Attached files

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EX-31.1 - CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) - SUNPOWER CORPex31-1.htm
EX-31.2 - CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) - SUNPOWER CORPex31-2.htm
EX-10.7 - AMENDMENT FOUR TO TURNKEY ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT - SUNPOWER CORPexhibit10-7.htm
EX-10.1 - AMENDMENT NO. 1 TO SUPPLY AGREEMENT - SUNPOWER CORPexhibit10-1.htm
EX-10.4 - SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - SUNPOWER CORPexhibit10-4.htm
EX-10.2 - AMENDMENT NO. 2 TO INGOT SUPPLY AGREEMENT - SUNPOWER CORPexhibit10-2.htm
EX-10.6 - FORM OF EMPLOYMENT AGREEMENT FOR EXECUTIVE OFFICERS - SUNPOWER CORPexhibit10-6.htm
EX-10.5 - FIRST AMENDMENT TO LOAN AGREEMENT - SUNPOWER CORPexhibit10-5.htm
EX-10.3 - AMENDMENT NO. 3 TO POLYSILICON SUPPLY AGREEMENT - SUNPOWER CORPexhibit10-3.htm
EX-32.1 - CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - SUNPOWER CORPex32-1.htm



 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

FORM 10-Q
_____________________

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

For the quarterly period ended September 27, 2009

OR

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

For the transition period from ______________ to ______________

Commission file number 001-34166

SunPower Corporation
(Exact Name of Registrant as Specified in Its Charter)

Delaware
94-3008969
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)

3939 North First Street, San Jose, California 95134
(Address of Principal Executive Offices and Zip Code)

(408) 240-5500
(Registrant’s Telephone Number, Including Area Code)
_____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer T
Accelerated Filer o
Non-accelerated filer o
Smaller reporting company o
 
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  T

The total number of outstanding shares of the registrant’s class A common stock as of October 28, 2009 was 54,940,045.
The total number of outstanding shares of the registrant’s class B common stock as of October 28, 2009 was 42,033,287.
 



 
 
 
- 1 -

 
 
SunPower Corporation

INDEX TO FORM 10-Q

   
Page
3
     
Item 1.
3
     
 
3
     
 
4
     
 
5
     
 
6
     
Item 2.
32
     
Item 3.
44
     
Item 4.
46
     
47
     
Item 1.
47
     
Item 1A.
47
     
Item 2.
48
     
Item 6.
49
     
 
50
     
51

 
 
 
- 2 -

 
 
PART I. FINANCIAL INFORMATION

Financial Statements


Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
   
September 27,
2009
   
December 28,
2008(1)
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
472,126
   
$
  202,331
 
Restricted cash and cash equivalents, current portion
   
77,088
     
  13,240
 
Short-term investments
   
796
     
  17,179
 
Accounts receivable, net
   
243,528
     
  194,222
 
Costs and estimated earnings in excess of billings
   
73,519
     
  30,326
 
Inventories
   
239,211
     
  251,542
 
Advances to suppliers, current portion
   
22,718
     
  43,190
 
Prepaid expenses and other current assets
   
107,294
     
  98,254
 
Total current assets
   
1,236,280
     
  850,284
 
                 
Restricted cash and cash equivalents, net of current portion
   
243,700
     
  162,037
 
Long-term investments
   
8,426
     
  23,577
 
Property, plant and equipment, net
   
695,409
     
  629,247
 
Goodwill
   
198,329
     
  196,720
 
Other intangible assets, net
   
29,115
     
  39,490
 
Advances to suppliers, net of current portion
   
115,136
     
  119,420
 
Other long-term assets
   
89,836
     
  76,751
 
Total assets
 
$
2,616,231
   
$
  2,097,526
 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
232,547
   
$
  263,241
 
Accrued liabilities
   
159,695
     
  157,049
 
Billings in excess of costs and estimated earnings
   
17,484
     
  11,806
 
Convertible debt, current portion
   
135,518
     
  —
 
Customer advances, current portion
   
22,406
     
  19,035
 
Total current liabilities
   
567,650
     
451,131
 
                 
Long-term debt
   
188,915
     
  54,598
 
Convertible debt, net of current portion
   
395,438
     
  357,173
 
Customer advances, net of current portion
   
74,736
     
  91,359
 
Long-term deferred tax liability
   
9,468
     
  8,141
 
Other long-term liabilities
   
26,398
     
  25,950
 
Total liabilities
   
1,262,605
     
  988,352
 
Commitments and contingencies (Note 10)
               
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 10,042,490 shares authorized; none issued and outstanding
   
     
 
Common stock, $0.001 par value, 150,000,000 shares of class B common stock authorized; 42,033,287 shares of class B common stock issued and outstanding; $0.001 par value, 217,500,000 shares of class A common stock authorized; 55,186,633 and 44,055,644 shares of class A common stock issued; 54,858,480 and 43,849,566 shares of class A common stock outstanding, at September 27, 2009 and December 28, 2008, respectively
   
97
     
86
 
Additional paid-in capital
   
1,287,711
     
 1,065,745
 
Accumulated other comprehensive loss
   
(31,644
)
   
  (25,611
)
Retained earnings
   
109,827
     
 77,611
 
     
1,365,991
     
  1,117,831
 
Less: shares of class A common stock held in treasury, at cost; 328,153 and 206,078 shares at September 27, 2009 and December 28, 2008, respectively
   
 
(12,365
)
   
(8,657
)
Total stockholders’ equity
   
1,353,626
     
 1,109,174
 
Total liabilities and stockholders’ equity
 
$
2,616,231
   
$
  2,097,526
 

(1)
As adjusted to reflect the adoption of new accounting guidance for convertible debt instruments that may be settled in cash upon conversion (see Note 1).

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
 
 
- 3 -

 
 

Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 27,
2009
   
September 28,
2008(1)
   
September 27,
2009
   
September 28,
2008(1)
 
Revenue:
                       
Systems
 
$
168,412
   
$
193,330
   
$
383,233
   
$
642,774
 
Components
   
297,895
     
184,170
     
594,505
     
391,178
 
Total revenue
   
466,307
     
377,500
     
977,738
     
1,033,952
 
Operating costs and expenses:
                               
Cost of systems revenue
   
144,859
     
158,829
     
325,003
     
511,316
 
Cost of components revenue
   
232,164
     
113,358
     
457,240
     
271,288
 
Research and development
   
8,250
     
6,049
     
23,067
     
15,504
 
Sales, general and administrative
   
46,473
     
46,075
     
130,511
     
123,141
 
Total operating costs and expenses
   
431,746
     
324,311
     
935,821
     
921,249
 
Operating income
   
34,561
     
53,189
     
41,917
     
112,703
 
Other income (expense):
                               
Interest income
   
     
2,650
     
1,949
     
9,086
 
Interest expense
   
(9,854
)
   
(5,743
)
   
(25,503
)
   
(18,137
)
Gain on purchased options
   
     
     
21,193
     
 
Other, net
   
585
     
(5,691
)
   
(3,765
)
   
(8,546
)
Other income (expense), net
   
(9,269
)
   
(8,784
)
   
(6,126
)
   
(17,597
)
Income before income taxes and equity in earnings of unconsolidated investees
   
25,292
     
44,405
     
35,791
     
95,106
 
Income tax provision
   
15,088
 
   
21,856
     
10,580
     
31,275
 
Income before equity in earnings of unconsolidated investees
   
10,204
     
22,549
     
25,211
     
63,831
 
Equity in earnings of unconsolidated investees
   
2,627
     
2,132
     
7,005
     
4,006
 
Net income
 
$
12,831
   
$
24,681
   
$
32,216
   
$
67,837
 
Net income per share of class A and class B common stock:
                               
Basic
 
$
0.14
   
$
0.30
   
$
0.36
   
$
0.84
 
Diluted
 
$
0.13
   
$
0.29
   
$
0.35
   
$
       0.80
 
Weighted-average shares:
                               
Basic
   
94,668
     
80,465
     
89,764
     
79,614
 
Diluted
   
96,319
     
84,064
     
91,513
     
    83,477
 

(1)
As adjusted to reflect the adoption of new accounting guidance for both convertible debt instruments that may be settled in cash upon conversion and unvested share-based payment awards that contain rights to nonforfeitable dividends are participating securities (see Note 1).

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
 
 
- 4 -

 
 

Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 
   
Nine Months Ended
 
   
September 27,
2009
   
September 28,
2008(1)
 
Cash flows from operating activities:
             
Net income
 
$
32,216
   
$
67,837
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Stock-based compensation
   
34,204
     
52,026
 
Depreciation
   
60,348
     
35,741
 
Amortization of other intangible assets
   
12,296
     
12,552
 
Impairment of investments and long-lived assets
   
1,997
     
3,136
 
Non-cash interest expense
   
16,186
     
12,717
 
Amortization of debt issuance costs
   
2,454
     
1,611
 
Gain on purchased options
   
(21,193
)
   
 
Equity in earnings of unconsolidated investees
   
(7,005
)
   
(4,006
)
Excess tax benefits from stock-based award activity
   
(14,744
)
   
(33,899
)
Deferred income taxes and other tax liabilities
   
277
     
29,738
 
Changes in operating assets and liabilities, net of effect of acquisitions:
               
Accounts receivable
   
(43,285
)
   
(55,324
)
Costs and estimated earnings in excess of billings
   
(41,416
)
   
(17,700
)
Inventories
   
20,914
     
(48,301
)
Prepaid expenses and other assets
   
(9,440
)
   
(29,636
)
Advances to suppliers
   
24,877
     
19,102
 
Accounts payable and other accrued liabilities
   
(31,345
)
   
76,513
 
Billings in excess of costs and estimated earnings
   
4,877
     
(60,064
)
Customer advances
   
(13,639
)
   
45,884
 
Net cash provided by operating activities
   
28,579
     
107,927
 
Cash flows from investing activities:
               
Increase in restricted cash and cash equivalents
   
(145,583
)
   
(42,153
)
Purchases of property, plant and equipment
   
(150,093
)
   
(150,302
)
Proceeds from sale of equipment to third-party
   
9,878
     
 
Purchases of available-for-sale securities
   
     
(65,748
)
Proceeds from sales or maturities of available-for-sale securities
   
29,545
     
133,948
 
Cash paid for acquisitions, net of cash acquired
   
     
(18,311
)
Cash paid for investments in joint ventures and other non-public companies
   
     
(24,625
)
Net cash used in investing activities
   
(256,253
)
   
(167,191
)
Cash flows from financing activities:
               
Proceeds from issuance of long-term debt, net of issuance costs
   
137,735
     
 
Proceeds from issuance of convertible debt, net of issuance costs
   
225,018
     
 
Proceeds from offering of class A common stock, net of offering expenses
   
218,781
     
 
Cash paid for repurchase of convertible debt
   
(75,636
)
   
 
Cash paid for purchased options
   
(97,336
)
   
 
Proceeds from warrant transactions
   
71,001
     
 
Proceeds from exercises of stock options
   
1,408
     
3,786
 
Excess tax benefits from stock-based award activity
   
14,744
     
33,899
 
Purchases of stock for tax withholding obligations on vested restricted stock
   
(3,708
)
   
(5,853
)
Net cash provided by financing activities
   
492,007
     
31,832
 
Effect of exchange rate changes on cash and cash equivalents
   
5,462
     
(1,166
)
Net increase (decrease) in cash and cash equivalents
   
269,795
     
(28,598
)
Cash and cash equivalents at beginning of period
   
202,331
     
285,214
 
Cash and cash equivalents at end of period
 
$
472,126
   
$
256,616
 
                 
Non-cash transactions:
               
Additions to property, plant and equipment included in accounts payable and other accrued liabilities
 
$
   
$
46,780
 
Non-cash interest expense capitalized and added to the cost of qualified assets
   
4,456
     
6,367
 
Issuance of common stock for purchase acquisition
   
1,471
     
3,054
 
Change in goodwill relating to adjustments to acquired net assets
   
     
231
 
 
(1)
As adjusted to reflect the adoption of new accounting guidance for convertible debt instruments that may be settled in cash upon conversion (see Note 1).

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
 
 
- 5 -

 
 

Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

SunPower Corporation (together with its subsidiaries, the “Company” or “SunPower”) designs, manufactures and markets high-performance solar electric power technologies. The Company’s solar cells and solar panels are manufactured using proprietary processes, and its technologies are based on more than 15 years of research and development. The Company operates in two business segments: systems and components. The Systems Segment generally represents sales directly to system owners of engineering, procurement, construction and other services relating to solar electric power systems that integrate the Company’s solar panels and balance of systems components, as well as materials sourced from other manufacturers. The Components Segment primarily represents sales of the Company’s solar panels and inverters to solar systems installers and other resellers, including the Company’s third-party global dealer network.

The Company was a majority-owned subsidiary of Cypress Semiconductor Corporation (“Cypress”) through September 29, 2008. After the close of trading on September 29, 2008, Cypress completed a spin-off of all of its shares of the Company’s class B common stock in the form of a pro rata dividend to the holders of Cypress common stock of record as of September 17, 2008. As a result, the Company’s class B common stock trades publicly and is listed on the Nasdaq Global Select Market, along with the Company’s class A common stock.

    On May 4, 2009, the Company completed a public offering of 10.35 million shares of its class A common stock, at a per share price of $22.00, and received net proceeds of $218.8 million. Also on May 4, 2009, the Company issued $230.0 million in principal amount of its 4.75% senior convertible debentures (“4.75% debentures”) and received net proceeds, before payment of the net cost of the call spread overlay, of $225.0 million. Concurrent with the issuance of the 4.75% debentures, the Company paid a net cost of $26.3 million for the call spread overlay with respect to the Company’s class A common stock which are intended to effectively increase the conversion price of the 4.75% debentures (see Note 12).
 
Recently Adopted Accounting Guidance

Accounting Standards Codification (“ASC” or the “Codification”)
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”) which became the single source of authoritative, nongovernmental GAAP in the United States, except for rules and interpretive releases of the Securities and Exchange Commission (“SEC”), which are additional sources of authoritative GAAP for SEC registrants. The Codification did not change GAAP, but it introduced a new indexing structure for GAAP literature that is organized by topic in an online research system. Adoption of the Codification in the third quarter of fiscal 2009 had no impact on the Company’s condensed consolidated financial statements.
 
Convertible Debt

On December 29, 2008, the start of its 2009 fiscal year, the Company adopted new accounting guidance for convertible debt instruments that may be settled in cash upon conversion, which requires recognition of both the liability and equity components of convertible debt instruments with cash settlement features. The debt component is required to be recognized at the fair value of a similar debt instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the convertible debt and the fair value of the liability, after adjusting for the deferred tax impact. The new accounting guidance also requires an accretion of the resulting debt discount over the expected life of the convertible debt. The new accounting guidance was required to be applied retrospectively to prior periods and, accordingly, financial statements for prior periods have been adjusted to reflect its adoption.

In February 2007, the Company issued $200.0 million in principal amount of its 1.25% senior convertible debentures (“1.25% debentures”). In July 2007, the Company issued $225.0 million in principal amount of its 0.75% senior convertible debentures (“0.75% debentures”). The 1.25% debentures and the 0.75% debentures contain partial cash settlement features and are therefore subject to the aforementioned new accounting guidance. As a result, the carrying value of the equity and debt components was retrospectively adjusted. As of December 28, 2008, the carrying value of the equity component was $61.8 million in the aggregate and the principal amount of the outstanding debentures, the unamortized discount and the net carrying value were $423.6 million, $66.4 million and $357.2 million in the aggregate, respectively (see Note 12). On a cumulative basis from the respective issuance dates of the 1.25% debentures and the 0.75% debentures through December 28, 2008, the Company has recognized $22.6 million in non-cash interest expense, excluding the related tax effects.

- 6 -

 
As a result of the Company’s adoption of the new accounting guidance, the Company’s Condensed Consolidated Balance Sheet as of December 28, 2008 has been adjusted as follows:

(In thousands)
 
As Adjusted
in this
Quarterly Report
on Form 10-Q
   
As Previously Reported in
Annual Report
on Form 10-K
 
Assets
           
Inventories
 
$
251,542
   
$
251,388
 
Prepaid expenses and other current assets
   
98,254
     
96,104
 
Property, plant and equipment, net
   
629,247
     
612,687
 
Other long-term assets
   
76,751
     
74,224
 
Total assets
   
2,097,526
     
2,076,135
 
Liabilities
               
Convertible debt, net of current portion
   
357,173
     
423,608
 
Deferred tax liability, net of current portion
   
8,141
     
8,115
 
Total liabilities
   
988,352
     
1,054,761
 
Stockholders’ Equity
               
Additional paid-in capital
   
1,065,745
     
1,003,954
 
Retained earnings
   
77,611
     
51,602
 
Total stockholders’ equity
   
1,109,174
     
1,021,374
 

As a result of the Company’s adoption of the new accounting guidance, the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 28, 2008 have been adjusted as follows:

  (In thousands)
 
Three Months Ended
   
Nine Months Ended
 
   
As Adjusted
in this
Quarterly Report
on Form 10-Q
   
As Previously Reported in
Quarterly Report
on Form 10-Q
   
As Adjusted
in this
Quarterly Report
on Form 10-Q
   
As Previously Reported in
Quarterly Report
on Form 10-Q
 
Cost of systems revenue
 
$
158,829
   
$
158,730
   
$
511,316
   
$
511,080
 
Cost of components revenue
 
113,358
     
113,149
     
271,288
     
270,901
 
Operating income
 
53,189
     
53,497
     
112,703
     
113,326
 
Interest expense
 
(5,743
)
   
(1,411
)
   
(18,137)
     
(4,286
)
Other, net
 
(5,691
)
   
(5,692
)
   
(8,546)
     
(9,519
)
Income before income taxes and equity in earnings of unconsolidated investees
 
44,405
     
49,044
     
95,106
     
108,607
 
Income tax provision
 
21,856
     
29,797
     
31,275
     
49,869
 
Income before equity in earnings of unconsolidated investees
 
22,549
     
19,247
     
63,831
     
58,738
 
Net income
 
24,681
     
21,379
     
67,837
     
62,744
 

As a result of the Company’s adoption of the new accounting guidance, the Company’s Condensed Consolidated Statement of Cash Flows for the nine months ended September 28, 2008 has been adjusted as follows:

(In thousands)
 
As Adjusted
in this
Quarterly Report
on Form 10-Q
   
As Previously Reported in
Quarterly Report
on Form 10-Q
 
Cash flows from operating activities:
           
Net income
 
$
67,837
   
$
62,744
 
Depreciation
   
35,741
     
35,595
 
Non-cash interest expense
   
12,717
     
 
Amortization of debt issuance costs
   
1,611
     
972
 
Deferred income taxes and other tax liabilities
   
29,738
     
48,333
 
Net cash provided by operating activities
   
107,927
     
107,927
 

- 7 -

 
Earnings Per Share

On December 29, 2008, the Company adopted accounting guidance which clarifies that all outstanding unvested stock-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for the purpose of calculating earnings per share and are subject to the two-class method. In fiscal 2007, the Company granted restricted stock awards with the same dividend rights as its other common stockholders. These unvested restricted stock awards are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied (see Note 16). Stock-based awards granted subsequent to fiscal 2007 do not contain nonforfeitable dividend rights and are not considered participating securities. The new accounting guidance was applied retrospectively to the Company’s historical results of operations and, as a result, the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended September 28, 2008 have been adjusted as follows:

  (In thousands, except per share data)
 
Three Months Ended
   
Nine Months Ended
 
   
As Adjusted
in this
Quarterly Report
on Form 10-Q
   
As Previously Reported in
Quarterly Report
on Form 10-Q
   
As Adjusted
in this
Quarterly Report
on Form 10-Q
   
As Previously Reported in
Quarterly Report
on Form 10-Q
 
Net income
 
$
24,681
   
$
21,379
   
$
67,837
   
$
62,744
 
Net income per share of class A and class B common stock:
                               
Basic
 
$
0.30
   
$
0.27
   
$
0.84
   
$
0.79
 
Diluted
 
$
0.29
   
$
0.25
   
$
0.80
   
$
0.75
 
Weighted-average shares:
                               
Basic
   
80,465
     
80,465
     
79,614
     
79,614
 
Diluted
   
84,064
     
84,488
     
83,477
     
84,061
 

Disclosures about Derivative Instruments and Hedging Activities

On December 29, 2008, the Company adopted new accounting guidance which requires entities to provide enhanced disclosures addressing the following: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for and related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The new accounting guidance had no impact on the Company’s condensed consolidated financial statements and only required additional financial statement disclosures as set forth in Note 14.

Fair Value of Assets and Liabilities

During the first quarter of fiscal 2009, the Company adopted accounting guidance for nonfinancial assets and liabilities that are not measured and recorded at fair value on a recurring basis. The adoption of this accounting guidance had no impact on the Company’s condensed consolidated financial statements.

In April 2009, the FASB issued additional accounting guidance on how to determine fair value of financial assets and liabilities when the volume and level of activity for an asset or liability have significantly decreased and how to identify transactions that are not orderly in light of the current economic environment. If the Company were to conclude that there has been a significant decrease in the volume and level of activity of an asset or liability in relation to normal market activities, quoted market values may not be representative of fair value and the Company may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate. The accounting guidance also clarified the recognition and presentation of other-than-temporary impairments of securities to bring consistency to the timing of impairment recognition, and provide clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, the accounting guidance required disclosures about fair value of financial instruments in annual financial statements of publicly traded companies to also be disclosed during interim reporting periods. The Company’s adoption of the accounting guidance in the second quarter of fiscal 2009 had no impact on the Company’s condensed consolidated financial statements and only required additional financial statement disclosures (see Notes 2, 6 and 8).
 
- 8 -

 
Business Combinations

On December 29, 2008, the Company adopted new accounting guidance which significantly changed the accounting for business combinations in a number of areas including the treatment of contingent consideration, acquisition costs, in-process research and development and restructuring costs. In addition, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period affect income tax expense under the new accounting guidance. As a result of the Company’s adoption of the new accounting guidance, the Company reflected an asset for in-process research and development of $1.0 million in connection with its acquisition of Tilt Solar LLC (“Tilt Solar”) during the second quarter of fiscal 2009 which would have been expensed under previous accounting guidance (see Note 5).

In April 2009, the FASB issued new accounting guidance for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The new accounting guidance eliminates the distinction between contractual and non-contractual contingencies. The Company’s adoption of the new accounting guidance for contingent assets and liabilities acquired in business combinations during the first quarter of fiscal 2009 had no impact on its condensed consolidated financial statements.

Subsequent Events

In May 2009, the FASB issued new accounting guidance which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new accounting guidance requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company’s adoption of this accounting guidance in the second quarter of fiscal 2009 had no impact on its condensed consolidated financial statements and only required additional financial statement disclosures. The Company evaluated subsequent events through November 2, 2009, the date this Quarterly Report on Form 10-Q was filed.

Issued Accounting Guidance Not Yet Adopted

With the exception of those discussed below, there has been no issued accounting guidance not yet adopted by the Company that it believes is of significance, or of potential significance.

Share Lending Arrangements
 
    In June 2009, the FASB issued new accounting guidance that will change how companies account for share lending arrangements that are executed in connection with convertible debt offerings or other financings. The new accounting guidance requires all such share lending arrangements to be valued and amortized to interest expense in the same manner as debt issuance costs. As a result of the new accounting guidance, existing share lending arrangements relating to the Company’s class A common stock will be required to be measured at fair value and amortized to interest expense in its consolidated financial statements. In addition, in the event that counterparty default pursuant to the share lending agreement becomes probable, the Company will be required to recognize an expense equal to the then fair value of the unreturned loaned shares, net of any probable recoveries. The new accounting guidance is effective for fiscal years beginning after December 15, 2009 (the Company’s first quarter of fiscal 2010) and retrospective adoption is required for all periods presented.
 
    In connection with the issuance of the 1.25% debentures and 0.75% debentures, the Company loaned approximately 2.9 million shares of its class A common stock to Lehman Brothers International (Europe) Limited (“LBIE”) and approximately 1.8 million shares of its class A common stock to Credit Suisse International (“CSI”) under share lending arrangements. The new accounting guidance will result in higher non-cash amortization of imputed share lending costs in current and prior periods, as well as a material non-cash loss resulting from Lehman Brothers Holding Inc. (“Lehman”) filing of a petition for protection under Chapter 11 of the U.S. bankruptcy code on September 15, 2008, and LBIE commencing administration proceedings (analogous to bankruptcy) in the United Kingdom. The then fair value of the approximately 2.9 million shares of the Company’s class A common stock loaned and unreturned by LBIE is approximately $241 million, which will be expensed retrospectively in the third quarter of fiscal 2008, before consideration of any potential recoveries and related tax effects. The Company is currently determining the full impact that the January 2010 adoption of this new accounting guidance will have on its current and prior-period’s consolidated financial statements.

Variable Interest Entities

In June 2009, the FASB issued new accounting guidance regarding consolidation of variable interest entities to eliminate the exemption for qualifying special purpose entities, provide a new approach for determining which entity should consolidate a variable interest entity, and require an enterprise to regularly perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. The new accounting guidance is effective for fiscal years beginning after November 15, 2009 and earlier application is prohibited. The Company is currently evaluating the potential impact of the adoption of the new accounting guidance on its condensed consolidated financial statements.

- 9 -

 
Revenue Arrangements with Multiple Deliverables

In October 2009, the FASB issued new accounting guidance for revenue arrangements with multiple deliverables. Specifically, the new guidance requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In addition, the new guidance eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. The new accounting guidance is effective in the fiscal year beginning on or after June 15, 2010. Early adoption is permitted. The Company plans to adopt the new accounting guidance in the first quarter of fiscal 2010 and apply the prospective application for new or materially modified arrangements with multiple deliverables. The Company does not anticipate the adoption of the new accounting guidance to have a material impact on its condensed consolidated financial statements.

Fiscal Years

The Company reports on a fiscal-year basis and ends its quarters on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year, in which case the additional week falls into the fourth quarter of that fiscal year. Fiscal year 2009 consists of 53 weeks while fiscal year 2008 consists of 52 weeks. The third quarter of fiscal 2009 ended on September 27, 2009 and the third quarter of fiscal 2008 ended on September 28, 2008.

 Basis of Presentation

The accompanying condensed consolidated interim financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting and include the accounts of the Company and all of its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements as adjusted for the Company’s adoption of new accounting guidance for convertible debt instruments that may be settled in cash upon conversion discussed above. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2008.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("United States" or "U.S.") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these financial statements include percentage-of-completion for construction projects, allowances for doubtful accounts receivable and sales returns, inventory write-downs, estimates for future cash flows and economic useful lives of property, plant and equipment, goodwill, other intangible assets and other long-term assets, asset impairments, valuation of auction rate securities, investments in joint ventures, certain accrued liabilities including accrued warranty reserves, valuation of debt without the conversion feature, income taxes and tax valuation allowances. Actual results could materially differ from those estimates.

In the nine months ended September 27, 2009, the Company identified certain adjustments related to fiscal 2008, primarily due to systems costs and inventory that resulted in the recording of additional out of period costs of approximately $1.8 million. The effect of these items is not material to estimated pre-tax or net income for the current year.
 
In the opinion of management, the accompanying condensed consolidated interim financial statements contain all adjustments, consisting only of normal recurring adjustments, which the Company believes are necessary for a fair statement of the Company’s financial position as of September 27, 2009 and its results of operations for the three and nine months ended September 27, 2009 and September 28, 2008 and its cash flows for the nine months ended September 27, 2009 and September 28, 2008. These condensed consolidated interim financial statements are not necessarily indicative of the results to be expected for the entire year.

- 10 -

 
Note 2. BALANCE SHEET COMPONENTS
  
(In thousands)
 
September 27,
2009
   
December 28,
2008
 
Accounts receivable, net:
               
Accounts receivable, gross
 
$
247,751
   
$
196,316
 
Less: Allowance for doubtful accounts
   
(2,307
)
   
(1,863
)
Less: Allowance for sales returns
   
(1,916
)
   
(231
)
   
$
243,528
   
$
194,222
 
             
Prepaid expenses and other current assets:
               
VAT receivables, current portion
 
$
37,867
   
$
  26,489
 
Deferred tax assets
   
5,658
     
  5,658
 
Foreign currency derivatives
   
2,670
     
11,443
 
Other receivables(1)
   
30,591
     
36,749
 
Other prepaid expenses
   
30,508
     
17,915
 
   
$
107,294
   
$
98,254
 
(1) Includes tolling agreements with suppliers in which the Company provides polysilicon required for silicon ingot manufacturing and procures the manufactured silicon ingots from the suppliers (see Note 10).
               
                 
Other long-term assets:
               
VAT receivables, net of current portion
 
$
7,536
   
$
  6,692
 
Investments in joint ventures
   
35,993
     
  29,007
 
Note receivable(2)
   
10,000
     
  10,000
 
Other
   
36,307
     
31,052
 
   
$
89,836
   
$
  76,751
 
(2) In June 2008, the Company loaned $10.0 million to a third-party private company pursuant to a three-year note receivable that is convertible into equity at the Company’s option.
               
                 
Accrued liabilities:
               
VAT payables
 
$
20,796
   
$
18,934
 
Income taxes payable
   
 
   
  13,402
 
Short-term deferred tax liability
   
5,658
     
   5,658
 
Foreign currency derivatives
   
49,553
     
   45,791
 
Short-term warranty reserves
   
36,329
     
  23,872
 
Employee compensation and employee benefits
   
15,229
     
  19,018
 
Other
   
32,130
     
30,374
 
   
$
159,695
   
$
  157,049
 

Note 3. INVENTORIES
  
(In thousands)
 
September 27,
2009
   
December 28,
2008
 
Raw materials(1)
 
$
62,137
   
$
96,351
 
Work-in-process (2)
   
38,782
     
26,155
 
Finished goods(3)
   
138,292
     
129,036
 
   
$
239,211
   
$
251,542
 
(1) In addition to polysilicon and other raw materials for solar cell manufacturing, raw materials include installation materials for systems projects.
 
(2) In the Annual Report on Form 10-K for the year ended December 28, 2008, solar cells to be sold to customers were previously disclosed as finished goods and solar cells to be manufactured into solar panels at our solar panel assembly facility were previously disclosed as raw materials. In this Quarterly Report on Form 10-Q, the balance of work-in-process as of December 28, 2008 is adjusted to include all solar cells.
 
(3) In the Annual Report on Form 10-K for the year ended December 28, 2008, third-party solar panels to be used in the construction of solar power systems by the Systems Segment were previously disclosed as raw materials. In this Quarterly Report on Form 10-Q, the balance of finished goods as of December 28, 2008 is adjusted to include third-party solar panels. In addition, the balance of finished goods as of December 28, 2008 increased by $0.2 million for the change in amortization of capitalized non-cash interest expense capitalized in inventory as a result of the Company’s adoption of new accounting guidance for convertible debt instruments that may be settled in cash upon conversion (see Note 1).
 

- 11 -

 
Note 4. PROPERTY, PLANT AND EQUIPMENT

(In thousands)
 
September 27,
2009
   
December 28,
2008(1)
 
Property, plant and equipment, net:
               
Land and buildings
 
$
17,269 
   
$
  13,912
 
Manufacturing equipment
   
538,958 
     
  387,860
 
Computer equipment
   
40,087 
     
  26,957
 
Furniture and fixtures
   
4,501 
     
  4,327
 
Leasehold improvements
   
195,532 
     
  148,190
 
Construction-in-process
   
60,362 
     
  149,657
 
     
856,709 
     
  730,903
 
Less: Accumulated depreciation
   
(161,300
)
   
(101,656
)
   
$
695,409 
   
$
  629,247
 
(1)
Property, plant and equipment, net increased $16.6 million for non-cash interest expense associated with the 1.25% debentures and 0.75% debentures that was capitalized and added to the cost of qualified assets as a result of the Company’s adoption of new accounting guidance for convertible debt instruments that may be settled in cash upon conversion (see Note 1).

Certain manufacturing equipment associated with solar cell manufacturing lines located at one of the Company’s facilities in the Philippines are collateralized in favor of a third-party by way of a chattel mortgage, a first ranking mortgage and a security interest in the property. The Company provided security for advance payments received from a third-party in fiscal 2008 totaling $40.0 million in the form of collateralized manufacturing equipment with a net book value of $37.7 million and $43.1 million as of September 27, 2009 and December 28, 2008, respectively (see Note 8).

The Company evaluates its long-lived assets, including property, plant and equipment and other intangible assets with finite lives (see Note 5), 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 underperformance 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.

Ongoing weak global credit market conditions have had a negative impact on the Company’s earnings during the nine months ended September 27, 2009. From time to time, the Company may temporarily remove certain long-lived assets from service based on projections of reduced capacity needs. The Company believes the current adverse change in its business climate resulting in lower forecasted revenue for fiscal 2009 is temporary in nature and does not indicate that the fair values of its long-lived assets have fallen below their carrying values as of September 27, 2009.

 Note 5. BUSINESS COMBINATION, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisition of Tilt Solar

On April 14, 2009, the Company completed the acquisition of Tilt Solar, which was not material to the Company’s financial position or results of operations.

Goodwill

The following table presents the changes in the carrying amount of goodwill under the Company's reportable business segments:

(In thousands)
 
Systems
   
Components
   
Total
 
As of December 28, 2008
 
$
181,801
   
$
14,919
   
$
196,720
 
Goodwill arising from business combination
   
581
     
     
581
 
Translation adjustment
   
     
1,028
     
1,028
 
As of September 27, 2009
 
$
182,382
   
$
15,947
   
$
198,329
 

The balance of goodwill within the Systems Segment increased $0.6 million as of September 27, 2009 due to the Company’s acquisition of Tilt Solar, which represents the excess of the purchase price over the fair value of the underlying net tangible and other intangible assets of Tilt Solar. The Company records a translation adjustment for the revaluation of its Euro and Australian dollar functional currency subsidiaries’ goodwill and other intangible assets into U.S. dollar equivalents. For the nine months ended September 27, 2009, the translation adjustment increased the balance of goodwill within the Components Segment by $1.0 million.

- 12 -

 
Goodwill is tested for impairment at least annually, or more frequently if certain indicators are present. A two-step process is used to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting unit to its carrying value including existing goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. Upon an indication of impairment, a second step is performed to determine the amount of the impairment by comparing the implied fair value of the reporting unit’s goodwill with its carrying value.

The Company conducts its annual impairment test of goodwill as of the Sunday closest to the end of the third fiscal quarter of each year. Impairment of goodwill is tested at the Company’s reporting unit level which in the Company’s case is consistent with its segments. To estimate the fair value of the Systems Segment and Components Segment, the Company utilized a combination of income and market approaches defined as Level 3 inputs under fair value measurement standards (see Note 6). The income approach, specifically a discounted cash flow analysis, included assumptions for, among others, forecasted revenue, gross margin, operating income, working capital cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgment by management. These assumptions took into account the current recessionary environment and its impact on the Company’s business. Based on the impairment test as of September 27, 2009, the Company determined there was no impairment. In the event that management determines that the value of goodwill has become impaired, the Company will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made.

Other Intangible Assets

The following tables present details of the Company's acquired other intangible assets:

(In thousands)
 
Gross
   
Accumulated
Amortization
   
Net
 
As of September 27, 2009
                 
Patents and purchased technology
 
$
51,398
   
$
(39,341
)
 
$
12,057
 
Purchased in-process research and development
   
1,000
     
     
1,000
 
Trade names
   
2,622
     
(2,094
)
   
528
 
Customer relationships and other
   
28,580
     
(13,050
)
   
15,530
 
     $
83,600
   
$
(54,485
)
 
$
29,115
 
                         
As of December 28, 2008
                       
Patents and purchased technology
 
$
51,398
   
$
(31,322
)
 
$
  20,076
 
Trade names
   
2,501
     
(1,685
)
   
  816
 
Customer relationships and other
   
27,456
     
(8,858
)
   
  18,598
 
   
$
81,355
   
$
(41,865
)
 
$
  39,490
 

In connection with the acquisition of Tilt Solar in the second quarter of fiscal 2009, the Company recorded $1.5 million of other intangible assets. All of the Company’s acquired other intangible assets are subject to amortization. Amortization expense for other intangible assets totaled $4.1 million and $12.3 million for the three and nine months ended September 27, 2009, respectively, and $4.2 million and $12.6 million for the three and nine months ended September 28, 2008, respectively. As of September 27, 2009, the estimated future amortization expense related to other intangible assets is as follows (in thousands):

2009 (remaining three months)
 
$
4,170
 
2010
 
15,406
 
2011
 
5,315
 
2012
 
4,119
 
Thereafter
 
105
 
   
$
29,115
 

Note 6. INVESTMENTS

The Company’s investments are carried at fair value. Fair values are determined based upon a hierarchy that prioritizes the inputs to valuation techniques by assigning the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities ("Level 1") and the lowest priority to unobservable inputs ("Level 3"). Level 2 measurements are inputs that are observable for assets or liabilities, either directly or indirectly, other than quoted prices included within Level 1.

- 13 -

 
Assets Measured at Fair Value on a Recurring Basis

The following tables present information about the Company’s investments in available-for-sale debt and equity securities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. Information about the Company’s foreign currency derivatives measured at fair value on a recurring basis is disclosed in Note 14. The Company does not have any nonfinancial assets or liabilities that are recognized or disclosed at fair value in its condensed consolidated financial statements on a recurring basis.

   
September 27, 2009
 
(In thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                               
Money market funds
 
$
550,489
   
$
   
$
796
   
$
551,285
 
Bank notes
   
24,029
     
     
     
24,029
 
Corporate securities
   
     
     
8,426
     
8,426
 
Total available-for-sale securities
 
$
574,518
   
$
   
$
9,222
   
$
583,740
 

   
 
December 28, 2008
 
(In thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                               
Money market funds
 
$
227,190
   
$
   
$
7,185
   
$
234,375
 
Bank notes
   
49,610
     
     
     
49,610
 
Corporate securities
   
     
9,994
     
23,577
     
33,571
 
Total available-for-sale securities
 
$
276,800
   
$
9,994
   
$
30,762
   
$
317,556
 

Available-for-sale securities utilizing Level 3 inputs to determine fair value are comprised of investments in money market funds totaling $0.8 million and $7.2 million as of September 27, 2009 and December 28, 2008, respectively, and auction rate securities totaling $8.4 million and $23.6 million as of September 27, 2009 and December 28, 2008, respectively.

Money Market Funds

Investments in money market funds utilizing Level 3 inputs consist of the Company’s investments in the Reserve Primary Fund and the Reserve International Liquidity Fund (collectively referred to as the "Reserve Funds"). The net asset value per share for the Reserve Funds fell below $1.00 because the funds had investments in Lehman, which filed for bankruptcy on September 15, 2008. As a result of this event, the Reserve Funds wrote down their investments in Lehman to zero and also announced that the funds would be closed and distributed to holders. The Company has estimated its loss on the Reserve Funds to be approximately $2.2 million based upon information publicly disclosed by the Reserve Funds relative to its holdings and remaining obligations. The Company recorded impairment charges of zero and $1.2 million in the three and nine months ended September 27, 2009, respectively, and $0.9 million in both the three and nine months ended September 28, 2008, in “Other, net” in its Condensed Consolidated Statements of Operations, thereby establishing a new cost basis for each fund. The Company’s other money market fund instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices for identical instruments in active markets.

Auction Rate Securities

Auction rate securities in which the Company invested are primarily student loans, the majority of which are triple-A rated and substantially guaranteed by the U.S. government under the Federal Family Education Loan Program (“FFELP”). Historically, these securities have provided liquidity through a Dutch auction at pre-determined intervals every 7 to 49 days. At the end of each reset period, investors can continue to hold the securities or sell the securities at par through an auction process. The “stated” or “contractual” maturities for these securities generally are between 20 to 30 years. Beginning in February 2008, the auction rate securities market experienced a significant increase in the number of failed auctions, resulting from a lack of liquidity, which occurs when sell orders exceed buy orders, and does not necessarily signify a default by the issuer.

All auction rate securities held by the Company have failed to clear at auctions in subsequent periods. For failed auctions, the Company continues to earn interest on these investments at the contractual rate. Prior to 2008, failed auctions rarely occurred, however, such failures could continue to occur in the future. In the event the Company needs to access funds invested in such auction rate securities, the Company will not be able to do so until a future auction is successful, the issuer redeems the securities, a buyer is found outside of the auction process or the securities mature. Accordingly, auction rate securities held are classified as “Long-term investments” in the Condensed Consolidated Balance Sheets, because they are not expected to be used to fund current operations and such classification is consistent with the stated contractual maturities of the securities.

- 14 -

 
The Company determined that use of a valuation model was the best available technique for measuring the fair value of its auction rate securities. The Company used an income approach valuation model to estimate the price that would be received to sell its securities in an orderly transaction between market participants ("exit price") as of the balance sheet dates. The exit price was derived as the weighted average present value of expected cash flows over various periods of illiquidity, using a risk adjusted discount rate that was based on the credit risk and liquidity risk of the securities. While the valuation model was based on both Level 2 (credit quality and interest rates) and Level 3 inputs, the Company determined that the Level 3 inputs were the most significant to the overall fair value measurement, particularly the estimates of risk adjusted discount rates and ranges of expected periods of illiquidity. The valuation model also reflected the Company's intention to hold its auction rate securities until they can be liquidated in a market that facilitates orderly transactions. The following key assumptions were used in the valuation model:

 
·
5 years to liquidity;
 
·
continued receipt of contractual interest which provides a premium spread for failed auctions; and
 
·
discount rates ranging from 3.7% to 7.8%, which incorporates a spread for both credit and liquidity risk.

Based on these assumptions, the Company estimated that the auction rate securities with a stated par value of $9.9 million as of September 27, 2009 would be valued at approximately 85% of their stated par value, or $8.4 million, representing a decline in value of approximately $1.5 million. As of December 28, 2008, the Company estimated that auction rate securities with a stated par value of $26.1 million would be valued at approximately 91% of their stated par value, or $23.6 million, representing a decline in value of approximately $2.5 million. Due to one auction rate security’s downgrade from a triple-A rating to a Baa1 rating, the length of time that has passed since the auctions failed and the ongoing uncertainties regarding future access to liquidity, the Company has determined the impairment is other-than-temporary and recorded impairment losses of $0.2 million and $0.8 million in the three and nine months ended September 27, 2009, respectively, and $2.5 million in the fourth quarter of fiscal 2008, in “Other, net” in its Condensed Consolidated Statements of Operations.

The following table provides a summary of changes in fair value of the Company’s available-for-sale securities utilizing Level 3 inputs for the nine months ended September 27, 2009:

(In thousands)
 
Money Market
Funds
   
Auction Rate Securities
 
Balance as of December 28, 2008
 
$
7,185
   
$
23,577
 
Sales and distributions (1)
   
(5,151
)
   
(14,392
)
Impairment loss recorded in “Other, net”
   
(1,238
)
   
(759
)
Balance as of September 27, 2009 (2)
 
$
796
   
$
8,426
 

(1)
In the three and nine months ended September 27, 2009, the Company sold auction rate securities with a carrying value of $9.9 million and $14.4 million, respectively, for $9.8 million and $14.4 million, respectively, to third-parties outside of the auction process and received distributions of zero and $5.2 million, respectively, from the Reserve Funds.
(2)
In October 2009, the Company sold an auction rate security with a carrying value of $4.0 million for $4.1 million to a third-party outside of the auction process and received distributions of $0.5 million from the Reserve Funds.

The following table provides a summary of changes in fair value of the Company’s available-for-sale securities utilizing Level 3 inputs for the nine months ended September 28, 2008:

(In thousands)
 
Money Market
Funds
   
Auction Rate Securities
 
Balance as of December 31, 2007
 
$
   
$
 
Transfers from Level 1 to Level 3
   
26,677
     
 
Transfers from Level 2 to Level 3
   
     
29,050
 
Purchases
   
     
10,000
 
Sales and distributions (1)
   
     
(13,000
)
Impairment loss recorded in “Other, net”
   
(933
)
   
 
Unrealized loss included in “Other comprehensive income”
   
     
(1,033
)
Balance as of September 28, 2008
 
$
25,744
   
$
25,017
 

(1)
In both the three and nine months ended September 28, 2008, the Company sold auction rate securities with a carrying value of $12.5 million for their stated par value of $13.0 million to the issuer of the securities outside of the auction process.
 
- 15 -

 
The following table summarizes unrealized gains and losses by major security type designated as available-for-sale:
 
   
September 27, 2009
   
December 28, 2008
 
         
Unrealized
               
Unrealized
       
(In thousands)
 
Cost
   
Gross
Gains
   
Gross
Losses
   
Fair
Value
   
Cost
   
Gross
Gains
   
Gross
Losses
   
Fair
Value
 
Money market funds
 
$
551,285
   
$
   
$
   
$
551,285
   
$
234,375 
   
$
   
$
   
$
234,375 
 
Bank notes
   
24,029
     
     
     
24,029
     
49,610 
     
     
     
49,610 
 
Corporate securities
   
8,426
     
     
     
8,426
     
33,579 
     
  2
     
(10
)
   
33,571 
 
Total available-for-sale securities
 
$
583,740
   
$
   
$
   
$
583,740
   
$
317,564 
   
$
   
$
(10
)
 
$
317,556 
 
 
 The classification of available-for-sale securities and cash deposits is as follows:

   
September 27, 2009
   
December 28, 2008
 
(In thousands)
 
Available-
For-Sale
   
Cash
Deposits
   
Total
   
Available-
For-Sale
   
Cash
Deposits
   
Total
 
Cash and cash equivalents
 
$
395,700
   
$
76,426
   
$
472,126
   
$
101,523
   
$
100,808
   
$
202,331
 
Short-term restricted cash(1)
   
77,088
     
     
77,088
     
13,240
     
     
13,240
 
Short-term investments
   
796
     
     
796
     
17,179
     
     
17,179
 
Long-term restricted cash(1, 2)
   
101,730
     
141,970
     
243,700
     
162,037
     
     
162,037
 
Long-term investments
   
8,426
     
     
8,426
     
23,577
     
     
23,577
 
   
$
583,740
   
$
218,396
   
$
802,136
   
$
317,556
   
$
100,808
   
$
418,364
 

(1)  
Includes cash collateralized bank standby letters of credit the Company provided to securitize advance payments received from customers.
(2)  
Includes cash obtained under the Company’s facility agreement with the Malaysian Government to finance the construction of its planned third solar cell manufacturing facility in Malaysia.

The contractual maturities of available-for-sale securities is as follows:

(In thousands)
 
September 27,
2009
   
December 28,
2008(1)
 
Due in less than one year
 
$
575,314
   
$
  293,979
 
Due from one to twenty years
   
8,426
     
23,577
 
   
$
583,740
   
$
  317,556
 
(1)  
Contractual maturities of available-for-sale securities as of December 28, 2008 is adjusted in this Quarterly Report on Form 10-Q to reflect the maturities of the debt and equity securities rather than the maturities of the bank standby letters of credit, as previously presented in the Annual Report on Form 10-K for the year ended December 28, 2008. The majority of the Company’s cash collateralized bank standby letters of credit have longer maturities than the related debt and equity securities used to collateralize such customer advance payments.

Assets Measured at Fair Value on a Non-Recurring Basis

The Company holds minority investments comprised of common and preferred stock in certain non-public companies. The Company monitors these minority investments for impairment which are included in other long-term assets in its Condensed Consolidated Balance Sheets and records reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market price and declines in operations of the issuer. As of September 27, 2009 and December 28, 2008, the Company had $36.0 million and $29.0 million, respectively, in investments in joint ventures accounted for under the equity method and $4.6 million and $3.1 million, respectively, in investments accounted for under the cost method (see Note 11). During the fourth quarter of fiscal 2008, the Company recorded an other-than-temporary impairment charge of $1.9 million on a non-publicly traded investment accounted for using the cost method, due to the deterioration of the credit market and economic environment.

- 16 -

 
The following table provides a summary of changes in fair value of the Company’s investments in non-public companies during the nine months ended September 27, 2009 and September 28, 2008, all of which utilize Level 3 inputs under the fair value hierarchy:

   
Common and
Preferred Stock
 
(In thousands)
 
September 27,
2009
   
September 28,
2008
 
Balance at the beginning of the period
 
$
32,066
   
$
5,304
 
Purchases
   
1,500
     
14,625
 
Payments
   
(19
)
   
 
Equity in earnings of unconsolidated investees
   
7,005
     
4,006
 
Balance at the end of the period
 
$
40,552
   
$
23,935
 

Note 7. ADVANCES TO SUPPLIERS

The Company has entered into agreements with various polysilicon, ingot, wafer, solar cell and solar panel vendors that specify future quantities and pricing of products to be supplied by the vendors for periods up to 12 years. Certain agreements also provide for penalties or forfeiture of advanced deposits in the event the Company terminates the arrangements (see Note 10). Under certain agreements, the Company is required to make prepayments to the vendors over the terms of the arrangements. During the nine months ended September 27, 2009, the Company paid advances totaling $11.1 million in accordance with the terms of existing supply agreements. As of September 27, 2009 and December 28, 2008, advances to suppliers totaled $137.9 million and $162.6 million, respectively, the current portion of which is $22.7 million and $43.2 million, respectively. Three suppliers accounted for 67%, 22% and 8% of total advances to suppliers as of September 27, 2009, and 57%, 19% and 18% as of December 28, 2008.

The Company’s future prepayment obligations related to these agreements with suppliers as of September 27, 2009 are as follows (in thousands):

<
2009 (remaining three months)
 
$
86,996
 
2010
 
161,414
 
2011
 
121,564