receivables held for sale is determined based on the anticipated sale price of the solar loan receivables to third-parties. The loan receivables held for sale are classified within Level 2 of the fair value hierarchy, as the primary component of the price is obtained from observable values of loan receivables with similar terms and characteristics.

Equity investments with fair value option (“FVO”)

We have elected the FVO in accordance with the guidance in ASC 825, Financial Instruments, for our investment in the SunStrong Capital Holdings, LLC (“SunStrong”), Dorado Development Partners, LLC (“Dorado DevCo”), and SunStrong Partners, LLC (“SunStrong Partners”) joint ventures, to mitigate volatility in reported earnings that results from the use of different measurement attributes (see Note 11. Equity Investments). We initially computed the fair value for our investments consistent with the methodology and assumptions that market participants would use in their estimates of fair value with the assistance of a third-party valuation specialist. The fair value computation is updated using the same methodology on an annual basis, during the third fiscal quarter, considering material changes in the business of SunStrong, Dorado DevCo, and SunStrong Partners or other inputs. The investments are classified within Level 3 in the fair value hierarchy because we estimate the fair value of the investments using the income approach based on the discounted cash flow method which considered estimated future financial performance, including assumptions for, among others, forecasted contractual lease income, lease expenses, residual value of these lease assets, and long-term discount rates, and forecasted default rates over the lease and loan term and discount rates, some of which require significant judgment by management and are not based on observable inputs.

The following table summarizes movements in equity investments for the nine months ended October 1, 2023. There were no internal movements between Level 1 or Level 2 fair value measurements to or from Level 3 fair value measurements for the nine months ended October 1, 2023.


(In thousands)	Beginning balance as of January 1, 2023		Equity Distribution		Additional Investment		Other adjustment1		Ending balance as of October 1, 2023
Equity investments with FVO	$	18,346	$	—	$	9,071	$	2,177	$	29,594

1 During the third quarter of fiscal 2023, we recorded a fair value adjustment of $2.2 million as a result of our assessment of the fair value of our equity investments with FVO during the quarter. The fair value adjustment was recorded within “Equity in earnings (losses) of unconsolidated investees” in our condensed consolidated statements of operations.

Level 3 significant unobservable inputs sensitivity

The following table summarizes the significant unobservable inputs used in Level 3 valuation of our investments carried at fair value as of October 1, 2023. Included in the table are the inputs and range of possible inputs that have an effect on the overall valuation of the financial instruments.

2023

Assets:

Fair value

Valuation Technique

Unobservable Input

Range1

Weighted Average1

Other long-term assets:

Equity investments with FVO

29,594

Discounted cash flows

Discount rate

Residual value

14.0%-14.5%

6.4%-17.5%

14.2%

9.5%

Total assets

29,594

1 The primary unobservable inputs used in the fair value measurement of our equity investments, when using a discounted cash flow model, are the discount rate and residual value. Significant increases (decreases) in the discount rate in isolation would result in a significantly lower (higher) fair value measurement. We estimate the discount rate based on risk appropriate projected cost of equity. We estimate the residual value based on the contracted systems in place in the years being projected. Significant increases (decreases) in the residual value in isolation would result in a significantly higher (lower) fair value measurement.

Equity investments with readily determinable fair value

In connection with the divestment of our microinverter business to Enphase on August 9, 2018, we received 7.5 million shares of Enphase common stock (NASDAQ:ENPH). The common stock received was recorded as an equity investment with readily determinable fair value (Level 1), with changes in fair value recognized in net income in accordance with ASU 2016-01 Recognition and Measurement of Financial Assets and Liabilities.

On January 5, 2023, we sold our remaining 0.5 million shares of Enphase common stock in open market transactions for cash proceeds of $121.7 million, with a loss of $10.8 million, which was recorded within “other, net” in our condensed consolidated statements of operations for the nine months ended October 1, 2023. During the three and nine months ended October 2, 2022, we sold one and two million shares of Enphase common stock in open market transactions for net cash proceeds of $290.3 million and $440.1 million, respectively.

Interest Rate Swaps

Credit Suisse Interest Rate Swap

In connection with the entry into our loan and security purchase agreement with Credit Suisse AG, New York Branch, and other financial institutions to finance our retail installment contract receivables on June 30, 2022, we also entered into interest rate swaps under the agreement, which convert the floating rate loan to a fixed rate. The interest rate swaps were entered into to mitigate the risks associated with interest rate volatility. The swaps terminate in September of 2026, unless we terminate with the maturity of the loan, subject to any early termination costs.

The interest rate swaps qualify as derivatives in accordance with the guidance in ASC 815, Derivatives and Hedging. The fair value of the interest rate swaps is determined using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

As of October 1, 2023, we recorded derivative assets of $3.7 million, within “other long-term assets” in our condensed consolidated balance sheets related to the interest rate swaps. These interest rate swap derivatives not designated as hedges had an aggregate notional value of $65.8 million as of October 1, 2023. In addition, we recognize changes in the fair value of the interest rate swaps immediately and recorded a gain of $1.2 million and $1.4 million within “interest expense” in our condensed consolidated statements of operations for the three and nine months ended October 1, 2023, respectively. During the three and nine months ended October 2, 2022, we recorded a gain of $2.8 million and $2.3 million, respectively, for changes in the fair value of the interest rate swaps.

Bank of America Interest Rate Swap

In the first quarter of fiscal 2023, we entered into interest rate swaps in our SunPower FinancialTM business with Bank of America, which converts the fixed rate loans entered into by SunPower Financial's customers to floating rates. The interest rate swaps were entered into to mitigate the interest rate volatility risks associated with the timing lag between when the customer enters into these fixed rate loans and when the loan is funded and sold to a third-party investor. The swaps terminate in May 2024.

As of October 1, 2023, we recorded derivative liabilities of $0.1 million, within “accrued liabilities” in our condensed consolidated balance sheets related to the interest rate swaps. These interest rate swap derivatives not designated as hedges had an aggregate notional value of $150.0 million as of October 1, 2023. We recognize changes in the fair value of the interest rate swaps immediately and record such changes within “total revenues” in our condensed consolidated statements of operations. We recorded a loss of $0.2 million and gain of $0.1 million for changes in fair value of the interest rate swaps during the three and nine months ended October 1, 2023, respectively. In addition, during the third quarter of fiscal 2023, we received $5.9 million to cash settle our existing interest rate swaps, and subsequently entered into a new interest rate swap with Bank of America. The gain on the swap settlement was recorded in “total revenues” in our condensed consolidated statements of operations.

Retail installment contract receivables, net

The aggregate carrying value of our long-term retail installment contracts as of October 1, 2023 was $101.9 million, included within “accounts receivable, net” and “other long-term assets” on our condensed consolidated balance sheets. We measure the retail installment contracts using the amortized cost method, where the significant financing component amount is deferred and recognized as revenue over the contract term. The fair value of these receivables as of October 1, 2023 was $74.7 million. The fair value was determined using a third-party investor determined formula that starts with initial investor pricing by product, adjusted to account for the fair value impact relating to any changes in market spreads based on Level 2 inputs for the relevant benchmark interest rate and credit spread, as reported by Bloomberg.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details