
• Ÿ	problems integrating the acquired operations, personnel, IT infrastructure, technologies or products with the existing business and products;


• Ÿ	diversion of management time and attention from the core business to the acquired business or joint venture;


• Ÿ	potential failure to retain or hire key technical, management, sales and other personnel of the acquired business or joint venture;


• Ÿ	~~d ifficulties~~difficulties in retaining or building relationships with suppliers and customers of the acquired business or joint venture, particularly where such customers or suppliers compete with us;


• Ÿ	potential failure of the due diligence processes to identify significant issues with product quality and development or legal and financial liabilities, among other things;


• Ÿ	potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities or work councils, which could delay or prevent acquisitions, delay our ability to achieve synergies, or ~~the~~our successful operation of acquired companies or joint ventures;


• Ÿ	potential necessity to re-apply for permits of acquired projects;


• Ÿ	problems managing joint ventures with our partners, meeting capital requirements for expansion, and reliance upon joint ventures which we do not control; for example, our ability to effectively manage our joint venture with ~~AUO for the expansion of our manufacturing capacity;~~AUO;


• Ÿ	subsequent impairment of the acquired assets, including intangible assets; and


• Ÿ	assumption of liabilities including, but not limited to, lawsuits, tax examinations, warranty issues, and liabilities associated with compliance with laws (for example, the Foreign Corrupt Practices Act).

Additionally, we may decide that it is in our best interests to enter into acquisitions or joint ventures that are dilutive to earnings per share or that negatively impact margins as a whole. In an effort to reduce our cost of goods sold, we have and may continue to enter into acquisitions or joint ventures involving suppliers or manufacturing partners, which would expose us to additional supply chain risks. Acquisitions or joint ventures could also require investment of significant financial resources and require us to obtain additional equity financing, which may dilute our stockholders' equity, or require us to incur additional indebtedness. Such equity or debt financing may not be available on terms acceptable to us. For example, we, along with AUO, have committed to ~~funding~~equally fund the AUO SunPower Sdn. Bhd. joint venture ~~$335~~a combined $482 million ~~from 2011 to~~through 2014, and an additional $50 million if requested. In addition, we could in the future make additional investments in our joint ~~ve ntures~~ventures or guarantee certain financial obligations of our joint ventures, which could reduce our cash flows, increase our indebtedness and expose us to the credit risk of our joint ventures.

To the extent that we invest in upstream suppliers or downstream channel capabilities, we may experience competition or channel conflict with certain of our existing and potential suppliers and customers. Specifically, existing and potential suppliers and customers may perceive that we are competing directly with them by virtue of such investments and may decide to reduce or eliminate their supply volume to us or order volume from us. In particular, any supply reductions from our polysilicon, ingot or wafer suppliers could materially reduce manufacturing volume.

As a result of fluctuations in the demand for our products, our goodwill, intangible assets, tangible project assets, and other long-lived assets may be impaired, or we may write off equipment or inventory, and each of these events would adversely affect our future financial results.

We have tangible project assets on our Consolidated Balance Sheets related to capitalized costs incurred in connection with the development of solar power systems. Project assets consist primarily of capitalized costs relating to solar power system projects in various stages of development that we incur prior to the sale of the solar power system to a third party. These costs include costs for land and costs for developing and constructing a solar power system. These project assets could become impaired if there are changes in the fair value of these capitalized costs. If these project assets become impaired, we may write-off some or all of the capitalized project assets, which would have an adverse impact on our financial results in the period in which the loss is recognized.

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We have significant goodwill and intangible assets on our Consolidated Balance Sheets. We conduct our annual review of the valuation of goodwill as of the Sunday closest to the end of the third fiscal quarter of each year, or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Triggering events for an impairment review may include indicators such as the availability, reduction, modification or elimination of government and economic incentives, adverse industry or economic trends, lower than projected operating results or cash flows, or a sustained decline in our stock price or market capitalization. During the three months ended October 2, 2011, we recorded a goodwill impairment loss of $309.5 million. The evaluation of the fair value of goodwill involves valuation techniques which require significant management judgment. Should conditions be different from management's last impairment assessment, write-downs of goodwill may be required, which would result in a non-cash charge to earnings and lower stockholders' equity.

In addition, if the demand for our solar products decreases, our manufacturing capacity could be underutilized, and we may be required to record an impairment on our long-lived assets, including facilities and equipment, which would increase our expenses. In improving our manufacturing processes consistent with our cost reduction roadmap, we could write off equipment that is removed from the manufacturing process. In addition, if product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record excess capacity charges, which would have a negative impact on our gross margin. Factory-planning decisions may shorten the useful lives of long-lived assets, including facilities and equipment, and cause us to accelerate depreciation. Each of the above events would adversely affect our future financial results.

Fluctuations in Solar Renewable Energy Credits spot prices may adversely impact our results of operations.

We acquire Solar Renewable Energy Credits (SRECs) in the ordinary course of business in New Jersey, which are credits generated and then sold to local utilities to help them meet renewable energy portfolio requirements in New Jersey. In order to facilitate sales, we have agreed in certain cases to purchase all SRECs generated by a solar system we install for a specified period at specified pricing. We then sell such credits to utilities or other third parties at specified pricing or we will sell the SRECs on the spot market. The SREC spot market prices have decreased significantly in recent months as supply of SRECs have increased, and the decline has exposed us to economic losses for SRECs we expect to purchase in excess of our selling commitments. If SREC prices continue to fluctuate or remain lower than our purchase commitment prices, we may have to recognize losses, which will adversely impact our results of operations.

A change in our anticipated foreign exchange transactions could affect the accounting of our foreign currency hedging program and adversely impact our revenues, margins, and results of operations.

Our hedging program is designed to reduce our exposure to movements in foreign currency exchange rates. As a part of this program, we designate certain derivative transactions as effective cash flow hedges of anticipated foreign currency revenues and record the effective portion of changes in the fair value of such transactions in "Accumulated other comprehensive income (loss)" in our Consolidated Balance Sheets until the anticipated revenues have occurred, at which point the associated income or loss would be recognized in revenue. In fiscal 2011, we reclassified amounts held in "Accumulated other comprehensive income" to "Other, net" in our Consolidated Statement of Operations for certain previously anticipated transactions which did not occur or were now probable not to occur, which totaled a loss of $1.6 million. If we conclude that we have a pattern of determining that hedged forecasted transactions will not occur, we may no longer be able to continue to use hedge accounting in the future to reduce our exposure to movements in foreign exchange rates. Such a conclusion and change in our foreign currency hedge program could adversely impact our revenue, margins and results of operations.

Fluctuations in foreign currency exchange rates and interest rates could adversely impact our business and results of operations.

We have significant sales globally, and we are exposed to movements in foreign exchange rates, primarily related to sales to European customers that are denominated in Euros. A depreciation of the Euro would adversely impact our margins on sales to European customers. When foreign currencies appreciate against the U.S. dollar, ~~inven tories~~inventories and expenses denominated in foreign currencies become more expensive. An increase in the value of the U.S. dollar relative to foreign currencies could make our solar power products more expensive for international customers, thus potentially leading to a reduction in demand, our sales and profitability. As a result, substantial unfavorable changes in foreign currency exchange rates could have a substantial adverse effect on our financial condition and results of operations. Although we seek to reduce our currency exposure by engaging in hedging transactions where we deem it appropriate, we do not know whether our efforts will be successful. Because we hedge some of our expected future foreign exchange exposure, if associated revenues do not materialize, we could experience losses. In the past, we have experienced an adverse impact on our revenue, gross margin, cash

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position and profitability as a result of foreign currency fluctuations. In addition, any break-up of the Eurozone would disrupt our sales and supply chain, expose us to financial counterparty risk, and materially and adversely affect our results of

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operations and financial condition.

We are exposed to interest rate risk because many of our customers depend on debt financing to purchase our solar power systems. An increase in interest rates ~~c ould~~could make it difficult for our customers to obtain the financing necessary to purchase our solar power systems on favorable terms, or at all, and thus lower demand for our solar power products, reduce revenue and adversely impact our operating results. An increase in interest rates could lower a customer's return on investment in a system or make alternative investments more attractive relative to solar power systems, which, in each case, could cause our customers to seek alternative investments that promise higher returns or demand higher returns from our solar power systems, which could reduce our revenue and gross margin and adversely impact our operating results. Our interest expense would increase to the extent interest rates rise in connection with our variable interest rate borrowings. In addition, lower interest rates ~~has~~have an adverse impact on our interest income. See also Item 7A “Quantitative and Qualitative Disclosures About Market Risk” and “Risks Related to Our Sales Channels-The execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for our solar power plants and our customers, and is affected by general economic conditions.”

We are exposed to the credit risk of our financial counterparties, customers and suppliers.

We have certain financial and derivative instruments that subject us to credit risk. These consist primarily of cash and cash equivalents, restricted cash and cash equivalents, investments, accounts receivable, note receivable, advances to suppliers, foreign currency option contracts, foreign currency forward contracts, bond hedge and warrant transactions, purchased options and share lending arrangements for our ~~class A~~ common stock. We are exposed to losses in the event of nonperformance by the counterparties to our financial and derivative instruments. For example, in connection with the bankruptcy of Lehman, the fair value of the 2.9 million shares of our ~~class A~~ common stock loaned and unreturned by an affiliate of Lehman at the time of the bankruptcy was $213.4 million, which was reflected in the third quarter of fiscal 2008 as a loss on our statement of operations.

We enter into agreements with suppliers that specify future quantities and pricing of polysilicon to be supplied for periods up to 10 years. Under certain agreements, we are required to make significant prepayments to the vendors over the terms of the arrangements. We may be unable to recover such prepayments if the credit conditions of these suppliers materially deteriorate. In addition, we may not be able to collect from our customers in the event of the deterioration of their credit or if they enter into bankruptcy. Any of the preceding could materially and adversely impact our financial conditions, results of operations and liquidity. See also Item 7A “Quantitative and ~~Qualit ative~~Qualitative Disclosures About Market Risk.”

AWhile we believe we currently have effective internal control over financial reporting, we may identify a material weakness in our internal ~~control~~controls over financial reporting that could cause investors to lose confidence in the reliability of our financial statements and result in a ~~material misstatement~~decrease in the value of our ~~financial statements.~~common stock.

Our management is responsible for maintaining internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. ~~As previously disclosed under Item 9A, “Controls and Procedures” in our Annual Report on Form 10-K for~~While the ~~fiscal year ended January 3, 2010, we concluded that our disclosure controls and procedures were not effective based on certain~~Company had material weaknesses ~~identified~~ in ~~our Philippine operations. Management has actively engaged in efforts to remediate~~fiscal 2009, management remediated these material weaknesses, and concluded that as of January 2, 2011 and January 1, 2012, our internal control over financial reporting and our disclosure controls and procedures were effective. ~~See~~ ~~Part II - “Item 9A: Controls and Procedures.”~~

~~A material weakness is a deficiency, o r combination of deficiencies, in~~We need to continuously maintain our internal control processes and systems and adapt them as our business grows and changes. This process is expensive, time-consuming and requires significant management attention. We cannot be certain that our internal control measures will continue to provide adequate control over our financial processes and reporting ~~such that there is a reasonable possibility that a material misstatement~~and ensure compliance with Section 404 of the ~~Company's annual~~Sarbanes-Oxley Act. Furthermore, as we grow our business or ~~interim financial statements will not be prevented~~acquire other businesses, our internal controls may become more complex and we may require significantly more resources to ensure they remain effective. Failure to implement required new or ~~detected on a timely basis. The effectiveness of any~~improved controls, ~~and procedures is subject~~or difficulties encountered in their implementation, either in our existing business or in businesses that we may acquire, could harm our operating results or cause us to ~~certain limitations, and, as a result, there can be no assurance that~~fail to meet our ~~controls and procedures will detect all errors~~reporting obligations. If we or fraud. A control, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained. We also cannot assure you that newour independent registered public accounting firm identify material weaknesses ~~will not arise as a result of~~in our ~~past failure to maintain adequate~~ internal controls, ~~and procedures or~~the disclosure of that ~~circumvention of those controls and procedures will not occur. Additionally,~~fact, even ~~our improved controls and procedures~~if quickly remedied, may ~~not be adequate to prevent or identify errors or irregularities or ensure that our financial statements are prepared in accordance with U.S. GAAP. A material weakness could~~ cause investors to lose confidence in our ~~reported~~ financial ~~information,~~statements and the ~~expenses incurred in remediation~~trading price of our common stock may decline.

Remediation of a material weakness could ~~adversely affect~~require us to incur significant expense and if we fail to remedy any material weakness, our financial ~~condition,~~statements may be inaccurate, our ability to report our financial results on a timely and accurate basis may be adversely affected, our access to the capital markets may be restricted, the trading price of ~~operations~~our common stock may decline, and ~~cash flows.~~we may be subject to sanctions or investigation by regulatory authorities, including the SEC or The Nasdaq Global Select Market. We may also be required to restate our financial statements from prior periods.

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We and certain of our current and former officers and directors have been named as parties to various lawsuits relating to our past ~~Philippines~~Audit Committee accounting ~~issues,~~investigation, and may be named in further litigation, including with respect to the restatement of our consolidated financial statements, all of which could require significant management time and attention, result in significant legal expenses or damages, and cause our business, financial condition, results of operations and cash flows to

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suffer.

Three securities class action lawsuits were filed against our Company and certain of our current and former officers in the United States District Court for the Northern District of California on behalf of a class consisting of those who acquired our securities from April 17, 2008, through November 16, 2009. The actions arise from our announcement on November 16, 2009, that our Audit Committee commenced an internal investigation regarding certain unsubstantiated accounting entries. The complaints allege that the defendants made material misstatements and omissions concerning our financial results for 2008 and 2009, seek an unspecified amount of damages, and allege violations of ~~Sections~~sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and ~~Sections~~sections 11 and 15 of the Securities Act of 1933. These cases were consolidated ~~under~~as In re SunPower Securities Litigation, Case No. CV-09-5473-RS (N.D. Cal.)., and an amended complaint was filed on April 18, 2011. The amended complaint added two former employees as defendants. Defendants moved to dismiss the amended complaint, and on December 19, 2011, the court dismissed the claims brought pursuant to sections 11 and 15 of the Securities Act of 1933 and the claims brought against the two newly added former employees. In addition, derivative actions purporting to be brought on our behalf have also been filed in state and federal courts against several of our current and former officers and directors based on the same events alleged in the ~~s ecurities~~securities class action lawsuits described above. The California state derivative complaints assert state-law claims for breach of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, and waste of corporate assets. The federal derivative complaints assert state-law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. The Delaware state derivative complaint asserts state-law claims for breach of fiduciary duty and contribution and indemnification. The complaints seek an unspecified amount of damages.

We cannot predict the outcome of these lawsuits. The matters which led to our Audit Committee's investigation and the restatement of our consolidated financial statements have exposed us to greater risks associated with litigation, regulatory proceedings and government enforcement actions. We and our current and former ~~o fficers~~officers and directors may, in the future, be subject to additional private and governmental actions relating to such matters. Subject to certain limitations, we are obligated to indemnify our current and former officers and directors in connection with such lawsuits and governmental investigations and any related litigation or settlements amounts. Regardless of the outcome, these lawsuits, and any other litigation that may be brought against us or our current or former officers and directors, could be time-consuming, result in significant expense and divert the attention and resources of our management and other key employees. An unfavorable outcome in any of these matters could exceed coverage provided under potentially applicable insurance policies, which is limited. Any such unfavorable outcome could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, we could be required to pay damages or additional penalties or have other remedies imposed ~~a gainst~~against us, or our current or former directors or officers, which could harm our reputation, business, financial condition, results of operations or cash flows. In addition, our Company is largely self insured for these claims so that expenses, settlements or damages in excess of $5 million in these actions will not be recoverable under the primary coverage insurance policies. Moreover, such policies are subject to several terms, conditions and exclusions. See also “"Risks Related to Our Liquidity - Because we self-insure for certain indemnities we have made to our officers and directors, potential claims could materially and negatively impact our financial condition and results of operations.”"

We may not fully realize the anticipated benefits of our relationship with Total.

We and Total S.A., parent of Total Gas & Power USA SAS ("Total"), have entered into a Credit Support Agreement under which Total S.A. has agreed to enter into one or more guarantee agreements with banks providing letter of credit facilities to us in support of certain of our businesses and other permitted purposes. Total S.A. will guarantee the payment to the applicable issuing bank of our obligation to reimburse a draw on a letter of credit and pay interest thereon in accordance with the letter of credit facility between such bank and us. In consideration for the commitments of Total S.A., we are required to pay Total S.A. a guarantee fee for each letter of credit that is the subject of a guaranty, starting at 1% and increasing to 2.35% in the fifth year following the completion of the tender offer. We entered into a letter of credit facility agreement with Deutsche Bank AG New York Branch in August 2011 supported by a Total S.A. guarantee. We have also entered into the Liquidity Support Facility, under which Total S.A. has agreed to provide up to $600 million of liquidity support in the event that our then-current or projected unrestricted cash, cash equivalents and unused borrowing capacity is reduced below $100 million or we are not in compliance with any financial covenant contained in our indebtedness.

We and Total have also entered into a Research & Collaboration Agreement that establishes a framework under which we engage in long-term research and development collaboration with Total. The Research & Collaboration Agreement is expected to encompass a number of different projects, with a focus on advancing technologies in the area of photovoltaics.

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We may not realize the expected benefits of these agreements in a timely manner, or at all. The Credit Support Agreement can provide guarantees to our letter of credit facility, but not our other indebtedness. As the guarantee fee goes up over time, it may not be price competitive for us to continue to utilize the guarantee under the Credit Support Agreement and we may choose not to do so, which may cause our lenders to seek cash collateral. If the credit quality of Total S.A. were to deteriorate, then the guarantees would not be as beneficial to our lenders, which could reduce their willingness to lend to us and raise our costs of borrowing. We could incur additional expenses related to the Credit Support Agreement, especially relating to the guarantee fee. The Liquidity Support Facility may provide comfort to lenders, customers, suppliers and other business partners and protect us against defaults, but compensation to Total S.A. and its affiliates, and potential dilution to our other stockholders (through the issuance of equity, warrants, and convertible debt securities to Total S.A. and its affiliates) will increase to the extent that the amount of support provided by Total S.A. increases. The amount of support Total S.A. must provide under the Liquidity Support Facility is limited to $600 million. Finally, the facility will no longer be available, and all outstanding debt under the Liquidity Support Facility will become due, upon the completion of CVSR, which we expect to occur before the end of fiscal 2014. For additional details, see Item 9B of this Annual Report.

We may have difficulties in fully leveraging the research and development efforts of Total while protecting our intellectual property rights and our long term strategic interests. Further, the collaboration envisioned by the parties from the Research & Collaboration Agreement could be subject to governmental controls that could limit the full set of benefits

In addition, we are a U.S.-based, high growth, technology and alternative energy company, while Total S.A. is a more mature and much larger French diversified energy company. The resulting differences in our organizational cultures may prevent us from fully realizing the anticipated benefits from our relationship. If we have a potential conflict with Total, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. Such disagreements may relate to any determination with respect to mergers and other business combinations, our acquisition or disposition of assets, our financing activities, allocation of business opportunities, employee retention or recruiting.

Total's ownership of our common stock may adversely affect our relationship with our customers, suppliers, lenders and partners, and adversely affect our ability to attract and retain key employees.

Total's majority ownership of our common stock may cause customers, suppliers, lenders, and partners to seek to change existing or future agreements with us. Any delay or reevaluation of their decisions or changes in existing agreements could materially impact our business. Similarly, current and prospective employees may experience uncertainty about their future roles with our company, or react negatively to the differences in our organizational cultures.

Our agreements with Cypress Semiconductor Corporation ("Cypress") require us to indemnify Cypress for certain tax liabilities. These indemnification obligations and related contractual restrictions may limit our ability to pursue certain business initiatives.

On October 6, 2005, while a subsidiary of Cypress, our former parent company, we entered into a tax sharing agreement with Cypress providing for each party's obligations concerning various tax liabilities. The tax sharing agreement is structured such that Cypress would pay all federal, state, local and foreign taxes that are calculated on a consolidated or combined basis while we were a member of ~~Cypress’s~~Cypress's consolidated or combined group for federal, state, local and foreign tax purposes. Our portion of tax liabilities or benefits was determined based upon our separate return tax liability as defined under the tax sharing agreement. These tax liabilities or benefits were based on a pro forma calculation as if we were filing a separate income tax return in each jurisdiction, rather than on a combined or consolidated basis, subject to adjustments as set forth in the tax sharing agreement.

On June 6, 2006, we ceased to be a member of ~~Cypress’s~~Cypress's consolidated group for federal income tax purposes and certain state income tax purposes. On September 29, 2008, we ceased to be a member of ~~Cypress’s~~Cypress's combined group for all state income tax purposes. To the extent that we become entitled to utilize our separate portion of any tax credit or loss carryforwards existing as of such date, we will ~~distri bute~~distribute to Cypress the tax effect, estimated to be 40% for federal and state income tax purposes, of the amount of such tax loss carryforwards so utilized, and the amount of any credit carryforwards so utilized. We will distribute these amounts to Cypress in cash or in our shares, at ~~Cypress’s~~Cypress's option. As of January ~~2, 2011,~~1, 2012, we have a potential future liability of approximately ~~$2.2~~$2.2 million that may be due under this arrangement. In fiscal ~~2010~~2011 and ~~2009,~~2010, we paid ~~$0.7~~zero and $0.7 million, ~~and~~ ~~$16.5 million~~, respectively, in cash to Cypress, all of which ~~zero and~~ ~~$15.1 million, respectively, represents the federal component and~~ ~~$0.7 million~~ ~~and~~ ~~$1.4 million, respectively,~~ represents the state component.

We ~~will continue to be~~were jointly and severally liable for any tax liability during all periods in which we ~~are~~were deemed to be a member of the Cypress consolidated or combined group. Accordingly, , although the tax sharing agreement allocates tax liabilities between Cypress and all its consolidated subsidiaries, for any period in which we were included in ~~Cypress’s~~Cypress's consolidated or combined

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~~consolidated or combined~~ group, we could be liable in the event that any federal or state tax liability was incurred, but not discharged, by any other member of the group.

We will continue to be jointly and severally liable to Cypress until the statute of limitations runs or all appeal options are exercised for all years in which we joined in the filing of tax returns with Cypress. If Cypress experiences adjustments to their tax liability pursuant to tax examinations, we may incur an incremental liability.

In January 2010, Cypress was notified by the IRS that it intends to examine Cypress's corporate income tax filings for the tax years ended in 2006, 2007, and 2008. SunPower was included as part of Cypress's federal consolidated group in 2006 and part of 2007.

As of January ~~2, 2011,~~1, 2012, Cypress ~~has not~~ notified us ~~of any adjustments to the tax liabilities~~ that ~~have been proposed by the IRS. However,~~ the IRS has ~~not~~ completed its examination and there ~~can be no assurance that there will be~~are no material adjustments upon completion of their review. ~~Additionally, while~~While years prior to fiscal 2006 for Cypress's U.S. corporate tax return are not open for assessment, the IRS can adjust net operating loss and research and development carryovers that were generated in prior years and carried forward to fiscal 2006 and subsequent years. If the IRS sustains tax assessments against Cypress, we may be obligated to indemnify Cypress under the terms of the tax sharing agreement.

We would also be liable to Cypress for taxes that might arise from the distribution by Cypress of our former class B common stock to Cypress's stockholders on September 29, 2008, or "spin-off". In connection with ~~Cypress’s~~Cypress's spin-off of our former class B common stock, we and Cypress, on August 12, 2008, entered into an amendment to our tax sharing agreement (“Amended Tax Sharing Agreement”) to address certain transactions that may affect the tax treatment of the spin-off and certain other matters.

Subject to certain caveats, Cypress obtained a ruling from the IRS to the effect that the distribution by Cypress of our former class B common stock to Cypress's stockholders qualified as a tax-free distribution under Section 355 of the Internal Revenue Code (“Code”). Despite such ruling, the distribution may nonetheless be taxable to Cypress under Section 355(e) of the Code if 50% or more of the voting power or value of our stock was or is later acquired as part of a plan or series of related transactions that included the distribution of our stock. The Amended Tax Sharing Agreement requires us to indemnify Cypress for any liability incurred as a result of issuances or dispositions of our stock after the distribution, other than liability attributable to certain dispositions of our stock by Cypress, that cause ~~Cypress’s~~Cypress's distribution of shares of our stock to its stockholders to be taxable to Cypress under Section 355(e) of the Code.

In addition, under the Amended Tax Sharing Agreement, we are required to provide notice to Cypress of certain transactions that could give rise to our indemnification obligation relating to taxes resulting from the application of Section 355(e) of the Code or similar provisions of other applicable law to the spin-off as a result of one or more acquisitions, as described in the agreement. We are not required to indemnify Cypress for any taxes which would result solely from issuances and dispositions of our stock prior to the spin-off and any acquisition of our stock by Cypress after the spin-off.

Under the Amended Tax Sharing Agreement, we also ~~agre ed~~agreed that, until October 29, 2010, we would not effect a conversion of any or all of our former class B common stock to former class A common stock or any similar recapitalization transaction or series of related transactions (a “Recapitalization”). ~~In addition,~~On November 16, 2011, we ~~agreed that until October 29, 2010, we would not enter~~reclassified our former class A common stock and class B common stock into or facilitate any other transaction resulting in an acquisition, as described in the agreement, of our stock without first obtaining the written consent of Cypress. As further detailed in the agreement, we are not required to obtain Cypress's consent unless such transactions would involve the acquisition for purposes of Section 355(e) of the Code after August 4, 2008 of more than 25% of our outstanding sharesa single class of common stock. In ~~addition,~~ the ~~requirement to obtain Cypress's consent~~event this reclassification does ~~not apply to certain qualifying acquisitions~~result in the spin-off being treated as taxable, we could face substantial liabilities as a result of our ~~stock, as defined in the agreement.~~

~~Under~~obligations under the Amended Tax Sharing ~~Agreement, we agreed~~Agreement.

Any future agreements with Total SA regarding tax indemnification and certain tax liabilities may adversely impact our financial position.

We currently believe that we ~~would~~will not ~~(i) effect~~join in tax filings on a ~~Recapitalization during the 36 month period following the spin-off without first obtaining~~consolidated, combined or unitary basis with Total SA. Accordingly, no tax sharing arrangement is currently in place. If we and Total join in a tax ~~opinion from~~filing in the future, a ~~nationally recognized~~ tax ~~counsel, in form and in substance reasonably satisfactory to Cypress, to the effect that such Recapitalization (either alone or when taken together with any other transaction or transactions)~~sharing agreement will not cause the spin-off to become taxable under Section 355(e), or (ii) seek any private ruling, including any supplemental private ruling, from the IRS with regard to the spin-off, or any transaction having any bearing onbe required, which would allocate the tax ~~treatment of~~liabilities among the ~~spin-off, without the prior written consent of Cypress.~~parties and may adversely impact our financial position.

Our headquarters and manufacturing facilities, as well as the facilities of certain subcontractors and suppliers, are located in regions that are subject to earthquakes, floods, and other natural disasters, and climate change and climate change regulation could have an adverse effect on our operations.

Our headquarters and research and development operations are located in California, and our manufacturing facilities

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are located in the ~~Philippines.~~Philippines, France and Mexico. The facilities of our joint venture for manufacturing and subcontractors for assembly and test of solar panels are located globally, including in Malaysia, China, Poland, South Africa, and Mexico. Any significant earthquake, tsunami or other natural disaster in these countries or countries where our suppliers are located could materially disrupt our management operations and/or our production capabilities, and could result in our experiencing a significant delay in delivery, or substantial shortage, of our products and services.

In addition, legislators, regulators, and non-governmental organizations, as well as companies in many business sectors,

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are considering ways to reduce green-house gas emissions. ~~Regulation~~Further regulation could be forthcoming at the federal or state level with respect to green-house gas emissions. Such regulation or similar regulations in other countries could result in regulatory or product standard requirements for our global business, including our manufacturing operations. Furthermore, the potential physical impacts of climate change on our operations may include changes in weather patterns (including floods, tsunamis, drought and rainfall levels), water availability, storm patterns and intensities, and temperature levels. These potential physical effects may adversely impact the cost, production, sales and financial performance of our operations.

We could be adversely affected by any violations of the U.S. Foreign Corrupt Practices Act ~~(“FCPA”~~("FCPA") and foreign anti-bribery laws.

The U.S. FCPA generally prohibits companies and their intermediaries from making improper payments to non-U.S. government officials for the purpose of obtaining or retaining business. Other countries in which we operate also have anti-bribery laws, some of which prohibit improper payments to government and non-government persons and entities. Our policies mandate compliance with these anti-bribery laws. We continue to acquire businesses outside of the United States and operate in many parts of the world that have ~~experi enced~~experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. In addition, due to the level of regulation in our industry, our entry into new jurisdictions through internal growth or acquisitions requires substantial government contact where norms can differ from U.S. standards. ~~Although~~While we implement policies and procedures and conduct training designed to facilitate compliance with these anti-bribery laws, thereby mitigating the risk of violations of such laws, our employees, subcontractors and agents may take actions in violation of our policies and anti-bribery laws. Any such violation, even if prohibited by our policies, could subject us to criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, financial condition, cash flows and reputation.

We sell our solar products to agencies of the U.S. government, and as a result, we are subject to a number of procurement rules and regulations, and our business could be adversely affected by an audit by the U.S. government if it were to identify errors or a failure to comply with regulations.

We have sold and continue to sell our solar power systems to various U.S. government agencies. In connection with these contracts, we must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S. government contracts, which may impose added costs on our business. We are expected to perform in ~~comp liance~~compliance with a vast array of federal laws and regulations, including, without limitation, the Federal Acquisition Regulation, the Truth in Negotiations Act, the Federal False Claims Act, the Anti-Kickback Act of 1986, the Trade Agreements Act, the Buy American Act, the Procurement Integrity Act, and the Davis Bacon Act. A violation of specific laws and regulations, even if prohibited by our policies, could result in the imposition of fines and penalties, reductions of the value of our contracts, contract modifications or termination, or suspension or debarment from government contracting for a period of time.

In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions. For example, the U.S. government may terminate any of our government contracts either at its convenience or for default based on performance. A termination arising out of our default may expose us to liability and have a material adverse effect on our ability to compete for future contracts.

U.S. government agencies may audit and investigate government contractors. These agencies review a contractor's performance under its contracts, cost structure, and compliance with applicable laws, regulations, and standards. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or ~~prohibit ion~~prohibition from doing business with the U.S. government. In addition, we could suffer ~~serious~~ reputational harm if allegations of impropriety were made against us.

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

We are required to comply with all foreign, U.S. federal, state and local laws and regulations regarding pollution control and protection of the environment. In addition, under some statutes and regulations, a government agency, or other parties, may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are

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ongoing, even if the operator was not responsible for such release or otherwise at fault. We use, generate and discharge toxic, volatile and otherwise ~~haza rdous~~hazardous chemicals and wastes in our research and development and manufacturing activities. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations. In addition, if more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial. To date

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such laws and regulations have not had a significant impact on our operations, and we believe that we have all necessary permits to conduct operations as they are presently conducted. If we fail to comply with present or future environmental laws and regulations, however, we may be required to pay substantial fines, suspend production or cease operations.

In addition, new U.S. legislation includes disclosure requirements regarding the use of ~~“conflict”~~"conflict" minerals mined from the Democratic Republic of Congo and adjoining countries and procedures regarding a manufacturer's efforts to prevent the sourcing of such “conflict” minerals. The implementation of these requirements could affect the sourcing and availability of minerals used in the manufacture of solar products. As a result, there may only be a limited pool of suppliers who provide conflict free ~~metals,~~minerals, and we cannot ~~assure you~~be certain that we will be able to obtain products in sufficient quantities or at competitive prices. Also, since our supply chain is complex, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins for all minerals used in our products.

Our success depends on the continuing contributions of our key personnel.

We rely heavily on the services of our key executive officers and the loss of services of any principal member of our management team could adversely impact our operations. In addition, we anticipate that we will need to hire a ~~significant~~ number of highly skilled technical, manufacturing, sales, marketing, administrative and accounting personnel. The competition for qualified personnel is intense in our industry. We may not be successful in attracting and retaining sufficient numbers of qualified personnel to support our anticipated growth. We cannot guarantee that any employee will remain employed with us for any definite period of time since all of our employees, including our key executive officers, serve at-will and may terminate their employment at any time for any reason.

We may in the future be required to consolidate the assets, liabilities and financial results of certain of our existing or future joint ventures, which could have an adverse impact on our financial position, gross margin and operating results.

The Financial Accounting Standards Board has issued accounting guidance regarding variable interest entities ~~(“VIEs”~~("VIEs") that affects our accounting treatment of our existing and future joint ventures. We have variable interests in ~~Woongjin Energy Co., Ltd.,~~ First Philec Solar Corporation and our joint venture with AUO. To ascertain if we are required to consolidate these entities, we determine whether these entities are VIEs and if we are the primary beneficiary in accordance with the accounting guidance. Factors we consider in determining whether we are the VIE's primary beneficiary include the decision making authority of each partner, which partner manages the day-to-day operations of the joint venture and each partner's obligation to absorb losses or right to receive benefits from the joint venture in relation to that of the other partner. Changes in the financial accounting guidance, or changes in circumstances at each of these joint ventures, could lead ~~u s~~us to determine that we have to consolidate the assets, liabilities and financial results of such joint ventures. This could have a material adverse impact on our financial position, gross margin and operating results. In addition, we may enter into future joint ventures or make other equity investments, which could have an adverse impact on us because of the financial accounting guidance regarding VIEs.

~~We carry significant goodwill on our balance sheet, which is subject to impairment testing and could subject us to significant non-cash charges to earnings in the future if impairment occurs.~~

We have completed strategic acquisitions which have increased our balance of goodwill on our Consolidated Balance Sheet and the balance of goodwill may increase in the future if we complete acquisitions as part of our overall business strategy. Goodwill is not amortized, but is tested for impairment annually. We conduct our annual review of the valuation of goodwill as of the Sunday closest to the end of the third fiscal quarter of each year, or more often if indicators of impairment exist. Triggering events for additional impairment review may include indicators such as adverse industry or economic trends, lower than projected operating results or cash flows, or a sustained decline in our stock price or market capitalization. Our stock price has declined significantly since mid-2008, which increases the risk of goodwill impairment if the price of our stock declines further. The evaluation of the fair value of goodwill involves valuation techniques which require significant management judgment. Should conditions be different from management's last impairment assessment, significant write-downs of goodwill may be required, which would result in a significant non-cash charge to earnings and lower stockholders' equity. From our prior annual goodwill impairment tests we concluded there was no impairment to goodwill; however, the triggering events described above associated with an event of impairment may require us to evaluate the fair value of goodwill prior to the next annual review.

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Risks Related to Our Intellectual Property

~~Loss of government programs that partially fund our research and development programs would increase our research and development expenses.~~

We selectively pursue contract research, product development and market development programs funded by various agencies of the federal and state governments to complement and enhance our own resources. Funding from government contracts is generally recorded as an offset to our research and development expense. These government agencies may not continue their commitment to programs relevant to our development projects. Moreover, we may not be able to compete successfully to obtain funding through these or other programs, and generally government agencies may unilaterally terminate or modify such agreements. A reduction or discontinuance of these programs, or of our participation in these programs, would increase our research and development expenses, which could materially and adversely affect our results of operations and could impair our ability to develop competitive solar power products and services.

~~Our reliance on government programs to partially fund our research and development programs could impair our ability to commercialize our solar power products and services.~~

Government funding of some of our research and development efforts imposes certain restrictions on our ability to commercialize results and may grant commercialization rights to the government. In some funding awards, the government is entitled to intellectual property rights arising from the related research. Such rights could include a nonexclusive, nontransferable, irrevocable, paid-up license to p ractice or have practiced each subject invention developed under an award throughout the world by or on behalf of the government, or the right to require us to grant a license to the developed technology or products to a third party or, if we refuse, the government may grant the license itself, if the government determines that action is necessary because we fail to achieve practical application of the technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give the United States industry preference. Accepting government funding can also require that manufacturing of products developed with federal funding be conducted in the United States.

We are dependent on our intellectual ~~pro perty,~~property, and we may face intellectual property infringement claims that could be time-consuming and costly to defend and could result in the loss of significant rights.

From time to time, we, our respective customers, or third parties with whom we work may receive letters, including letters from various industry participants, alleging infringement of their patents. Although we are not currently aware of any parties pursuing or intending to pursue infringement claims against us, we cannot assure investors that we will not be subject to such claims in the future. Additionally, we are required by contract to indemnify some of our customers and our third-party intellectual property providers for certain costs and damages of patent infringement in circumstances where our products are a factor creating the ~~customer’s~~customer's or these third-party ~~providers’~~providers' infringement liability. This practice may subject us to significant indemnification claims by our customers and our third-party providers. We cannot assure investors that indemnification claims will not be made or that these claims will not harm our business, operating results or financial condition. Intellectual property litigation is very expensive and time-consuming and could divert ~~management’s~~management's attention from our business and could have a material adverse effect on our business, operating results or financial condition. If there is a successful claim of infringement against us, our customers or our third-party intellectual property providers, we may be required to pay substantial damages to the party claiming infringement, stop selling products or using technology that contains the allegedly infringing intellectual property, or enter into royalty or license agreements that may not be available on acceptable terms, if at all. Parties making infringement claims may also be able to bring an action before the International Trade Commission that could result in an order stopping the importation into the United States of our solar products. Any of these judgments could materially damage our business. We may have to develop non-infringing technology, and our failure in doing so or in obtaining licenses to the proprietary rights on a timely basis could have a material adverse effect on our business.

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We have filed, and may continue to file, claims against other parties for infringing our intellectual property that may be very costly and may not be resolved in our favor.

To protect our intellectual property rights and to maintain our competitive advantage, we have, and may continue to, file suits against parties who we believe infringe our intellectual property. Intellectual property litigation is expensive and time consuming and could divert ~~management’s~~management's attention from our business and could have a material adverse effect on our business, operating results or financial condition, and our enforcement efforts may not be successful. In addition, the validity of our patents may be challenged in such litigation. Our participation in intellectual property enforcement actions may negatively impact our financial results.

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We may not be able to prevent others from using the term SunPower or similar terms in connection with their solar power products which could adversely affect the market recognition of our name and our revenue.

“SunPower” i s our registered trademark in certain countries, including the United States, for use with solar cells and solar panels. We are seeking similar registration of the “SunPower” trademark in other countries but we may not be successful in some of these jurisdictions. We hold registered trademarks for SunPower®, PowerLight®, PowerGuard®, PowerTracker® and SunTile®, in certain countries, including the United States. We have not registered, and may not be able to register, these trademarks in other key countries. In the foreign jurisdictions where we are unable to obtain or have not tried to obtain registrations, others may be able to sell their products using trademarks compromising or incorporating “SunPower,” or our other chosen brands, which could lead to customer confusion. In addition, if there are jurisdictions where another proprietor has already established trademark rights in marks containing “SunPower,” or our other chosen brands, we may face trade mark disputes and may have to market our products with other trademarks, which may undermine our marketing efforts. We may encounter trademark disputes with companies using marks which are confusingly similar to the SunPower mark, or our other marks, which if not resolved favorably could cause our branding efforts to suffer. In addition, we may have difficulty in establishing strong brand recognition with consumers if others use similar marks for similar products.

We rely substantially upon trade secret laws and contractual restrictions to protect our proprietary rights, and, if these rights are not sufficiently protected, our ability to compete and generate revenue could suffer.

We seek to protect our proprietary manufacturing processes, documentation and other written materials primarily under trade secret and copyright laws. We also typically require employees, consultants, and third parties such as our vendors and customers, with access to our proprietary information to execute confidentiality agreements. The steps taken by us to protect our proprietary information may not be adequate to prevent misappropriation of our technology. Our systems may be subject to intrusions, security breaches, or targeted theft of our trade secrets. In addition, our proprietary rights may not be adequately protected because:


• Ÿ	people may not be deterred from misappropriating our technologies despite the existence of laws or contracts prohibiting it;


• Ÿ	policing unauthorized use of our intellectual property may be difficult, expensive and time-consuming, the remedy obtained may be inadequate to restore protection of our intellectual property, and moreover, we may be unable to determine the extent of any ~~una uthorized~~unauthorized use;


• Ÿ	the laws of other countries in which we market our solar products, such as some countries in the Asia/Pacific region, may offer little or no protection for our proprietary technologies; and


• Ÿ	reports we file in connection with government-sponsored research contracts are generally available to the public and third parties may obtain some aspects of our sensitive confidential information.

Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without compensating us for doing so. Any inability to adequately protect our proprietary rights could harm our ability to compete, to generate ~~revenu e~~revenue and to grow our business.

We may not obtain sufficient patent protection on the technology embodied in the solar products we currently manufacture and market, which could harm our competitive position and increase our expenses.

Although we substantially rely on trade secret laws and contractual restrictions to protect the technology in the solar products we currently manufacture and market, our success and ability to compete in the future may also depend to a significant degree upon obtaining patent protection for ~~o ur~~our proprietary technology. We currently own multiple patents and patent applications which cover aspects of the technology in the solar cells and mounting systems that we currently manufacture and market. Material patents that relate to our systems products and services primarily relate to our rooftop mounting products and ground-mounted tracking products. We intend to continue to seek patent protection for those aspects of our technology, designs, and methodologies and processes that we believe provide significant competitive advantages.

Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we seek or we may have to refile patent applications due to newly discovered prior art. In addition, any issued patents may be challenged, invalidated or declared unenforceable, or even if we obtain an award of damages for infringement by a third party, such award could prove insufficient to compensate for all damages incurred as a result of such infringement. The term of any issued patents would be 20 years from their filing date and if our applications are pending for a long time period, we may have a correspondingly shorter term for any patent that may issue. Our present and future patents

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may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. For example, competitors could develop similar or more advantageous technologies on their own or design around our patents. Also, patent protection in certain foreign countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in the United States, making it difficult for us to effectively protect our intellectual

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property from misuse or infringement by other companies in these countries. Our inability to obtain and enforce our intellectual property rights in some countries may harm our business. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important.

"SunPower" is our registered trademark in certain countries, including the United States, for uses that include solar cells and solar panels. We are seeking registration of the "SunPower" trademark in other countries but we may not be successful in some of these jurisdictions. We hold registered trademarks for SunPower®, PowerGuard®, PowerTracker® and SunTile®, in certain countries, including the United States. We have not registered, and may not be able to register, these trademarks in other key countries. In the foreign jurisdictions where we are unable to obtain or have not tried to obtain registrations, others may be able to sell their products using trademarks compromising or incorporating "SunPower," or a variation thereof, or our other chosen brands, which could lead to customer confusion. In addition, if there are jurisdictions where another proprietor has already established trademark rights in marks containing "SunPower," or our other chosen brands, we may face trademark disputes and may have to market our products with other trademarks or without our trademarks, which may undermine our marketing efforts. We may encounter trademark disputes with companies using marks which are confusingly similar to the SunPower mark, or our other marks, which if not resolved favorably, could cause our branding efforts to suffer. In addition, we may have difficulty in establishing strong brand recognition with consumers if others use similar marks for similar products.

Our past reliance on government programs to partially fund our research and development programs could impair our ability to commercialize our solar power products and services.

Government funding of some of our research and development efforts imposed certain restrictions on our ability to commercialize results and could grant commercialization rights to the government. In some funding awards, the government is entitled to intellectual property rights arising from the related research. Such rights include a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced each subject invention developed under an award throughout the world by or on behalf of the government. Other rights include the right to require us to grant a license to the developed technology or products to a third party or, in some cases, if we refuse, the government may grant the license itself, if the government determines that action is necessary because we fail to achieve practical application of the technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give the United States industry preference. Accepting government funding can also require that manufacturing of products developed with federal funding be conducted in the United States.

Risks Related to Our Debt and Equity Securities

Total's majority ownership of our common stock may adversely affect the liquidity and value of our common stock.

As of January 31, 2012, Total owned approximately 66% of our outstanding common stock. Pursuant to the Affiliation Agreement between us and Total, the Board of Directors of SunPower includes six designees from Total, giving Total majority control of our Board. As a result, subject to the restrictions in the Affiliation Agreement, Total possesses significant influence and control over our affairs. Our non-Total stockholders have reduced ownership and voting interest in our company and, as a result, have less influence over the management and policies of our company than they exercised prior to Total's tender offer. As long as Total controls us, the ability of our other stockholders to influence matters requiring stockholder approval is limited. Total's stock ownership and relationships with members of our Board of Directors could have the effect of preventing minority stockholders from exercising significant control over our affairs, delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, limiting our financing options. These factors in turn could adversely affect the market price of our common stock or prevent our stockholders from realizing a premium over the market price of our common stock. The Affiliation Agreement limits Total and any member of the Total affiliated companies ("Total Group") from effecting, seeking, or entering into discussions with any third party regarding any transaction that would result in the Total Group beneficially owning our shares in excess of certain thresholds during a standstill period. The Affiliation Agreement also imposes certain limitations on the Total Group's ability to seek to affect a tender offer or merger to acquire 100% of our outstanding voting power. Such provisions may not be successful in preventing the Total Group from engaging in transactions which further increase their ownership and negatively impact the price of our common stock. In connection with our acquisition of Tenesol and our entry into the Liquidity Support Facility, we agreed to exempt the shares issued in connection with those transactions from the ownership limitations imposed by the Affiliation Agreement, so that Total may own up to the stated limits plus any such shares. In return for providing certain guarantees or other support, as was the case with the Liquidity Support Agreement, Total may request additional equity to be issued to it or its affiliates, or it may convert previously

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issued convertible debt into equity or exercise previously granted warrants, potentially at a discount or at a smaller premium than our other stockholders would prefer, which may lead to additional dilution to our stockholders. Due to the pricing of the equity compensation elements of the Liquidity Support Facility, the degree of dilution to our other stockholders will tend to increase to the extent that we require more support and to the extent that our stock price decreases. See also "Risks Related to Our Liquidity--Due to the general economic environment, the continued market pressure driving down the average selling prices of our solar power products, and other factors, we may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations and make adequate capital investments as planned." Finally, the market for our common stock has become less liquid and more thinly traded as a result of the Total tender offer. The lower number of shares available to be traded could result in greater volatility in the price of our common stock and affect our ability to raise capital on favorable terms in the capital markets.

Conversion of our outstanding ~~1.25% and~~ 4.75% debentures, our warrants related to our outstanding 4.50% and 4.75% debentures, and future substantial issuances or dispositions of our ~~class A or class B~~ common stock or other securities, could dilute ownership and earnings per share or cause the market price of our stock to decrease.

To the extent we issue ~~class A~~ common stock upon conversion of our outstanding ~~1.25% and~~ 4.75% debentures, the conversion of some or all of such debentures will dilute the ownership interests of existing stockholders, including holders who had previously converted their debentures. Any sales in the public market of the ~~class A and class B~~ common stock issuable upon such conversion could adversely affect prevailing market prices of our ~~class A and class B~~ common stock. Sales of our ~~class A or class B~~ common stock in the public market or sales of any of our other securities could dilute ownership and earnings per share, and even the perception that such sales could occur could cause the market prices of our ~~class A and class B~~ common stock to decline. In addition, the existence of our outstanding debentures may encourage short selling of our common stock by market participants who expect that the conversion of the debentures could depress the prices of our ~~class A and class B~~ common stock.

We issued warrants to affiliates of the underwriters of our 4.50% and 4.75% debentures, which are exercisable for a total of approximately 11.1 million shares and 8.7 million shares of our ~~class A~~ common stock, respectively. The warrants, together with certain convertible hedge transactions, are meant to reduce our exposure upon potential conversion of our 4.50% and 4.75% debentures. If the market price of our ~~class A~~ common stock exceeds the respective exercise prices of the warrants, such warrants will have a dilutive effect on our earnings per share, and could dilute the ownership interests for existing stockholders if exercised.

Approximately 4.7 million shares of class A common stock were lent to underwriters of our 1.25% and 0.75% debenture offerings, including approximately 2.9 million shares lent to Lehman Brothers International (Europe) Limited (“LBIE”) and approximately 1.8 million shares lent to Credit Suisse International (“CSI”). Such shares were lent to facilitate later hedging arrangements of future purchases for debentures in the after-market. Shares still held by CSI may be freely sold into the market at any time, and such sales could depress our stock price. In addition, any hedging activity facilitated by our debenture underwriters would involve short sales or privately negotiated derivatives transactions. Due to the September 15, 2008 bankruptcy filing of Lehman Brothers Holding Inc. (“Lehman”) and commencement of administrative proceedings for LBIE in the U.K., we recorded the share s lent to LBIE as issued and outstanding as of September 15, 2008, for the purpose of computing and reporting basic and diluted earnings per share. If Credit Suisse Securities (USA) LLC or its affiliates, including CSI, were to file bankruptcy or commence similar administrative, liquidating, restructuring or other proceedings, we may have to consider approximately 1.8 million shares lent to CSI as issued and outstanding for purposes of calculating earnings per share which would further dilute our earnings per share. These or other similar transactions could further negatively affect our stock price.

The price of our ~~class A~~ common stock, and therefore of our outstanding 0.75%, ~~1.25%~~4.50%, ~~4.50%~~ and 4.75% debentures, ~~as well as our class B common stock,~~ may ~~fl uctuate~~fluctuate significantly.

Our ~~class A and class B~~ common stock ~~have~~has experienced extreme price and volume fluctuations. The trading price of our ~~class A and class B~~ common stock could be subject to further wide fluctuations due to many factors, including the factors discussed in this risk factors section. In addition, the stock market in general, and the Nasdaq Global Select Market and the securities of technology companies and solar companies in particular, have experienced severe price and volume fluctuations. These trading prices and valuations, including our own market valuation and those of companies in our industry generally, may not be sustainable. These broad market and industry factors may decrease the market price of our ~~class A and class B~~ common stock, regardless of our actual operating performance. Because the 0.75%, ~~1.25%~~4.50%, ~~4.50%~~ and 4.75% debentures are convertible into our ~~class A~~ common stock (and/or cash equivalent to the value of our ~~class A~~ common stock), volatility or depressed prices of our ~~class A~~ common stock could have a similar effect on the trading price of these debentures.

~~Differences in trading history, liquidity, voting rights and other factors may continue to result in different market prices for~~

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~~shares of our class A and our class B common stock.~~

The class A and class B common stocks continue to maintain different trading histories, liquidity, and voting rights. Our class B common stock has consistently maintained lower trading prices and liquidity compared to the class A common stock following our spin-off from Cypress on September 28, 2008. This may be caused by the lack of a long trading history and lower trading volume of the class B common stock, compared to the class A common stock, as well as other factors. In addition, the class B common stock is entitled to eight votes per share and the class A common stock is entitled to one vote per share. Additionally, our restated certificate of incorporation imposes certain limitations on the rights of holders of class B common stock to vote the full number of their shares. The difference in the voting rights of our class A and class B common stock could reduce the value of our class A common stock to the extent that any investor or potential future purchaser of our common stock ascribes value to the right of our class B common stock to eight votes per share. These and other factors could lead to ongoing differences in market values between our class A and our class B common stock.

Delaware law and our certificate of incorporation and by-laws contain anti-takeover provisions, our outstanding 0.75%, ~~1.25%~~4.50%, ~~4.50%~~ and 4.75% debentures provide for a right to convert upon certain events, and our Board of Directors entered into a rights agreement and declared a rights dividend, any of which could delay or discourage takeover attempts that stockholders may consider favorable.

Provisions in our restated certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:


• Ÿ	the right of the Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors;


• Ÿ	the prohibition of cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;


• Ÿ	the requirement for advance notice for nominations for election to the Board of Directors or for proposing matters that can be acted upon at a ~~stockholders’~~stockholders' meeting;

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• Ÿ	the ability of the Board of Directors to issue, without stockholder approval, up to ~~approximately~~ 10.0 million shares of preferred stock with terms set by the Board of Directors, which rights could be senior to those of common stock;


• Ÿ	our Board of Directors is divided into three classes of directors, with the classes to be as nearly equal in number as possible;


• Ÿ	~~no action can be taken by~~ stockholders ~~except at an annual or~~may not call special ~~meeting~~meetings of the stockholders, ~~called in accordance with our bylaws, and stockholders may not act~~except by ~~written consent;~~Total under limited circumstances;

Ÿ
•	~~stockholders may not call special meetings of the stockholders;~~


•	~~limitations on the voting rights of our stockholders with more than 15% of our class B common stock; and~~


•	~~our Board of Directors is able to alter our by-laws without obtaining stockholder approval.~~

Certain provisions of our outstanding debentures could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of our outstanding debentures will have the right, at their option, to require us to repurchase, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest on the debentures, all or a portion of their debentures. We may also be required to issue additional shares of our class A common stock upon conversion of such debentures in the event of certain fundamental changes. In addition, on August 12, 2008, we entered into a Rights Agreement with Computershare Trust Company, N.A. and our Board of Directors declared an accompanying rights dividend. The Rights Agreement became effective upon completion of Cypress’ spin-off of our shares of class B common stock to the holders of Cypress common stock. The Rights Agreement contains specific features designed to address the potential for an acquirer or significant investor to take advantage of our capital structure and unfairly discriminate between classes of our common stock. Specifically, the Rights Agreement is ~~designed to address the inequities that could result if an investor, by acquiring 20% or more of the outstanding shares of class B common stock, were~~ able to ~~gain significant voting influence over~~alter our ~~Company~~by-laws without ~~making a correspondingly significant economic investment. The rights dividend and Rights Agreement, commonly referred to as a “poison pill,”~~obtaining stockholder approval.

Certain provisions of our outstanding debentures could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, including an entity becoming the beneficial owner of 75% of our voting stock (such as Total), holders of our outstanding debentures will have the right, at their option, to require us to repurchase, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest on the debentures, all or a portion of their debentures. We may also be required to issue additional shares of our common stock upon conversion of such debentures in the event of certain fundamental changes. In addition, we entered into a Rights Agreement with Computershare Trust Company, N.A., commonly referred to as a "poison pill," which could delay or discourage takeover attempts that stockholders may consider favorable.

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ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

~~Our~~Prior to May 2011, we leased our corporate headquarters, ~~is located~~which occupied approximately 60,000 square feet in San Jose, California, ~~where~~under a lease from Cypress until its expiration in April 2011. In May 2011 we ~~occupy~~moved to our new corporate headquarters in San Jose, California which occupies approximately ~~60,000~~186,000 square feet under a lease from ~~Cypress~~an unaffiliated third-party that expires in April ~~2011. We do not plan to renew our lease with Cypress and plan to move to new offices leased from an unaffiliated third party in May 2011.~~2021. In Richmond, California, we occupy approximately 207,000 square feet for office, light industrial and research and development use under a lease from an unaffiliated third party that expires in ~~D ecember~~December 2018. In addition to these facilities, we also have our European headquarters located in Geneva, Switzerland where we occupy approximately 4,000 square feet under a lease that expires in September 2012, as well as sales and support offices in Southern California, Texas, New Jersey, Oregon, Australia, England, France, Germany, Greece, Israel, Italy, Malta, Spain, and South Korea, all of which are leased from unaffiliated third parties.

We leased from Cypress an approximately 215,000 square foot building in the Philippines from fiscal 2003 through April 2008, which serves as FAB1 with four solar cell manufacturing lines in operation. In May 2008, we purchased FAB1 from Cypress and assumed the lease for the land from an unaffiliated ~~third party~~third-party for a total purchase price of $9.5 million. The lease for the land expires in May 2048 and is renewable for an additional 25 years. In August 2006, we purchased a 344,000 square foot building in the Philippines which serves as FAB2 with twelve solar cell manufacturing lines in operation. Our four solar cell manufacturing lines and twelve solar cell manufacturing lines operating at FAB1 and FAB2, respectively, have a total rated annual solar cell manufacturing capacity of ~~590~~700 MW.

In January 2008, we completed the construction of an approximately 175,000 square foot building in the Philippines which serves as our solar panel assembly facility that currently operates ~~six~~fourteen solar panel assembly lines with a total rated annual solar panel manufacturing capacity of ~~220~~600 MW. In August 2011, we leased an additional facility in Mexicali, Mexico from an unaffiliated third-party that expires in August 2021 and additionally serves as a solar panel assembly facility that currently operates 2 solar panel assembly lines. When fully online, the Mexico facility will house twelve solar panel assembly lines with an expected total annual manufacturing capacity of approximately 500 MW.

As a result of the January 31, 2012 acquisition of Tenesol, a global solar provider headquartered in La Tour de Salvagny, France, and a wholly-owned subsidiary of Total, we acquired module manufacturing operations in Toulouse, France and Capetown, South Africa with a total annual manufacturing capacity of approximately 170 MW.

We may require additional space in the future, which may not be available on commercially reasonable terms or in the location we desire.

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Because of the interrelation of our business segments, both the UPP Segment and R&C Segment use substantially all of the properties at least in part, and we retain the flexibility to use each of the properties in whole or in part for each of the segments. Therefore, we do not identify or allocate assets by business segment. For more information on property, plant and equipment by country, see Note 6 of Notes to Consolidated Financial Statements in Part II —- "Item 8: Financial Statements and Supplemental Data."

ITEM 3:3. LEGAL PROCEEDINGS

Three securities class action lawsuits were filed against ~~our~~the Company and certain of ~~our~~its current and former officers and directors in the United States District Court for the Northern District of California on behalf of a class consisting of those who acquired ~~our~~the Company's securities from April 17, 2008 through November 16, 2009. The cases were consolidated as ~~Plichta v.~~In re SunPower ~~Corp. et al.,~~Securities Litigation, Case No. CV-09-5473-RS (N.D. Cal.), and lead plaintiffs and lead counsel were appointed on March 5, 2010. Lead plaintiffs filed a consolidated complaint on May 28, 2010. The actions arise from the Audit Committee's investigation announcement on November 16, 2009 regarding certain unsubstantiated ~~a ccounting~~accounting entries. The consolidated complaint alleges that the defendants made material misstatements and omissions concerning ~~our~~the Company's financial results for 2008 and 2009, seeks an unspecified amount of damages, and alleges violations of ~~Sections~~sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and ~~Sections~~sections 11 and 15 of the Securities Act of 1933. ~~We believe we have~~The Company believes it has meritorious defenses to these allegations and will vigorously defend ~~ourselves~~itself in these matters. The court held a hearing on the defendants' motions to dismiss the consolidated complaint on November 4, ~~2010,~~2010. The court dismissed the consolidated complaint with leave to amend on March 1, 2011. An amended complaint was filed on April 18, 2011. The amended complaint added two former employees as defendants. Defendants filed motions to dismiss the amended complaint on May 23, 2011. The motions to dismiss the amended complaint were heard by the court on August 11, 2011. On December 19, 2011, the court granted in part and ~~took~~denied in part the motions ~~under submission. We are~~to dismiss, dismissing the claims brought pursuant to sections 11 and 15 of the Securities Act of 1933 and the claims brought against the two newly added former employees. The Company is currently unable to determine if the resolution of these matters will have an adverse effect on ~~our~~the Company's financial position, liquidity or results of operations.

Derivative actions purporting to be brought on ~~our~~the Company's behalf have also been filed in state and federal courts against several of ~~our~~the Company's current and former officers and directors based on the same events alleged in the securities class action lawsuits described above. The California state derivative cases were consolidated as In re SunPower Corp. S'holder Derivative Litig., Lead Case No. 1-09-CV-158522 (Santa Clara Sup. Ct.), and co-lead counsel for plaintiffs have been appointed. The complaints assert state-law claims for breach of fiduciary duty, abuse of control, unjust enrichment, gross mismanagement, and waste of corporate assets. Plaintiffs are scheduled to file a consolidated complaint on March 5, 2012. The federal derivative complaints were consolidated as In re SunPower Corp. S'holder Derivative Litig., Master File No. CV-09-05731-RS (N.D. Cal.), and lead plaintiffs and co-lead counsel were appointed on January 4, 2010. The federal complaints assert state-law claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, and seek an unspecified ~~amou nt~~amount of damages. ~~We intend~~Plaintiffs filed a consolidated complaint on May 13, 2011, in the Delaware Court of Chancery. A Delaware state derivative case, Brenner v. Albrecht, et al., C.A. No. 6514-VCP (Del Ch.), was filed on May 23, 2011. The complaint asserts state-law claims for breach of fiduciary duty and contribution and indemnification, and seeks an unspecified amount of damages. The Company intends to oppose all the derivative plaintiffs' efforts to pursue this litigation on ~~our~~the Company's behalf. ~~We are~~Defendants moved to stay or dismiss the Delaware derivative action on July 5, 2011. The motion to stay was heard by the court on October 27, 2011, and on January 27, 2012 the court granted the Company's motion and stayed the case indefinitely subject to plaintiff seeking to lift the stay under specified conditions. The Company is currently unable to determine if the resolution of these matters will have an adverse effect on ~~our~~the Company's financial position, liquidity or results of operations.

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

ITEM 4: ~~REMOVED AND RESERVED~~MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Our~~Market Information

Prior to November 17, 2011, our former class A and class B common stock was listed on the Nasdaq Global Select Market under the trading symbols "SPWRA" and "SPWRB," respectively. On November 15, 2011, our Stockholders approved reclassification of all outstanding shares of our former class A and class B common stock into a single class of common stock. Therefore, effective November 17, 2011, our common stock is listed on the Nasdaq Global Select Market under the trading ~~symbols “SPWRA” and “SPWRB,” respectively.~~ symbol "SPWR".

The high and low trading prices of our ~~class A and class B~~ common stock during fiscal ~~2010~~2011 and ~~2009~~2010 were as follows:


	SPWRA				SPWRB
	High		Low		High		Low		SPWR				SPWRA				SPWRB
For the year end January 2, 2011
	High		Low		High		Low		High		Low
Fiscal Year 2011
Fourth quarter: November 17, 2011 through January 1, 2012	$	8.60	$	4.94	*		*		*		*
Fourth quarter: October 3, 2011 through November 16, 2011	*		*		$	10.88	$	6.61	$	10.12	$	5.99
Third quarter	*		*		$	23.35	$	8.06	$	17.72	$	7.35
Second quarter	*		*		$	22.60	$	14.87	$	22.10	$	14.65
First quarter	*		*		$	19.88	$	12.90	$	19.45	$	12.47
Fiscal Year 2010
Fourth quarter	$	14.52	$	11.65	$	14.00	$	11.48	*		*		$	14.52	$	11.65	$	14.00	$	11.48
Third quarter	14.49		10.03		13.86		9.66		*		*		$	14.49	$	10.03	$	13.86	$	9.66
Second quarter	19.29		10.73		17.11		9.41		*		*		$	19.29	$	10.73	$	17.11	$	9.41
First quarter	25.85		18.02		23.04		15.89		*		*		$	25.85	$	18.02	$	23.04	$	15.89
For the year end January 3, 2010
Fourth quarter
Third quarter	33.45		22.35		28.63		19.90
Second quarter	32.34		22.61		28.97		19.71
First quarter	45.15		20.91		38.16		19.27

* Not applicable due to class of SunPower stock outstanding and trading during that period.

As of February ~~18, 2011,~~24, 2012, there were approximately 56 ~~and~~ ~~1,003~~973 record ~~holders of our class A and class B common stock, respectively.~~holders. A substantially greater number of holders ~~of our class A and class B common stock~~ are in ~~“street name”~~"street name" or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.

Dividends

We have never declared or paid any cash dividend on our common stock, and we do not currently intend to pay any cash dividend on our common stock in the foreseeable future. We intend to retain future earnings, if any, to finance the operation and expansion of our business.

Our credit facilities place restrictions on our ability to pay cash dividends. Additionally, our 1.25% and 0.75% convertible debentures allow the holders to convert their bonds into our class A common stock if we declare a dividend that on a per share basis exceeds 10% of our class A common stock’s market price.

Recent Sales of Unregistered Securities

On December 23, 2010, we entered into four amended and restated warrants (collectively, the “Warrants”), originally issued on March 25, 2010 and April 5, 2010, to each of Deutsche Bank AG, Bank of America, N.A., Barclays Bank PLC and Credit Suisse International (collectively, the “Warrantholders”). The original Warrants, together with convertible hedge transactions entered into on March 25, 2010 and April 5, 2010, are meant to reduce our exposure to potential cash payments upon conversion of our 4.50% convertible debentures due 2015. The exercise price of the Warrants is $27.03 per share of our class A common stock, subject to adjustment for customary anti-dilution and other events. Under the amended Warrants, the Warrantholders would, upon exercise of the Warrants, no longer receive cash but instead would acquire up to 11.1 million shares of our class A common stock.None.

The original Warrants were sold for aggregate cash consideration of $54.1 million and $7.4 million on March 25, 2010 and April 5, 2010, respectively, simultaneously with our purchase of the convertible debenture hedge transactions (collectively, the "Bond Hedge") for aggregate cash consideration of approximately $66.2 million and $9.0 million, respectively. We received no additional consideration for the amendment of the Warrants. We believe that the issuance and sale of the Warrants was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereunder.

Issuer Purchases of Equity Securities

The following table sets forth all purchases made by or on behalf of us or any ~~“affiliated~~"affiliated purchaser,”" as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, of shares of our ~~class A~~ common stock during each of the indicated periods.

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~~periods.~~

Period Total Number of Shares Purchased (in thousands)(1)
Average Price
Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
October 4, 2010 through October 31, 2010 8 $ 13.65 — —
November 1, 2010 through November 28, 2010 66 $ 14.11 —
—

November 29, 2010 through January 2, 2011 9 $ 12.84 — —
83 — —



Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs
October 3, 2011 through October 30, 2011	415	$	7.96	—	—
October 31, 2011 through November 27, 2011	157,710	$	8.02	—	—
November 28, 2011 through January 1, 2012	3,747	$	6.73	—	—
	161,872	$	7.99	—	—


(1)	The total number of shares purchased includes only shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.

Equity Compensation Plan Information

The following table provides certain information as of January ~~2, 2011~~1, 2012 with respect to our equity compensation plans under which shares of our ~~class A~~ common stock are authorized for issuance:


~~Plan Category~~	~~Number of securities to be issued upon exercise of outstanding options, warrants and rights (in thousands)~~			~~Weighted-average exercise price of outstanding options, warrants and rights~~		~~Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) (in thousands)~~
~~Equity compensation plans approved by security holders~~	~~1,304~~			$	~~11.60~~	~~504~~
~~Equity compensation shares not approved by security holders~~	—			$	—	—
	~~1, 304~~	(1	)	$	~~11.60~~	~~504~~



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (in thousands)			Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) (in thousands)
Equity compensation plans approved by security holders	416			$	27.38	3,293
Equity compensation shares not approved by security holders	—			$	—	—
	416	(1	)	$	27.38	3,293

(1)

Shares associated with our warrants outstanding in connection with our 4.50% debentures are excluded from the above table as the exercise price exceeded our closing stock as of January 1, 2012. This table additionally excludes options to purchase an aggregate of approximately ~~191,000~~68,000 shares of ~~class A~~ common stock, at a weighted average exercise price of ~~$12.40~~$21.74 per share, that we assumed in connection with the acquisition of PowerLight Corporation, now known as SunPower Corporation, Systems, in January 2007. Under the terms of our three equity incentive plans, we may issue incentive or non-statutory stock options, restricted stock awards, restricted stock units, or stock purchase rights to directors, employees and consultants to purchase common stock. Our Third Amended and Restated SunPower Corporation 2005 Stock Incentive Plan includes an automatic share reserve increase feature effective for 2009 through 2015. This share reserve increase feature will cause an annual and automatic increase in the number of shares of our common stock reserved for issuance under the Stock Incentive Plan in an amount each year equal to the least of: 3% of the outstanding shares of all classes of our common stock measured on the last day of the immediately preceding fiscal year; 6,000,000 shares; and such other number of shares as determined by our Board.

ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read together with “"Item 7: Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations"” and “"Item 8: Financial Statements and Supplementary ~~Data~~Data"” included elsewhere in this Annual Report on Form 10-K. We report our results of operations on the basis of 52- or 53-week periods, ending on the Sunday closest to December 31. Fiscal ~~2006 ended on December 31, 2006, fiscal~~ 2007 ended on December 30, 2007, fiscal 2008 ended on December 28, 2008, fiscal 2009 ended on January 3, 2010, fiscal 2010 ended on January 2, 2011, and ~~each~~fiscal 2011 ended on

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January 1, 2012. Each fiscal year included 52 ~~weeks. Fiscal~~weeks, except fiscal 2009 ~~end ed on January 3, 2010 and~~which included 53 ~~weeks. Fiscal 2010 ended on January 2, 2011 and included 52~~ weeks. Our fiscal quarters end on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year in which the additional week falls into the fourth quarter of that fiscal year.

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	Year Ended		Year Ended
(In thousands, except per share data)	January 2, 2011 (1)			January 3, 2010 (2)		December 28,2008 (2)				December 30, 2007 (2) (3)			December 31, 2006			January 1, 2012				January 2, 2011			January 3, 2010			December 28,2008				December 30, 2007
Consolidated Statements of Operations Data
Revenue	$	2,219,230		$	1,524,283	$	1,437,594			$	774,790		$	236,510		$	2,312,494			$	2,219,230		$	1,524,283		$	1,437,594			$	774,790
Cost of revenue	1,70 9,337			1,240,563		1,087,973				627,039			186,042			2,084,290				1,709,337			1,240,563			1,087,973				627,039
Gross margin	509,893			283,720		349,621				147,751			50,468			228,204				509,893			283,720			349,621				147,751
Operating income	138,867			61,834		154,407				2,289			19,107
Income (loss) before income taxes and equity in earnings of unconsolidated investees	183,413			43,620		(97,904		)		6,095			28,461
Net income (loss)	$	178,724		$	32,521	$	(124,445	)		$	27,901		$	26,51 6
Net income (loss) per share of class A and class B common stock:
Operating income (loss)																(520,451		)		138,867			61,834			154,407				2,289
Income (loss) from continuing operations before income taxes and equity in earnings of unconsolidated investees																(587,763		)		183,413			43,620			(97,904		)		6,095
Income (loss) from continuing operations																$	(603,859	)		$	166,883		$	32,521		$	(124,445	)		$	27,901
Income (loss) from continuing operations per share of common stock:
Basic	$	1.87		$	0.36	$	(1.55	)		$	0.36		$	0.40		$	(6.18	)		$	1.74		$	0.36		$	(1.55	)		$	0.36
Diluted	$	1.75		$	0.35	$	(1.55	)		$	0.34		$	0.37		$	(6.18	)		$	1.64		$	0.35		$	(1.55	)		$	0.34
Weighted-average shares:
Basic	95,660			91,050		80,522			75,413			65,864			97,724				95,660			91,050			80,522				75,413
Diluted	105,698			92,746		80,522				80,439			71,011			97,724				105,698			92,746			80,522				80,439

(In thousands)
January
2, 2011
(1)

January
3, 2010
(2)

December
28, 2008
(2)

December
30, 2007
(2) (3)

December
31, 2006

Consolidated Balance Sheet Data

Cash and cash equivalents, restricted cash and cash equivalents, current portion and short-term investments $ 761,602 $ 677,919 $ 232,750 $ 390,667 $ 182,092
Working capital 1,005,492 747,335 420,067 206,167 228,269
Total assets 3,379,331 2,696,895 2,084,257 1,673,305 576,836
Long-term debt 50,000 237,703 54,598 — —

~~Convertible debt, net of current portion591, 923398,606357,173333,210~~—~~Long-term deferred tax liabilities~~—~~6,7776,49345,512~~46~~Customer advances, net of current portion160,485&n bsp;72,28891,359~~



(In thousands)	January 1, 2012		January 2, 2011		January 3, 2010		December 28,2008		December 30, 2007
Consolidated Balance Sheet Data
Cash and cash equivalents, restricted cash and cash equivalents, current portion and short-term investments	$	710,213	$	761,602	$	677,919	$	232,750	$	390,667
Working capital	1,037,688		1,005,492		747,335		420,067		206,167
Total assets	3,275,197		3,379,331		2,696,895		2,084,257		1,673,305
Long-term debt	355,000		50,000		237,703		54,598		—
Convertible debt, net of current portion	423,268		591,923		398,606		357,173		333,210
Long-term deferred tax liabilities	—		—		6,777		6,493		45,512
Customer advances, net of current portion	181,947		160,485		72,288		91,359		60,153
Other long-term liabilities	152,492		131,132		70,045		44,222		14,975
Total stockholders' equity	$	1,097,510	$	1,657,434	$	1,376,380	$	1,100,198	$	947,296

~~60,15327,687Other long-term liabilities131,13270,04544,22214,975~~—~~Total stockholders' equity1,657,4341,376,3801,100,198947,296488,771~~


~~(1)~~	On March 26, 2010, we completed the acquisition of SunRay, a European solar power plant developer company. As part of the acquisition, we acquired SunRay's project pipeline of solar photovoltaic projects in Europe and Israel. The results of SunRay have been included in our selected consolidated financial information since March 26, 2010 (see Note 3 of Notes to Consolidated Financial Statements).


~~(2)~~	As adjusted to reflect the adoption of new accounting guidance for share lending arrangements that were executed in connection with our convertible debt offerings in fiscal 2007 (see Note 1 of Notes to Consolidated Financial Statements).

~~(3)~~

On January 10, 2007, we completed the acquisition of PowerLight Corporation, a global provider of large-scale solar power systems, which we renamed SunPower Corporation, Systems ("SP Systems") in June 2007. SP Systems designs, manufactures, markets and sells solar electric power system technology that integrates solar panels manufactured by us and other suppliers to convert sunlight to electricity compatible with the utility network. The results of SP Systems have been included in our selected consolidated financial information since January 10, 2007.

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General Overview

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We are a vertically integrated solar products and services company that designs, manufactures, and delivers high-performance solar electric systems worldwide for residential, commercial and utility-scale power plant customers. Of all the solar cells available for the mass market, we believe our solar cells have the highest conversion efficiency, a measurement of the amount of sunlight converted by the solar cell into electricity. ~~Our solar power products and systems are sold through our Utility and Power Plants (“UPP”) and Residential and Commercial (“R&C”) Segments.~~

We were originally incorporated in California in April 1985 by Dr. Richard Swanson to develop and commercialize high-efficiency solar cell technologies. Cypress Semiconductor Corporation ~~(“Cypress”~~("Cypress") made a significant investment in

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SunPower in 2002 and in November 2004, Cypress acquired 100% ownership of all outstanding shares of our capital stock, excluding unexercised warrants and options. In November 2005, we reincorporated in Delaware, created two classes of common stock and held an initial public offering ~~(“IPO”~~("IPO") of our former class A common stock. After completion of our IPO, Cypress held all the outstanding shares of our former class B common stock. On September 29, 2008, Cypress distributed to its shareholders all of its shares of our former class B common stock, in the form of a pro rata dividend to the holders of record as of September 17, 2008 of Cypress common stock. As a result, our former class B common stock ~~now trades~~became publicly traded and is listed on the Nasdaq Global Select Market under the symbol "SPWRB," along with our former class A common stock under the symbol "SPWRA," and we discontinued being a subsidiary of Cypress. On April 28, 2011, we and Total Gas & Power USA, SAS ("Total"), a subsidiary of Total S.A.("Total S.A."), entered into a Tender Offer Agreement (the "Tender Offer Agreement"). Pursuant to the Tender Offer Agreement, on May 3, 2011, Total commenced a cash tender offer to acquire up to 60% of the outstanding shares of our former class A common stock and up to 60% of the outstanding shares of our former class B common stock (the "Tender Offer") at a price of $23.25 per share for each class.

The offer expired on June 14, 2011 and Total accepted for payment on June 21, 2011 a total of 34,756,682 shares of our former class A common stock and 25,220,000 shares of our former class B common stock, representing 60% of each class of our outstanding common stock as of June 13, 2011 for a total cost of approximately $1.4 billion. On November 15, 2011, our stockholders approved the reclassification of all outstanding former class A common stock and class B common stock into a single class of common stock listed on the Nasdaq Global Select Market under the symbol "SPWR." On January 31, 2012, in connection with the acquisition of Tenesol S.A., Total purchased an additional 18.6 million shares of our common stock and owns, as of that date, approximately 66% of our outstanding common stock (see Note 18).

Business Segments Overview

Our President and Chief Executive Officer, as the chief operating decision maker ("CODM"), has organized our company and manages resource allocations and measures performance of our company's activities between two business segments: the Utility and Power Plants ("UPP") Segment and the Residential and Commercial ("R&C") Segment. Our UPP Segment refers to our large-scale solar products and systems business, which includes power plant project development and project sales, turn-key engineering, procurement and construction ("EPC") services for power plant construction, and power plant operations and maintenance ("O&M") services. Our UPP Segment also sells components, including large volume sales of solar panels and mounting systems to third parties, sometimes on a multi-year, firm commitment basis. Our R&C Segment focuses on solar equipment sales into the residential and small commercial market through our third-party global dealer network, as well as direct sales and EPC and O&M services in the United States and Europe for rooftop and ground-mounted solar power systems for the new homes, commercial, and public sectors.

Change in Segment Reporting

In December 2011, we announced a reorganization of our Company to align our business and cost structure with expected market conditions in 2012 and beyond. The reorganization did not impact segment reporting in fiscal 2011 as our CODM continues to manage resource allocations and measure performance of our activities between the UPP and R&C Segments while we are implementing our new organizational strategy. We are in the process of determining our new segments and making decisions internally on how we will manage the new segments, allocate resources, and assess performance.

Seasonal Trends

Our business is subject to industry-specific seasonal fluctuations. Sales have historically reflected these seasonal trends with the largest percentage of total revenues realized during the last two calendar quarters of a fiscal year. Lower seasonal demand normally results in reduced shipments and revenues in the first two calendar quarters of a fiscal year. There are various reasons for this seasonality, mostly related to economic incentives and weather patterns. For example, in European countries with feed-in tariffs, the construction of solar power systems may be concentrated during the second half of the calendar year, largely due to the fact that the coldest winter months in the Northern Hemisphere are January through March. In the United States, customers will sometimes make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons. In addition, sales in the new home development market are often tied to construction market demands which tend to follow national trends in construction, including declining sales during cold weather months.

Unit of Power

When referring to our ~~facilities'~~facilities’ manufacturing capacity, total sales and components sales, the unit of electricity in watts for kilowatts ~~(“KW”~~("KW"), megawatts ~~(“MW”~~("MW") and gigawatts ~~(“GW&rdq uo;~~("GW") is direct current ~~(“dc”~~("dc"). When referring to our solar power systems, the unit of electricity in watts for KW, MW, and GW is alternating current ~~(“ac”~~("ac").

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Levelized Cost of Energy ("LCOE")

The LCOE equation is an evaluation of the life-cycle energy cost and life-cycle energy production of an energy producing system. It allows alternative technologies to be compared when different scales of operation, investment, or operating time periods exist. It captures capital costs and ongoing system-related costs, along with the amount of electricity produced, and converts them into a common metric. Key drivers for LCOE reduction for photovoltaic products include panel efficiency, capacity factors, reliable system performance, and the life of the system.

Fiscal Years

We report our results of operations on the basis of 52- or 53-week periods, ending on the Sunday closest to December 31. Fiscal 2009 ended on January 3, 2010, fiscal 2010 ended on January 2, 2011, and fiscal 2011 ended on January 1, 2012. Each fiscal year included 52 weeks, except fiscal 2009 which included 53 weeks. Our fiscal quarters end on the Sunday closest to the end of the applicable calendar quarter, except in a 53-week fiscal year in which the additional week falls into the fourth quarter of that fiscal year.

Change in Solar Market

In March 2011, the Italian government passed a new legislative decree providing for a significant change in its feed-in tariff ("FIT") program. In May 2011, the Italian government announced a legislative decree which defined the revised FIT and the transition process effective June 1, 2011. The decree announced a decline in FIT and also set forth a limit on the construction of solar plants on agricultural land. Similarly, during the last several months other European countries reduced government incentives for the solar market. Such changes had a materially negative effect on the market for solar systems in Europe and caused our earnings to decline in Europe and adversely affected our financial results. In response to the reduction in European government incentives, primarily in Italy, our Board of Directors approved a restructuring plan, on June 13, 2011, to realign our resources. Further, to accelerate operating cost reduction and improve overall operating efficiency, on November 30, 2011, our management approved a second company-wide restructuring plan. These plans and related charges are further discussed below under "Results of Operations."

Goodwill and Other Intangible Asset Impairment

We conduct our 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 our reporting unit level. Management determined the UPP Segment and R&C Segment each have two reporting units. In estimating the fair value of the reporting units, we make estimates and judgments about our future cash flows using an income approach defined as Level 3 inputs under fair value measurement standards. 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. The sum of the fair values of our reporting units are also compared to our external market capitalization to determine the appropriateness of our assumptions and adjusted, if appropriate. These assumptions took into account the current industry environment and its impact on our business. Based on the impairment test performed in the third quarter of fiscal 2011, we determined that the carrying value of the UPP-International, UPP-Americas, and Residential and Light Commercial reporting units exceeded their fair value. As a result, we recorded a goodwill impairment loss of $309.5 million, representing all of the goodwill associated with these reporting units. As of January 1, 2012, the fair value of the remaining reporting unit, North American Commercial, exceeded the carrying value under the first step of the goodwill impairment test. Therefore, goodwill was not impaired with respect to this reporting unit.

We additionally review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Triggering events for an impairment review may include indications such as adverse industry or economic trends, lower than projected operation results or cash flows, or sustained decline in our stock price or market capitalization. During the third quarter of fiscal 2011, we determined that the carrying value of certain intangible assets related to strategic acquisitions of EPC and O&M project pipelines in Europe were no longer recoverable and therefore recognized an impairment loss of $40.3 million in fiscal 2011.

2012 Outlook

During fiscal 2011 we saw a decline in overall demand for solar systems primarily in Europe as a result of the decline in European government incentives as described above. The resulting supply environment drove down average selling prices across all product and service lines. Such pricing pressures are expected to continue throughout fiscal 2012.

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In 2012 we continue to be focused on reducing the cost of our solar panels and systems. We expect our R&D activities to increase as we emphasize continued improvement of our solar cell efficiency and LCOE performance through enhancement of our existing products, development of new products and reduction of manufacturing cost and complexity in conjunction with our overall cost-control strategies. We are further working with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale.

We plan to continue to expand our business in growing and sustainable markets. In fiscal 2011 we launched our residential lease program with our dealers in the United States, in partnership with a third-party financial institution, which allows customers to obtain SunPower systems under lease agreements up to 20 years, subject to financing availability. We announced the first commercial deployment of our SunPower® C-7 Tracker technology under a power purchase agreement ("PPA") and commenced production of our next generation solar cell with demonstrated efficiencies of up to 24%. Our acquisition of Tenesol S.A. ("Tenesol") in the first quarter of fiscal 2012 has further expanded our European and global customer channels as well as added a strong manufacturing based in both Europe and Africa. Please see "Part I. Item 1A: Risk Factors" for additional information on risks and uncertainties that could cause actual results to differ from management's plans and outlook for 2012.

Financial Operations Overview

The following describes certain line items in our Consolidated Statements of Operations:

Revenue

UPP Segment Revenue: Our UPP Segment refers to our large-scale solar products and systems business, which includes power plant project development and project sales, turn-key ~~engineering, procurement and construction (“EPC”)~~EPC services for power plant construction, and power plant ~~operations and maintenance (“~~O~~&M”)~~&M services. The UPP Segment sells components, including large volume sales of solar panels and mounting systems to third parties, ~~often~~sometimes on a multi-year, firm commitment basis, in the United States, Europe, and Asia.

R&C Segment Revenue: Our R&C Segment focuses on solar equipment sales into the residential and small commercial market through our third-party global dealer network, as well as direct sales and EPC and O&M services in the United States for rooftop and ground-mounted solar power systems for the new homes, commercial, and public sectors.

Other Revenue Factors: Sales of EPC projects and other services relate to solar electric power systems that integrate our solar panels and balance of systems components. In the United States, where customers often utilize rebate and tax credit programs in connection with projects rated ~~one~~1 MW or less of capacity, we typically sell solar power systems rated up to ~~one~~1 MW of capacity to provide a supplemental, distributed source of electricity for a customer’s facility as well as ground mount systems reaching up to hundreds of MWs for regulated utilities. In the United States, many customers choose to purchase solar electricity under a ~~power purchase agreement (“PPA”)~~PPA with an investor or financing company which buys the system from us. In Europe and ~~South Korea,~~the United States, our systems are often purchased by third-party investors as central-station solar power plants, typically rated from ~~one~~1 to ~~fifty~~50 MW, which generate electricity for sale under tariff to regional and public utilities. We also sell our solar panels and balance of systems components under materials-only sales contracts in the United States, Europe and Asia. Our revenue recognition policy is described in more detail under ~~“Critical~~"Critical Accounting ~~Policies and~~ Estimates.”"

Cost of Revenue

Our cost of revenue will fluctuate from period to period due to the mix of projects completed and recognized as revenue, in particular between large utility projects and large commercial installation projects. The cost of solar panels is the single largest cost element in our cost of revenue. Our cost of solar panels consists primarily of: (i) polysilicon, silicon ingots and wafers used in the production of solar cells, along with other materials such as chemicals and gas that are needed to transform silicon wafers into solar cells; (ii) raw materials such as glass, frame, backing and other materials; (iii) solar cells from our AUO SunPower Sdn. Bhd. ("AUOSP") joint venture; as well as (iv) direct labor costs and assembly costs we pay to our third-party contract manufacturers in China, Mexico, Poland, and ~~Poland.~~California. Other cost of revenue associated with the construction of solar

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power systems includes real estate, mounting systems, inverters and third-party contract manufacturer costs. In addition, other factors contributing to cost of revenue include amortization of other intangible assets, stock-based compensation, depreciation, provisions for estimated warranty claims, salaries, personnel-related costs, freight, royalties, facilities expenses, and manufacturing supplies associated with contracting revenue and solar cell fabrication as well as factory pre-operating costs associated with our manufacturing facilities. Such pre-operating costs included compensation and training costs for factory workers as well as utilities and consumable materials associated with preproduction activities.

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We are ~~seeking~~targeting to improve cost of revenue over time as we implement cost reduction ~~efforts,~~programs, improve our manufacturing processes, and grow our business to attain economies of scale on fixed costs. An expected reduction in cost of revenue based on manufacturing efficiencies, however, could be partially or completely offset by increased raw material costs.

Gross Margin

Our gross margin each quarter is affected by a number of factors, including average selling prices for our solar power products, the types of projects in progress, the gross margins estimated for those projects in progress, our product mix, our actual manufacturing costs, the utilization rate of our solar cell manufacturing facilities, and actual overhead costs. Historically, revenue from materials-only sales contracts generate a higher gross margin percentage than revenue generated from turn-key solar power system contracts. Turn-key contracts generate higher revenue per watt as a result of the included EPC services, O&M services as well as power plant project development. In addition, we generally experience higher gross margin on construction projects that utilize SunPower solar panels compared to construction projects that utilize solar panels purchased from third parties.

From time ~~t o~~to time, we enter into agreements whereby the selling price for certain of our solar power products is fixed over a defined period. In addition, almost all of our construction contracts are fixed price contracts. However, we have in several instances obtained change orders that reimburse us for additional unexpected costs due to various reasons. We also have long-term agreements for polysilicon, ingots, wafers, solar cells and solar panels with suppliers, some with take-or-pay arrangements. An increase in our manufacturing costs and other project costs over such a defined period could have a negative impact on our overall gross margin. Our gross margin may also be impacted by fluctuations in manufacturing yield rates and certain adjustments for inventory reserves. Our inventory policy is described in more detail under ~~“Critical~~"Critical Accounting ~~Policies and~~ Estimates.”"

Operating Expenses

Our operating expenses include research and development ("R&D") ~~expense~~expenses and sales, general and administrative ("SG&A") ~~expense.~~expenses. R&D ~~expense consists~~expenses consist primarily of salaries and related personnel costs, depreciation of equipment and the cost of solar cells, solar panel materials, various prototyping materials, and services used for the development and testing of products. We expect our R&D expense to continually increase in absolute dollars as we continue to develop new processes to further improve the conversion efficiency of our solar cells and reduce their manufacturing cost, and as we develop new products to diversify our product offerings.

R&D expense is reported net of any funding received under contracts with governmental agencies because such contracts are considered collaborative arrangements. These awards are typically structured such that only direct costs, R&D overhead, procurement overhead, and general and administrative expenses that satisfy government accounting regulations are reimbursed. In addition, our government awards from state agencies will usually require us to pay to the granting governmental agency certain royalties based on sales of products developed with government funding or economic benefit derived from incremental improvements funded. Royalties paid to governmental ~~a gencies~~agencies are charged to the cost of goods sold. ~~Our funding from government contracts offset our research and development expense by approximately~~ ~~10%~~, ~~22%~~ ~~and~~ ~~25%~~ ~~in fiscal 2010, 2009 and 2008, respectively.~~

SG&A expense for our business consists primarily of salaries and related personnel costs, professional fees, , insurance, and other selling and marketing expenses. ~~We expect~~

Goodwill and other intangible asset impairment primarily consists of impairment of goodwill as a result of our ~~SG&A expense to increase~~annual impairment test, performed in ~~absolute dollars~~the third quarter of fiscal 2011, as we ~~expand our sales~~determined the carrying value of certain reporting units exceeded their fair value. Additionally, during the third quarter of fiscal 2011 we impaired certain intangible assets related to strategic acquisitions of EPC and ~~marketing efforts, hire~~O&M project pipelines in Europe as it was determined their carrying value was no longer recoverable.

Restructuring expense consists of two restructuring plans effected during fiscal 2011 in response to reductions in European government incentives, which had a significant impact on the global solar market, and to accelerate operating cost reduction to improve overall operating efficiency. Charges in connection with these plans relate to employee severance and benefits, lease termination costs, and legal and other related charges. For additional ~~personnel and improve our infrastructure~~details see Note 8 of Notes to ~~support our growth.~~Consolidated Financial Statements.

Other Income (Expense), Net

Interest income represents interest income earned on our cash, cash equivalents, restricted cash, restricted cash equivalents and available-for-sale securities. Interest expense primarily relates to: (i) debt under our ~~s enior~~senior convertible

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debentures; (ii) fees for our outstanding letters of credit; (iii) SunPower Malaysia Manufacturing Sdn. Bhd.'s ("SPMY") borrowings under the facility with the Malaysian government prior to the deconsolidation of this ~~entity;~~entity in the third quarter of fiscal 2010; (iv) ~~our~~outstanding term ~~loan;~~loans; (v) our revolving credit facilities;

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(vi) our mortgage loan; and (vii) customer advance payments. For additional details see Notes 7, 89, and 1011 of Notes to Consolidated Financial Statements.

Gain on deconsolidation of consolidated subsidiary is the result of the deconsolidation of SPMY, subsequently renamed AUOSP, in the third quarter of fiscal 2010. Net gain on change in equity interest in unconsolidated investee refers to the value of our equity interests in Woongjin Energy Co., Ltd. (“("Woongjin ~~Energy”~~Energy") and First Philec Solar Corporation (“("First Philec ~~Solar”)~~Solar) being adjusted upon dilutive events. Gain on sale of equity interest in unconsolidated investee represents net gains from the sale of our Woongjin Energy shares in the open market during second half of fiscal 2011. For additional details see Note 910 of Notes to Consolidated Financial Statements.

Gain on mark-to-market derivatives during fiscal 2011 and 2010 relates to derivative instruments associated with our 4.50% senior cash convertible debentures (“("4.50% ~~debentures”~~debentures"): (i) the embedded cash conversion option; (ii) the over-allotment option; (iii) the bond hedge transaction; and (iv) the warrant transactions. The changes in fair value of these derivatives are reported in our Consolidated Statement of Operations until such transactions settle or expire. The bond hedge and warrant transactions are meant to reduce our exposure to potential cash payments associated with the embedded cash conversion option. Gain on mark-to-market derivatives during fiscal 2009 relates to the change in fair value of certain convertible debenture hedge transactions (the ~~“purchased options”~~"purchased options") associated with the issuance of our 4.75% senior convertible debentures (“("4.75% ~~debentures”~~debentures") intended to reduce the potential dilution that would occur upon conversion of the debentures. For additional details see Note 1011 of Notes to Consolidated Financial Statements.

Gain ~~(loss)~~ on share lending arrangement relates to our historical share lending arrangement with Lehman Brothers International (Europe) Limited ("LBIE"). ~~Under new accounting guidance adopted in the first quarter of fiscal 2010, in~~In the event that counterparty default under the share lending arrangement becomes probable, we are required to recognize an expense in our Consolidated Statement of Operations equal to the then fair value of the unreturned loaned shares, net of any probable recoveries.

Other, net consists primarily of gains or losses on foreign exchange and derivatives as well as gain on sale and impairment charges for certain available-for-sale ~~securities.~~securities and other investments.

Income Taxes

Deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax bases of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude that it is more likely than not that some portion or all deferred tax assets will be realized. For additional details see Notes 1 and 13 of Notes to Consolidated Financial Statements.

We currently benefit from income tax holiday incentives in the Philippines in accordance with our subsidiary’s registration with the Philippine Economic Zone Authority ("PEZA"), which provide that we pay no income tax in the Philippines for those operations subject to the ruling. Our current income tax holidays were granted as manufacturing lines were placed in service and thereafter expire within the next fiscal year, and we are in the process of or have applied for extensions and renewals upon expiration. We expect such approvals to be granted. We believe that if our Philippine tax holidays expire, (a) gross income attributable to activities covered by our PEZA registrations will be taxed at a 5% preferential rate, and (b) our Philippine net income attributable to all other activities will be taxed at the statutory Philippine corporate income tax rate, currently 30%. An increase in our tax liability could materially and negatively affect our financial condition and results of operations.

We have an auxiliary company ruling in Switzerland where we sell our solar power products. The auxiliary company ruling results in a reduced effective Swiss tax rate of approximately 11.5%. The current ruling expires at the end of 2015. If the ruling is not renewed in 2015, Swiss income would be taxable at the full Swiss tax rate of approximately 24.2%.

For financial reporting purposes, during periods when we were a subsidiary of Cypress, income tax expense and deferred income tax balances were calculated as if we were a separate entity and had prepared our own separate tax return. Effective with the closing of our public offering of common stock in June 2006, we were no longer eligible to file federal and most state consolidated tax returns with Cypress. As of September 29, 2008, Cypress completed a spin-off of all of its shares of our former class B common stock to its shareholders, so we are no longer eligible to file any remaining state consolidated tax returns with Cypress. Under our tax sharing agreement with Cypress, we agreed to pay Cypress for any federal and state income tax credit or net operating loss carryforwards utilized in our federal and state tax returns in subsequent periods that originated while our results were included in Cypress’s federal tax returns. ~~Deferred tax assets and liabilities are recognized for temporary differences between financial statement and income tax bases~~

Table of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude that it is more likely t han not that some portion or all deferred tax assets will be realized. For additional details see Notes 1, 2 and 12 of Notes to Consolidated Financial Statements.Contents

We currently benefit from income tax holiday incentives in the Philippines in accordance with our subsidiary’s registration with the Philippine Economic Zone Authority ("PEZA"), which provide that we pay no income tax in the Philippines. Our current income tax holidays were granted as manufacturing lines were placed in services and thereafter expire within the next several years beginning in 2011, and we have applied for extensions and renewals upon expiration. However, these tax holidays may or may not be extended. The holiday for two of the sixteen total manufacturing lines expired at the end of 2010 and were extended through November 2011. We believe that as our Philippine tax holidays expire, (a) gross income attributable to activities covered by our PEZA registrations will be taxed at a 5% preferential rate, and (b) our Philippine net income attributable to all other activities will be taxed at the statutory Philippine corporate income tax rate, currently 30%. An increase in our tax liability could materially and negatively affect our financial condition and results of operations.

We have an auxiliary company ruling in Switzerland where we sell our solar power products. The auxiliary company ruling results in a reduced effective Swiss tax rate of approximately 11.5%. The current ruling expires at the end of 2015. If the ruling is not re newed in 2015, Swiss income would be taxable at the full Swiss tax rate of approximately 24.2%.

Equity in Earnings of Unconsolidated Investees

In the third quarter of fiscal 2006, we entered into an agreement to form Woongjin Energy, a joint venture to manufacture monocrystalline silicon ingots. ~~This joint venture~~Woongjin Energy is located in South Korea and began manufacturing in the third

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quarter of fiscal 2007. In the fourth quarter of fiscal 2007, we entered into an agreement to form First Philec Solar, a joint venture to provide wafer slicing services of silicon ingots. This joint venture is located in the Philippines and became operational in the second quarter of fiscal 2008. On May 27, 2010, ~~we, through~~ our subsidiaries SunPower Technology, Ltd. (“("SPTL") and AUOSP, entered into a joint venture agreement with AU Optronics Singapore Pte. Ltd. ("AUO"), and AU ~~Optro nics~~Optronics Corporation, the ultimate parent company of AUO (“("AUO ~~Taiwan”~~Taiwan"). The joint venture transaction closed on July 5, 2010 and we, through SPTL, and AUO each own 50% of the joint venture AUOSP. AUOSP owns a solar cell manufacturing facility ("FAB3") in Malaysia and will manufacture and sell solar cells on a ~~“cost-plus”~~"cost-plus" basis to us and AUO. AUOSP became operational in the fourth quarter of fiscal 2010 with construction to continue through fiscal ~~2013.~~2014. We account for these investments using the equity method, in which the equity investments are classified as ~~“Other~~"Other long-term ~~assets”~~assets" in the Consolidated Balance Sheets and our share of the investees’ earnings (loss) is included in ~~“Equity~~"Equity in earnings of unconsolidated ~~investees”~~investees" in the Consolidated Statements of Operations. For additional details see Note 910 of Notes to Consolidated Financial Statements.

Income from Discontinued Operations, Net of Taxes

In connection with our strategic acquisition of SunRay Malta Holdings Limited ~~(“SunRay”~~("SunRay") on March 26, 2010, we acquired a ~~SunRay~~ project company, Cassiopea PV S.r.l ~~(“Cassiopea”~~("Cassiopea"), operating a previously completed 20 MWac solar power plant in Montalto di Castro, Italy. In the period in which our asset is classified as held-for-sale, we are required to segregate for all periods presented the related assets, liabilities, and results of operations associated with that asset as discontinued ~~operation s.~~operations. On August 5, 2010, we sold Cassiopea, including all related assets and liabilities. Cassiopea's results of operations for fiscal 2010 are classified as ~~“Income~~"Income from discontinued operations, net of ~~taxes”~~taxes" in our Consolidated Statement of Operations. Unless otherwise stated, the discussion below pertains to our continuing operations. For additional details see Note 4 of Notes to Consolidated Financial Statements.

Critical Accounting ~~Policies and~~ Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“("U.S. ~~GAAP”~~GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our most critical ~~policies include:~~estimates and judgments are associated with: (a) revenue recognition, which impacts the recording of revenue; (b) allowance for doubtful accounts and sales returns, which impact revenue and SG&A expense; (c) warranty reserves, which impact cost of revenue and gross margin; (d) valuation of inventories, which impacts cost of revenue and gross margin; (e) valuation of stock-based compensation expense, which impacts cost of revenue, R&D and SG&A expense; (f) equity in earnings of unconsolidated investees, which impacts net income (loss); (g) accounting for business combinations, which impacts fair value of goodwill and other intangible assets; (h) valuation of long-lived assets, which impacts impairments of property, plant and equipment, project assets and other intangible assets; (i) goodwill impairment testing, which impacts our measurement of potential impairment of our goodwill; (j) fair value of financial instruments, valuation of debt without the conversion feature and valuation of share lending arrangements, which impacts net income (loss); and (k) accounting for income taxes, which impacts our tax provision. We also have other key accounting policies that are less subjective and, therefore, ~~judgmen ts~~judgments in their application would not have a material impact on our reported results of operations. The following is a discussion of our most critical ~~policies~~estimates and judgments as of and for the year ended January ~~2, 2011, as well as the estimates and judgments involved.~~1, 2012.

Revenue Recognition

Solar Power Products

We sell our solar panels and balance of system components primarily to dealers, system integrators and distributors, and recognize revenue, net of accruals for estimated sales returns, when persuasive evidence of an arrangement exists, delivery of the product has occurred, title and risk of loss has passed to the customer, the sales price is fixed or determinable, collectability of the resulting receivable is reasonably assured and the rights and risks of ownership have passed to the customer. Other than

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standard warranty obligations, there are no rights of return and there are no significant post-shipment obligations, including installation, training or customer acceptance clauses with any of our customers that could have an impact on revenue recognition. Our revenue recognition policy is consistent across all geographic areas.

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Construction Contracts

Revenue is also comprised of EPC projects which are governed by customer contracts that require us to deliver functioning solar power systems and are generally completed within three to twelve months from commencement of construction. We recognize revenue from fixed price construction contracts using the percentage-of-completion method of accounting. Under this method, revenue arising from fixed price construction contracts is recognized as work is performed based on the percentage of incurred costs to estimated total forecasted costs.

Incurred costs used in our percentage-of-completion calculation include all direct material, labor, subcontract costs, and those indirect costs related to contract performance, such as indirect labor, supplies, and ~~t ools.~~tools. Project material costs are included in incurred costs when the project materials have been installed by being permanently attached or fitted to the solar power system as required by the project’s engineering design.

In addition to an EPC deliverable, a limited number of arrangements also include multiple deliverables such as post-installation systems monitoring and maintenance. For contracts with separately priced monitoring and maintenance, we recognize revenue related to such separately priced elements over the contract period. For contracts including monitoring and maintenance not separately priced, we determined that post-installation systems monitoring and maintenance qualify as separate units of accounting. Such post-installation monitoring and ~~maintenan ce~~maintenance are deferred at the time the contract is executed and are recognized to revenue over the contractual term. The remaining EPC revenue is recognized on a percentage-of-completion basis.

In addition, when arrangements include contingent revenue clauses such as penalty payments or customer termination or put rights for non-performance, we defer the contingent revenue until such time as the contingencies expire. In certain limited cases, we could be required to buy-back a customer’s system at fair value on specified future dates if certain minimum performance thresholds are not met for periods of up to two years. To date, no such repurchase obligations have been triggered.

Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first becomes probable and reasonably estimable. Contracts may include profit incentives such as milestone bonuses. These profit incentives are included in the contract value when their realization is reasonably assured.

Development Projects

We develop and sell solar power plants which generally include the sale or lease of related real estate. Revenue recognition for these solar power plants require adherence to specific guidance for real estate sales, which provides that if we hold control over land or land rights prior to the execution of an EPC contract, we recognize revenue and the corresponding costs when all of the following requirements are met: the sale is consummated, the buyer's initial and any continuing investments are adequate, the resulting receivables are not subject to subordination and we have transferred the customary risk and rewards of ownership to the buyer. In general, a sale is consummated upon the execution of an agreement documenting the terms of the sale and a minimum initial payment by the buyer to substantiate the transfer of risk to the buyer. This may require us to defer revenue during construction, even if a sale was consummated, until we receive the ~~b uyer's~~buyer's initial investment payment, at which time revenue would be recognized on a percentage-of-completion basis as work is completed. Our revenue recognition methods for solar power plants not involving real estate remain subject to our historical practice using the percentage-of-completion method.

Allowance for Doubtful Accounts and Sales Returns

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make ~~req uired~~required payments. A considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts receivables. We make our estimates of the collectability of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends.

In addition, at the time revenue is recognized from the sale of solar panels and balance of system components, we record estimates for sales returns which reduce revenue. These estimates are based on historical sales returns, analysis of credit memo data, and other known factors. Actual returns could differ from these estimates.

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Warranty Reserves

We generally warrant or guarantee the performance of our solar panels that we manufacture at certain levels of power output for 25 years. In addition, we pass through to customers long-term warranties from the original equipment manufacturers

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("OEMs") of certain system components, such as inverters. Warranties of 25 years from solar panel suppliers are standard in the solar industry, while inverters typically carry warranty periods ranging from 5 to 10 years. In addition, we generally warrant our workmanship on installed systems for periods ranging up to 10 years. We maintain reserves to cover the expected costs that could result from these warranties. Our expected costs are generally in the form of product replacement or repair. Warranty reserves are based on our best estimate of such costs and are recognized as a cost of revenue. We continuously monitor product returns for warranty failures and maintain a reserve for the related warranty expenses based ~~o n~~on various factors including historical warranty claims, results of accelerated lab testing, field monitoring, vendor reliability estimates, and data on industry averages for similar products. Historically, warranty costs have been within management’s expectations. For additional details see Note 89 of Notes to Consolidated Financial Statements.

Valuation of Inventories

Inventories are valued at the lower of cost or market value. We evaluate the recoverability of our inventories ~~bas ed~~based on assumptions about expected demand and market conditions. Our assumption of expected demand is developed based on our analysis of bookings, sales backlog, sales pipeline, market forecast and competitive intelligence. Our assumption of expected demand is compared to available inventory, production capacity, available third-party inventory and growth plans. Our factory production plans, which drive materials requirement planning, are established based on our assumptions of expected demand. Historically, expected demand has been within our assumptions with the exception of the first quarter in fiscal 2009 when revenue was lower than our internal forecast due to a long winter season in Europe, primarily in Germany, and challenging business conditions due to the uncertain economic environment and tight credit conditions which negatively influenced overall demand and timing of customers’ buying decisions. We respond to reductions in expected demand by temporarily reducing manufacturing output and ~~adjust ing~~adjusting expected valuation assumptions as necessary. In addition, expected demand by geography has changed historically due to changes in the availability and size of government mandates and economic incentives.

We evaluate the terms of our long-term agreements with suppliers, including joint ventures, for the procurement of polysilicon, ingots, wafers, solar cells, and solar panels and establish accruals for estimated losses on adverse purchase commitments as necessary, such as lower of cost of market value adjustments, forfeiture of advanced deposits and liquidated damages.

Other market conditions that could impact the realizable value of our inventories and are periodically evaluated by management include the aging of inventories on hand, historical inventory turnover ratio, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing products, product obsolescence, customer concentrations, product merchantability, and other factors. If we determine that the cost of inventories exceeds its estimated market value based on assumptions about expected demand and market conditions, ~~including the replacement costs of raw materials,~~ we record a write-down equal to the difference between the cost of inventories and the estimated market value. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required that could negatively impact our gross margin and operating results. If actual market ~~con ditions~~conditions are more favorable, we may have higher gross margin when products that have been previously written down are sold in the normal course of business. For additional details see Note 6 of Notes to Consolidated Financial Statements.

Stock-Based Compensation

We provide share-based awards to our employees, executive officers and directors through various equity compensation plans including our employee stock option and restricted stock plans. We measure and record compensation expense for all share-based payment awards based on estimated fair values. The fair value of ~~stock option awards is measured at the date of grant using a Black-Scholes option pricing model, and the fair value of~~ restricted stock awards and units is based on the market price of our ~~class A~~ common stock on the date of grant. We have not granted stock options insubsequent to fiscal ~~2009 or 2010.~~2008.

In determining fair value using the Black-Scholes option pricing model, management is required to make certain estimates of the key assumptions such as expected life, expected volatility, dividend yields and risk free interest rates. The estimates of these key assumptions involve judgment regarding subjective future expectations of market price and trends. The assumptions used in determi ning expected life and expected volatility have the most significant effect on calculating the fair value of share-based awards. We utilized the simplified method for estimating expected term, instead of our historical exercise data. Starting in fiscal 2008, we compute the expected volatility for our equity awards based on our historical volatility from traded options with a term of 6.5 years. If we were to determine that another method to estimate these assumptions was more reasonable than our current method, or if another method for calculating these assumptions were to be prescribed by authoritative guidance, the fair value for our share-based awards could change significantly. If the expected volatility and/or expected life were increased under our assumptions, then the Black-Scholes computations of fair value would also increase, thereby resulting in higher compensation costs being recorded.

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We are required under current accounting guidance to estimate forfeitures at the date of grant. Our estimate of forfeitures is based on our historical activity, which we believe is indicative of expected forfeitures. In subsequent periods if the actual rate of forfeitures differs from our estimate, the forfeiture rates may be revised, as necessary. Changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

We also grant performance share units to executive officers and certain employees that require us to estimate expected achievement of performance targets over the performance period. This estimate involves judgment regarding future expectations of various financial performance measures. If there are changes in our estimate of the level of financial performance measures expected to be achieved, the related share-based compensation expense may be significantly increased

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or reduced in the period that our estimate ~~chang es.~~changes.

Investments in Equity Interests

Investments in entities in which we can exercise significant influence, but do not own a majority equity interest or otherwise control, are accounted for under the equity method. We record our share of the results of these entities as ~~“Equity~~"Equity in earnings of unconsolidated ~~investees”~~investees" on the Consolidated Statements of Operations. We record our share of the results of Woongjin Energy and First Philec Solar in the same quarter and the results of AUOSP ~~wi th~~with a one quarter lag. To calculate our share of the investees’ income or loss, we adjust the net income (loss) of each joint venture to conform to U.S. GAAP and multiply that by our equity investment ownership percentage.

Variable Interest Entities ("VIE")

We regularly evaluate our relationships with Woongjin Energy, First Philec Solar and AUOSP to determine if we have a controlling financial interest in the VIEs and therefore become the primary beneficiary of the joint ventures ~~r equiring~~requiring us to consolidate their financial results into our financial statements. We do not consolidate the financial results of Woongjin Energy, First Philec Solar and AUOSP as we have concluded that we are not the primary beneficiary of these joint ventures. Although we are obligated to absorb losses or have the right to receive benefits from the joint ventures that are significant to the entities, such variable interests held by us do not empower us to direct the activities that most significantly impact the joint ventures' economic performance. For additional details see Note 910 of the Notes to Consolidated Financial Statements for discussions of our joint ventures.

In connection with the sale of the equity interests in the entities that hold solar power plants, we ~~als o~~also consider if we retain a variable interest in the entity sold, either through retaining a financial interest or by contractual means. If we determine that the entity sold is a VIE and that we hold a variable interest, we then evaluate whether we are the primary beneficiary. The entity that is the primary beneficiary consolidates the VIE. The determination of whether we are the primary beneficiary is based upon whether we have the power to direct the activities that most directly impact the economic performance of the VIE and whether we absorb any losses or benefits that would be potentially significant to the VIE. To date, there have been no sales of entities holding solar power plants in which we have concluded that we are the primary beneficiary after the sale.

Accounting for Business Combinations

We record all acquired assets and liabilities, including goodwill, other intangible assets and in-process research and development, at fair value. The initial recording of goodwill, other intangible assets and in-process research and development requires certain estimates and assumptions concerning the determination of the fair values and useful lives. The judgments made in the context of the purchase price allocation can materially impact our future results of operations. Accordingly, for significant acquisitions, we obtain assistance from third-party valuation specialists. The valuations calculated from estimates are based on information available at the acquisition date. Goodwill is not ~~amo rtized~~amortized, but is subject to annual tests for impairment or more often if events or circumstances indicate it may be impaired. Other intangible assets are amortized over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. For additional details see Notes 3 and 5 of Notes to Consolidated Financial Statements.

Valuation of Long-Lived Assets

Our long-lived assets include property, plant and ~~equipmen t,~~equipment, project assets and other intangible assets with finite lives. Our business requires heavy investment in manufacturing facilities that are technologically advanced, but can quickly become significantly under-utilized or rendered obsolete by rapid changes in demand for solar power products produced in those facilities.

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We evaluate our long-lived assets 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. 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, we record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. Fair value is generally ~~meas ured~~measured based on either quoted market prices, if available, or discounted cash flow analyses.

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Goodwill Impairment Testing

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 ~~considere d~~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.

We conduct our 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 our reporting unit level. Management determined that the UPP Segment and R&C Segment each have two reporting units. The two reporting units of the UPP Segment are the systems business and the components business. The two reporting units of the R&C Segment are the North American commercial business and the residential and light ~~commerc ial~~commercial business. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. In estimating the fair value of the reporting units, we make estimates and judgments about our future cash flows using an income approach defined as Level 3 inputs under fair value measurement standards. The income approach, specifically a discounted cash flow analysis, included assumptions for, among others, forecasted free cash flow, perpetual growth rates and long-term discount rates, all of which require significant judgment by management. The sum of the fair values of our reporting units are also compared to our external market capitalization to determine the appropriateness of our assumptions (i.e. the discounted cash flow analysis) and to reduce the fair values of our reporting units, if appropriate. These assumptions took into account the current economic environment and its impact on our business. Based on the impairment test as of th e third fiscal quarter ended October 3, 2010 for the fiscal year ended January 2, 2011, the fair value of each reporting unit exceeded the carrying value under the first step of the goodwill impairment test. Therefore, we determined that goodwill is not impaired. In the event that management determines that the value of goodwill has become impaired, we will incur an accounting charge for the amount of the impairment during the fiscal quarter in which the determination is made. For additional details see Notes 3 and 5 of Notes to Consolidated Financial Statements.

Fair Value of Financial Instruments

Certain of our financial assets and financial liabilities, specifically our cash, cash equivalents, restricted cash, restricted cash equivalents, available-for-sale securities, foreign currency derivatives, interest rate swaps derivatives and convertible debenture derivatives are carried at fair value in our Consolidated Financial Statements. Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We enter into over-the-counter ~~(“OTC”~~("OTC") foreign currency derivatives and use various valuation techniques to derive the value of option and forward contracts. In determining fair value, we use the market and income approaches. Current accounting guidance provides a hierarchy for inputs used in measuring fair value that maximizes the use of ~~observa ble~~observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about market participants assumptions used in pricing the asset or liability, developed based on the best information available in the circumstances. As such, fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity specific measure. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Financial assets utilizing Level 1 inputs include most money market funds.

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• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly. Financial assets utilizing Level 2 inputs include bank notes, debt securities, foreign currency option contracts, forward exchange contracts, interest rate swaps derivatives and convertible debenture derivatives. The selection of a particular technique to value a derivative depends upon the contractual term of, and specific risks inherent with, the instrument as well as the availability of pricing information in the market. We generally use similar techniques to value similar instruments. Valuation techniques utilize a variety of inputs, including contractual terms, market prices, yield curves, credit curves and measures of volatility. For derivatives that trade in ~~l iquid~~liquid markets, such as generic forward, option and swap contracts, inputs can generally be verified and selections do not involve significant management judgment.

• Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Financial assets utilizing Level 3 inputs include certain money market funds. We use the market approach to estimate

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the price that would be received to sell certain money market funds in an orderly transaction between market participants ("exit price"). We reviewed the underlying holdings and estimated the price of underlying fund holdings to estimate the fair value of these funds.

Availability of observable inputs can vary from instrument to instrument and to the extent that valuation is based on inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by our management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Unrealized gains and losses of our available-for-sale securities and the effective portion of foreign currency derivatives are excluded from earnings and reported as a component of accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. To the extent our foreign currency derivatives are not effective hedges, unrealized gains or losses are included in earnings. Similarly, the change in fair value of our interest rate swaps derivatives and convertible debenture derivatives are included in earnings. Additionally, we assess whether an other-than-temporary impairment loss on our available-for-sale securities has occurred due to declines in fair value or other market conditions. Declines in fair value that are considered other-than temporary are recorded in ~~“Other, net”~~"Other, net" in the Consolidated Statements of Operations.

In general, investments with original maturities of greater than ninety days and remaining maturities of one year or less are classified as short-term investments. Investments with maturities beyond one year may also be classified as short-term based on their highly liquid nature and because such investments represent the investment of cash that is available for current operations. For additional details see Note 7 of Notes to Consolidated Financial Statements.

~~Valua tion~~Valuation of Certain Convertible Debt

Convertible debt instruments that may be settled in cash upon conversion require recognition of both the liability and equity components in the Consolidated Financial Statements. 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 accounting guidance also requires an accretion of the resulting debt discount over the expected life of the ~~conver tible~~convertible debt.

In February 2007, we issued $200.0 million in principal amount of our 1.25% senior convertible debentures (“("1.25% ~~debentures”~~debentures") to Lehman Brothers Inc. (“("Lehman ~~Brothers”~~Brothers"). In July 2007, we issued $225.0 million in principal amount of our 0.75% senior convertible debentures (“("0.75% ~~debentures”~~debentures") to Credit Suisse Securities (USA) LLC (“("Credit ~~Suisse”~~Suisse"). The 1.25% debentures and the 0.75% debentures contain partial cash settlement features and are therefore subject to the aforementioned accounting guidance. We estimated that the effective interest rate for similar debt without the conversion feature was 9.25% and 8.125% on the 1.25% debentures and 0.75% debentures, respectively. The resulting debt ~~dis count~~discount is amortized to non-cash interest expense under the interest method through the first date the debt holders can require us to repurchase their debentures. For additional details see Note 1011 of Notes to Consolidated Financial Statements.

Valuation of Share Lending Arrangements

~~In June 2009, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that changed how companies account for share~~Share lending arrangements ~~that were~~ executed in connection with convertible debt offerings or other

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financings. The new accounting guidance requires all such share lending arrangements to be valued and amortized as interest expense in the same manner as debt issuance costs. As a result of the new accounting guidance, existing share lending arrangements relating to our class A common stock financings are required to be measured at fair value and amortized as interest expense in our Consolidated ~~Financial Statements.~~Statement of Operations in the same manner as debt issuance costs. In addition, in the event that counterparty default under the share lending arrangement becomes probable, we are required to recognize an expense in our Consolidated Statement of Operations equal to the then fair value of the unreturned loaned shares, net of any probable recoveries. ~~We adopted the new accounting guidance effective January 4, 2010, the start of our fiscal year, and applied it retrospectively to all prior periods as required by the guidance.~~

We have two historical share lending ~~arrangements subject to the new guidance.~~arrangements. In connection with the issuance of our 1.25% debentures and 0.75% debentures, we loaned 2.9 million shares of our former class A common stock to LBIE and 1.8 million shares of our former class A common stock to Credit Suisse International ("CSI") under share lending arrangements. ~~Application~~Retroactive application of the ~~new~~above accounting guidance, as required in fiscal 2010, resulted in higher non-cash amortization of imputed share lending costs ~~in the current and prior periods,~~ as well as a significant non-cash loss resulting from Lehman Brothers Holding Inc. ("Lehman") filing 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. On December 16, 2010, we entered into an assignment agreement with Deutsche Bank AG - London Branch ("Deutsche Bank") under which we assigned to Deutsche Bank our claims against LBIE and Lehman in connection with the share lending arrangement. Under the assignment agreement, Deutsche Bank paid us $24.0

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million for the claims on December 16, 2010, and we may receive, ~~upo n~~upon the final allowance or admittance of the claims in the U.K. and U.S. proceedings, an additional payment for the claims. We cannot predict the amount of any such payment for the claims and cannot guarantee that we will receive any additional payment for the claims. The ~~fair value of the 2.9 million shares of our class A common stock loaned and unreturned by LBIE at the time of the bankruptcy was $213.4 million, and the~~ amount recovered under the assignment agreement on December 16, 2010 was $24.0 million ~~which~~and was reflected ~~in the third quarter of fiscal 2008 and fourth quarter of fiscal 2010, respectively,~~ as "Gain ~~(loss)~~ on share lending arrangement" in our Consolidated Statements of ~~Operations.~~Operations in fiscal 2010. For additional details see ~~Notes 1 and 10~~Note 11 of Notes to Consolidated Financial Statements.

Accounting for Income Taxes

Our global operations involve manufacturing, R&D, selling and project development activities. Profit from non-U.S. activities is subject to local country taxation, but not subject to United States tax until repatriated to the United States. It is our intention to indefinitely reinvest these earnings outside the United States. We record a valuation allowance to reduce our U.S. deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for a valuation allowance, we consider historical levels of income, expectations and risks associated with the estimates of future taxable income and ongoing prudent and feasible tax planning strategies. In ~~th e~~the event we determine that we would be able to realize additional deferred tax assets in the future in excess of the net recorded amount, or if we subsequently determine that realization of an amount previously recorded is unlikely, we would record an adjustment to the deferred tax asset valuation allowance, which would change income tax in the period of adjustment. As of January ~~2, 2011,~~1, 2012, we believe there is insufficient evidence to realize additional deferred tax assets, although it is ~~reasonably~~ possible that a reversal of the valuation allowance, which could be material, could occur in fiscal ~~2011.~~2012.

The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential ~~liabilitie s~~liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate tax assessment, a further charge to expense would result. We accrue interest and penalties on tax contingencies which are classified as ~~“Provision~~"Provision for income ~~taxes”~~taxes" in the Consolidated Statements of Operations and are not considered material. For additional details see Note 1213 of Notes to Consolidated Financial Statements.

Pursuant to the Tax Sharing Agreement with Cypress, we are obligated to indemnify Cypress upon current utilization of carryforward tax attributes generated while we were part of the Cypress consolidated or combined group. Further, to the extent Cypress experiences any tax examination assessments attributable to our operations while part of the Cypress consolidated or combined group, Cypress will require an indemnification from us for those aspects of the assessment that relate to our operations. See also "Item 1A: Risk Factors" including “"Our agreements with Cypress require us to indemnify Cypress for certain tax liabilities. These indemnification obligations and related contractual restrictions may limit our ability to pursue certain business initiatives.”"

In addition, foreign exchange gains (losses) may result from estimated tax liabilities, which are expected to be realized in

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~~c urrencies~~ currencies other than the U.S. dollar.

Results of Operations

~~Fiscal Years~~

We report results of operations on the basis of 52- or 53-week p eriods, ending on the Sunday closest to December 31. Fiscal 2010 ended on January 2, 2011, fiscal 2009 ended on January 3, 2010 and fiscal 2008 ended on December 28, 2008. Each of fiscal 2010 and 2008 consisted of 52 weeks while fiscal 2009 consisted of 53 weeks.

~~Seasonal Trends~~

Our business is subject to industry-specific seasonal fluctuations. Sales have historically reflected these seasonal trends with the largest percentage of total revenues realized during the last two calendar qu arters of a fiscal year. Lower seasonal demand normally results in reduced shipments and revenues in the first two calendar quarters of a fiscal year. There are various reasons for this seasonality, mostly related to economic incentives and weather patterns. For example, in European countries with feed-in tariffs, the construction of solar power systems may be concentrated during the second half of the calendar year, largely due to the annual reduction of the applicable minimum feed-in tariff and the fact that the coldest winter months are January through March. In the United States, customers will sometimes make purchasing decisions towards the end of the year in order to take advantage of tax credits or for other budgetary reasons. In addition, sales in the new home development market are often tied to construction market demands which tend to follow national trends in construction, including declining sales during cold weather months.

Revenue


	Year Ended
(Dollars in thousands)	January 2, 2011		January 3, 2010		;	December 28, 2008
								Year Ended
(In thousands)								January 1, 2012		January 2, 2011		January 3, 2010
Utility and power plants	$	1,186,054	$	653,531		$	742,432	$	1,064,144	$	1,186,054	$	653,531
Residential and commercial	1,033,176		870,752			695,162		1,248,350		1,033,176		870,752
Total revenue	$	2,219,230	$	1,524,283		$	1,437,594	$	2,312,494	$	2,219,230	$	1,524,283

Total Revenue: During fiscal 2011, 2010, and 2009 our total revenue was $2,312.5 million, $2,219.2 million ~~and~~, $1,524.3 million, ~~respectively, an~~respectively. The increase in total revenue of ~~46%~~4% ~~year-over-year, and we expect our total revenue to increase~~ in fiscal 2011 as compared to fiscal 2010 was primarily attributable to revenue from the development of several large scale projects in North America and Europe, as well as the continuous growth of our third-party global dealer network to adjust to demand in the geographical regions in which we ~~continue to expand~~do business. In fiscal 2011 and 2010, we recognized revenue on 765.8 MW and 558.5 MW, respectively, of solar power products sold through both our ~~sales across our~~

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UPP ~~and~~& R&C Segments. ~~Our fiscal 2009 total revenue increased~~ 6% ~~compared to our total revenue in fiscal 2008.~~ The increase in our total revenue was partially offset by declining average selling prices and mix of our solar power products. The increase in total revenue of 46%in fiscal 2010 as compared to fiscal 2009 is primarily attributable to revenue related to the sale of several large scale projects, including projects acquired through our acquisition of SunRay in March 2010, that were completed and monetized, as well as growing demand for our solar power products in the residential and commercial markets in the United States and Europe as a result of favorable renewable energy policies. ~~The increase in our total revenue in fiscal 2009 as compared to 2008 resulted from strong demand in multiple geographies and market segments despite the difficult economic and credit environment.~~

Sales outside the United States represented approximately ~~71%~~49%, 71%, and 57% ~~and64%~~of ~~our~~ total revenue for fiscal 2011, 2010, and 2009, respectively. The shift in revenue by geography in fiscal 2011 as compared to fiscal 2010 was due to increasing demand in the United States for our solar power products due to additional federal and ~~2008, respectively.~~state initiatives supporting attractive solar incentives within the residential, commercial, and utility sectors as well as a slowdown in project development and component shipments in Europe due to changes in government incentives. The shift in revenue by geography in fiscal 2010 as compared to ~~revenue reported in~~fiscal 2009 iswas due to the sale of several large scale projects completed or under construction in Italy during fiscal 2010.

Concentrations: The ~~change~~table below represents our significant customers which accounted for greater than 10 percent of total revenue, accounts receivable, or costs and estimated earnings in ~~geography mix in~~excess of billings during fiscal 2009 as compared to 2008 is primarily due to: (i) the expiration of an attractive governmental feed-in tariff in Spain in September 2008; (ii) the construction of a 25 MWac solar power plant in Desoto County, Florida in 2009; (iii) revenue growth in the United States, particularly in California, due to federal, state2011, 2010, and ~~local government incentives; and (iv) the growth of our third-party global dealer network.~~

~~Concentrations:~~2009. We ~~have three~~had no customers that ~~each~~ accounted for 10 percent or more of ~~our~~ total revenue in fiscal 2011. We entered into a project contract with one of our customers in the United States in fiscal 2011, which is anticipated to account for 10 percent or more of total revenue in fiscal ~~years 2010, 2009 and 2008 as follows:~~2012.

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Year Ended

~~(As a percentage of total revenue)~~Revenue

January 1, 2012

January 2, 2011

January 3, 2010

~~December 28, 2008~~

Significant ~~Customers:~~

Customer:

Business Segment

Customer A

Utility and power plants

~~UPP~~

~~&nbs p;~~

Customer B

~~UPP~~Utility and power plants

As of

Accounts receivable

January 1, 2012

January 2, 2011

Significant Customer:

Business Segment

Customer C

Utility and power plants

~~UPP~~

Customer D

~~UPP~~Utility and power plants

* denotes less than 10% during the period



		As of
Cost in excess of billings		January 1, 2012		January 2, 2011
Significant Customer:	Business Segment
Customer E	Utility and power plants	21	%	*
Customer F	Utility and power plants	*		17	%
Customer G	Utility and power plants	*		15	%


*	denotes less than 10% during the period

UPP ~~Segment~~ Revenue: ~~Our~~ UPP revenue for fiscal 2011, 2010, and 2009 ~~and 2008~~ was$1,064.1 million, $1,186.1 million, ~~$653.5 millio n~~and $~~742.4~~653.5 million, respectively, which accounted for ~~53%~~46%, ~~43%~~53%, and ~~52%~~43%, respectively, of ~~our~~ total revenue. UPP revenue in fiscal 2011 decreased 10% as compared to fiscal 2010 primarily due to changes in European government incentives which had a materially negative effect on the market for solar systems, particularly large-scale solar products and systems in Europe, and caused our earnings related to such projects to decline in Europe. This decrease was partially offset by an increase in component sales period over period, particularly in North America. We recognized revenue on 229.3 MW and 118.6 MW of component sales in fiscal 2011 and 2010, respectively. The UPP Segment further recognized revenue under the percentage-of-completion method for several power plants including three solar power plants under construction in the United States totaling 60 MW and the completion of a 20 MW solar power plant in Ontario, Canada. In addition, in fiscal 2011, our UPP Segment completed and sold two power plants in Italy totaling 14 MW.

UPP revenue in fiscal 2010 increased 81% as compared to ~~revenue reported in~~ fiscal 2009 primarily due to revenue related to ~~th e~~the sale of

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several large scale development projects ~~acquired from SunRay primarily~~ in Italy acquired and sold as part of our acquisition of SunRay in March 2010 as well as an increase in the number of EPC contracts. In the second half of fiscal 2010 our UPP Segment completed the sale of 44 ~~MWac~~MW and 8 ~~MWac~~MW solar power plants in Montalto di Castro Italy to a consortium of international investors, and a 13 ~~MWac~~MW solar power plant in Anguillara, Italy to another customer. The UPP Segment further recognized revenue under the percentage-of-completion method for several ~~solar~~ power plants totaling ~~27.6 MWac~~28 MW in the Sicily region and Piedmont region of Italy, a 20 ~~MWac~~MW solar power plant in Toronto, Canada and a 17 ~~MWac~~MW solar power plant in Colorado. In addition, in fiscal 2010 our UPP Segment began providing solar panels and balance of system components to a utility customer in the United States under a large five-year supply contract.

In fiscal 2009, our UPP Segment recognized revenue from the construction of a 20 ~~MWac~~MW solar power plant for SunRay (in its capacity as our third-party customer) in Montalto di Castro, Italy prior to our acquisition of that company. In addition, our UPP Segment completed the construction of a 25 ~~MWac~~MW solar power plant in Desoto County, Florida and began the construction of a 10 ~~MWac~~MW solar power plant at the Kennedy Space Center in Florida.

In fiscal 2008, our UPP Segment benefited from strong solar power plant demand in Europe, primarily in Spain, and reflected the installation of more than 40 MWac of Spanish based projects before the expiration of a g overnmental feed-in tariff in September 2008.

R&C ~~Segment~~ Revenue: ~~Our~~ R&C revenue for fiscal 2011, 2010, and 2009 ~~and 2008~~ was$1,248.4 million, $1,033.2 million, ~~$870.8 million~~and $~~695.2~~870.8 million, respectively, or ~~47%~~54%, ~~57%~~47%, and ~~48%~~57%, respectively, of ~~our~~ total revenue. ~~During~~R&C revenue in fiscal 2011 increased 21% as compared to fiscal 2010 due to growing demand for our solar power products in the residential and commercial markets, specifically in rooftop and ground-mounted commercial projects in North America, particularly the United States, due to federal state and local initiatives supporting solar power projects. In fiscal 2011 we recognized revenue on 385.2 MW of solar power products sold through our R&C Segment as compared to 274.6 MW in fiscal 2010. In fiscal 2011, we additionally entered into new residential and commercial markets in Belgium and the United Kingdom and further expanded in Germany. We additionally expanded our third-party global dealer network which was composed of more than 1,800 dealers worldwide at the end of fiscal 2011, an increase of approximately 20% from fiscal 2010. These increases were partially offset by the change in European government incentives which adversely impacted the overall market for solar products and further drove down average selling prices in all regions.

R&C revenue in fiscal 2010 increased 19% as compared to ~~revenue reported in~~fiscal 2009 primarily due to growing demand for our solar power products in the residential and commercial markets in both the United States and Europe, and in part due to our introduction of an additional product series in fiscal 2010 with increased solar panel efficiency and module configuration. ~~The R&C revenue increase in~~In fiscal 2010 was primary driven by demand in Germany, Italy and the United Stat es, particularly in California and New Jersey, due to federal, state and local government incentives and strong demand in the residential and small commercial roof-top markets through our third-party global dealer network in both Europe and the United States. In addition, the R&C Segmentwe additionally began construction on several large commercial projects in New Jersey. ~~Our third-party global dealer network was composed of approximately 1,500 dealers worldwide at the end of fiscal 2010.~~

In fiscal 2009, R&C revenue was primary driven by demand in Germany, Italy and the United States, particularly in California, due to federal, state and local government incentives and strong demand in the residential and small commercial roof-top markets throug h our third-party global dealer network in both Europe and the United States. In addition, the R&C Segment completed the construction of an 8 MWac solar power plant in Chicago, Illinois.

In fiscal 2008, R&C revenue was primarily due to strong demand in the residential and small commercial roof-top markets through our third-party global dealer network in both Europe and the United States. We added approximately ~~500~~ ~~dealers,~~ ~~500~~ ~~dealers and~~ ~~350~~ ~~dealers during each of fiscal 2010, 2009 and 2008, respectively.~~

Cost of Revenue

Details of cost of UPP revenue are as follows:

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										UPP
	Year Ended									Year Ended
(Dollars in thousands)	January 2, 2011			January 3, 2010			December 28, 2008			January 1, 2012			January 2, 2011			January 3, 2010
Amortization of other intangible assets	$	2,762		$	2,732		$	2,728		$	272		$	2,762		$	2,732
Stock-based compensation	7,608			5,808			8,690			5,706			7,608			5,808
Non-cash interest expense	5,412			1,231			329			1,323			5,412			1,231
Impairment of long-lived assets	—			—			2,203
Change in European government incentives										32,708			—			—
Materials and other cost of revenue	892,544			517,079			520,424			927,067			892,544			517,079
Total cost of UPP revenue	$	908,326		$	526,850		$	534,374
Total cost of UPP revenue as a percentage of UPP revenue	77		%	81		%	72		%
Total UPP gross margin percentage	23		%	19		%	28		%
Total cost of revenue										$	967,076		$	908,326		$	526,850
Total cost of revenue as a percentage of revenue										91		%	77		%	81		%
Total gross margin percentage										9		%	23		%	19		%

Details of cost of R&C revenue are as follows:

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	Year Ended
R&C
										Year Ended
(Dollars in thousands)										January 1, 2012			January 2, 2011			January 3, 2010
Amortization of other intangible assets	$	7,644		$	8,465		$	9,268		$	195		$	7,644		$	8,465
Stock-based compensation	8,121			8,190			10,199			7,481			8,121			8,190
Non-cash interest expense	1,495			1,508			465			1,241			1,495			1,508
Change in European government incentives										23,007			—			—
Materials and other cost of revenue	783,751			695,550			533,667			1,085,290			783,751			695,550
Total cost of R&C revenue	$	801,011		$	713,713		$	553,599
Total cost of R&C revenue as a percentage of R&C revenue	78		%	82		%	80		%
Total R&C gross margin percentage	22		%	18		%	20		%
Total cost of revenue										$	1,117,214		$	801,011		$	713,713
Total cost of revenue as a percentage of revenue										89		%	78		%	82		%
Total gross margin percentage										11		%	22		%	18		%

Total Cost of Revenue: Our cost of revenue will fluctuate from period to period due to the mix of projects completed and recognized as revenue, in particular between large utility projects and large commercial installation projects. The cost of solar panels is the single largest cost element in our cost of revenue. Other cost of revenue associated with the construction of solar power systems includes real estate, mounting systems, inverters, third-party contract manufacturer costs, construction subcontract and dealer costs. In addition, other factors contributing to cost of revenue include amortization of other intangible assets, stock-based compensation, depreciation, provisions for estimated warranty claims, salaries, personnel-related costs, freight, royalties, facilities expenses and manufacturing supplies associated with contracting revenue and solar cell fabrication, as well as factory pre-operating costs associated with our manufacturing facilities.

During fiscal 2011, 2010, and 2009 total cost of revenue was $2,084.3 million, $1,709.3 million, and $1,240.6 million, respectively, which represented an increase of 22% and 38% period over period. The increase in total cost of revenue in fiscal 2011 as compared to fiscal 2010 is primarily due to a 37% increase in total MW of solar power products sold. Additionally contributing to the increase in total cost of revenue is $55.7 million in charges incurred in fiscal 2011 associated with the change in European government incentives, including (i) a $16.0 million write-down of project asset costs based on changes in fair value and our ability to develop, commercialize and sell active projects within Europe, and (ii) $39.7 million related to the write-down of third-party inventory and costs associated with the termination of third-party solar cell supply contracts resulting from lower demand and average selling price in certain areas of Europe. The increase in total cost of revenue is partially offset by lower material costs, higher yields as well as better factory utilization as a result of higher output generated at our manufacturing facilities and our AUOSP joint venture.

The increase in total cost of revenue in fiscal 2010 as compared to fiscal 2009 is primarily due to (i) increased sales volume; (ii) greater economies of scale as a result of lower material cost and better utilization; and (iii) an increase in output generated at our manufacturing facilities. During fiscal 2010, our two solar cell manufacturing facilities produced 577.7 ~~MWdc as compared to fiscal 2009~~ MW and ~~2008 when we produced~~ 397.4 ~~MWdc and~~ ~~236.9~~ ~~MWdc, respectively. Our manufacturing cost per watt decreased~~ MW in fiscal 2010 ~~as compared to~~and 2009, due to lower material cost and better material utilization as well as higher volume , resulting in increased economies of scale in production. We are working with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale.

~~During fiscal 2010, our total cost of revenue was~~ ~~$1,709.3 million, which represented an increase of~~ ~~38%~~ ~~as compared to the total cost of revenue reported in fiscal 2009.~~respectively. The increase in total cost of revenue ~~corresponds to the increase of~~ ~~46%~~ ~~in total revenue during fiscal 2010. As a percentage of total revenue, total cost of revenue decreased to~~ ~~77%~~in fiscal 2010 as compared to ~~81%~~ in fiscal ~~2009. The decrease~~2009 partially corresponds with an increase in total ~~cost~~revenue of ~~revenue~~46% over the same period as ~~a percentage of total revenue reflects: (i) reduced charges for inventory write-downs related to declining~~ average selling prices ~~of third-party solar panels of $1.4 million~~did not experience the significant declines as seen in fiscal ~~2010~~2011 as ~~compared to $15.3 million~~a result of the change in ~~2009; (ii) reduced large commercial balance of systems costs; and (iii) improvements attributable to continued manufacturing scale and reductions in~~European government incentives.

UPP Gross Margin: Gross margin for our ~~manufacturing cost per watt described above. Inventory written-down in fiscal 2009 that was sold in 2010 improved our gross margin by an immaterial amount in fiscal 2010.~~

~~During fiscal 2009, our total cost of revenue~~UPP Segment was $~~1,240.6~~97.1 million, ~~which represented an increase of~~ ~~14%~~ ~~as compared to the total cost of revenue reported in fiscal 2008. As a percentage of total revenue, our total cost of revenue increased to~~ ~~81%~~ ~~in fiscal 2009 as compared to~~ ~~76%~~ in fiscal 2008. This increase in total cost of revenue as a percentage of total revenue reflects: (i) lower factory utilization during the first half of fiscal 2009 due to our planned transition to a demand driven manufacturing strategy to reduce inventory levels; and (ii) the write-down and subsequent sale of inventory to its estimated market value in fiscal 2009 based on our assumptions about future demand and market conditions. This increase in total cost of revenue as a percentage of total revenue was partially offset by: (i) decreased costs of polysilicon; (ii) reduced expenses associated with the amortization of other intangible assets and stock-based compensation; and (iii) an asset i mpairment charge of $2.2 million in fiscal 2008 relating to the wind down of our imaging detector product line.

~~UPP Segment Gross Margin: Gross margin was~~ $277.7 million, and $126.7 million ~~and~~ ~~$208.1 million~~for fiscal 2011, 2010, ~~2009~~ and ~~2008,~~2009, respectively, or ~~23%~~9%, ~~19%~~23%, and ~~28%~~19%, respectively, of UPP revenue. UPP gross margin decreased in fiscal 2011 as compared to fiscal 2010 primarily due to an increase in costs on certain power plant projects under construction and reductions in the average selling price of components due to oversupply in the market. Also contributing to the decline in gross margin were charges relating to the change in European government incentives totaling $32.7 million including (i) a $16.0 million write-down of project asset costs to estimated fair value based on changes in our ability to develop, commercialize and sell active projects within Europe, and (ii) $16.7 million related to the write-down of acquired third-party inventory and costs associated with the termination of third-party solar cell supply contracts as described above. Partially offsetting the decline in gross margin for our UPP Segment was an increase in component sales in North America and Europe, which typically have higher gross margin percentages than our utility projects. In fiscal 2011, we recognized revenue on 229.3 MW of components as compared to 118.6 MW in fiscal 2010, an increase of 93% year over year. UPP gross margin increased in fiscal 2010 as compared to fiscal 2009 primarily due toto: (i) a greater proportion of sales from development projects in Italy which have higher gross margins due to customers paying a premium for turn-key fully developed power ~~plants. Additionally, gross margin increased due to~~plants, and (ii) reduced charges for inventory write-downs and subsequent sales of aged ~~third-party~~third party solar panels in fiscal 2010 as compared to fiscal 2009.

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R&C Gross Margin:Gross margin ~~decreased in fiscal 2009 as compared to 2008 due to: (i) lower average selling prices~~ for our solar power products; (ii) the write-down and subsequent sale of aged third-party solar panels to its estimated market value in 2009 based on our assumptions about future demand and market conditions; and (iii) our inability to reduce overhead costs incurred that are fixed in nature. This decrease in gross margin was partially offset by continued reduction in silicon costs.

R&C Segment ~~Gross Margin: Gross margin~~ was$131.1 million, $232.2 million, and $157.0 million ~~and~~ ~~$141.6 million~~for fiscal 2011, 2010, ~~2009~~ and ~~2008,~~2009, respectively, or ~~22%~~11%, ~~18%~~22%, and ~~20%~~18%, respectively, of R&C revenue. Gross margin decreased in fiscal 2011 as compared to fiscal 2010 primarily due to to: (i) overall reduction in average selling prices of our solar products; (ii) increased mix of third party panels in the first three quarters of fiscal 2011, which generally have a lower margin; and (iii) $23.0 million in charges related to the write-down of acquired third-party inventory and costs associated with the termination of third-party solar cell supply contracts as a result of the change in European government incentives as described above. These decreases were partially offset by increased activity and installations of rooftop and ground-mounted projects in the commercial sector in North America. R&C gross margin increased in fiscal 2010 as compared to fiscal 2009 primarily due to: (i) the reduction in large commercial balance of ~~systems costs;~~system cost, and (ii) improvements attributable to continued manufacturing scale and reductions in our manufacturing ~~cost per watt described above,~~costs, partially offset by reduced average selling prices of ~~our~~ solar power products. ~~Gross margin decreased in fiscal 2009 as compared to 2008 due to: (i) lower average selling prices for our solar power products; (ii) the write-down~~

Research and subsequent sale of aged third-party solar panels to its estimated market value in 2009 based on our assumptions about future demand and market conditions; and (iii) our inability to reduce overhead costs incurred that are fixed in nature. This decr ease in gross margin was partially offset by continued reduction in silicon costs.

Development ("R~~&D Expense~~

~~Details of R&D expense are as follows:~~

&D")

Year Ended
(Dollars in thousands) January 2, 2011 January 3, 2010 December 28, 2008
Sto ck-based compensation $ 7,555 $ 6,296 $ 3,988
O ther R&D 41,535 25,346 17,486
Total R&D $ 49,090 $ 31,642 $ 21,474

Total R&D as a percentage of revenue 2 % 2 % 1 %



	Year Ended
(Dollars in thousands)	January 1, 2012			January 2, 2011			January 3, 2010
Stock-based compensation	$	6,166		$	7,555		$	6,296
Non-cash interest expense	6			—			—
Other R&D	51,603			41,535			25,346
Total R&D	$	57,775		$	49,090		$	31,642
As a percentage of revenue	2		%	2		%	2		%

~~During~~In fiscal 2011, 2010, and 2009 ~~our~~ R&D expense was $57.8 million, $49.1 million, and $31.6 million, respectively, which represents an increase of ~~55%~~ ~~from fiscal 2009. Our fiscal 2009 R&D expense increased~~ ~~47%~~ ~~compared to~~ ~~$21.5 million~~18% in fiscal ~~2008.~~2011 as compared to fiscal 2010, and an increase of 55% in fiscal 2010 as compared to fiscal 2011. The ~~general~~overall increase in ~~spending year-over-year~~our investment in R&D period over period resulted primarily from costs related to the improvement of our current generation solar cell manufacturing technology, development of our ~~third~~next generation of solar cells, ~~development of next generation~~ solar panels, ~~development of next generation~~ trackers and rooftop systems, and development of systems performance monitoring products. We expect our R&D expense to i ncrease in fiscal 2011 as compared to 2010 as we continue in efforts to improve solar cell efficiency through enhancement of our existing products, development of new techniques such as concentrating photovoltaic power, and reducing manufacturing cost and complexity.

The increase in our R&D expense from fiscal 2009 to 2010 further pertains to (i) personnel related expense (including salary, stock-based compensation costs and bonus) as a result of increased headcount from approximately ~~180~~ ~~on January 3, 2010 to~~ ~~210~~ ~~as of January 2, 2011; (ii) increased equipment expense and depreciation due to general growth and development; and (iii) decrease in cost~~Cost reimbursements received from government ~~agencies~~entities in the United States additionally decreased over all periods due to phase out of related programs ~~during fiscal 2010. The increase~~ in ~~our R&D expense from fiscal 2008 to 2009 further resulted from increases in salaries, benefits and stock-based compensation costs~~2010, such as ~~a result of increased headcount from approximately~~ ~~150~~ ~~on December 28, 2008 to~~ ~~180~~ ~~on January 3, 2010. These increases were partially offset by cost reimbursements received from various government entities in~~ the ~~United States.~~

~~In fiscal 2007 through 2010 we benefited from a~~ Solar America Initiative R&D agreement with the United States Department of ~~Energy in which~~Energy. R&D cost reimbursements received under such agreements totaled $1.0 million, $5.2 million, and $8.9 million during fiscal 2011, 2010, and 2009, respectively. As of January 1, 2012 we have ~~been awarded $24.1 million through January 2, 2011. Payments received under this contract offset our~~executed new research and development agreements with the United States federal government and California state agencies. Further payments received under these contracts will offset some of our R&D expense ~~by $5.2~~in future periods.

Sales, General and Administrative ("SG&A")



	Year Ended
(Dollars in thousands)	January 1, 2012			January 2, 2011			January 3, 2010
Amortization of other intangible assets	$	21,202		$	28,071		$	5,277
Stock-based compensation	25,772			31,088			26,700
Total investment related costs	13,924			—			—
Amortization of promissory notes	2,122			11,054			—
Non-cash interest expense	45			—			—
Other SG&A	256,654			251,723			158,267
Total SG&A	$	319,719		$	321,936		$	190,244
As a percentage of revenue	14		%	15		%	12		%

During fiscal 2011, 2010 and 2009, SG&A expense was $319.7 million, $321.9 million, and $190.2 million, respectively. SG&A expense decreased 1% in fiscal ~~2010~~2011 as compared to ~~$8.9~~fiscal 2010 and was primarily driven by: (i) our cost-control strategy implemented in response to the changes in the European market and the resulting restructuring, including the overall reduction of consulting charges in Europe and the United States; (ii) the reduction in legal and other professional services as significant acquisition and integration related costs were incurred subsequent to our acquisition of SunRay in March 2010; and (iii) $4.4 million ~~$7.0 million and $3.0 million~~of expenses incurred in ~~2009, 2008 and 2007, respectively. The award was fully funded by~~ the ~~end of the third~~first quarter of fiscal ~~2010.~~

~~SG&A Expense~~

~~Details~~2010 associated with our Audit Committee's independent investigation of ~~SG&A expense are as follows:~~

certain accounting entries primarily related to cost of goods sold by our Philippines operations.

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The above decrease was partially offset by: (i) additional personnel related expenses (including salary, employee benefits, stock-based compensation costs and commission) as a result of net increase in headcount; (ii) non-recurring transaction expenses of $13.9 million incurred in connection with the April 28, 2011 Tender Offer Agreement with Total as well as related integration costs; (iii) additional bad debt expense of $9.8 million related to several customers impacted by the recent changing market conditions in Europe; and (iv) additional operating and development expenses consolidated into our financial results subsequent to our acquisition SunRay in March 2010.

Year Ended
(Dollars in thousands) January 2, 2011 January 3, 2010 December 28, 2008
Amortization of other intangible assets $ 28,071 $ 5,277 $ 4,766
Stock-based compensation 31,088 26,700 47,343
Amortization of promissory notes 11,054 — —
Other SG&A 251,723 158,267 121,631
Total SG&A $ 321,936 $ 190,244 $ 173,740
Total SG&A as a percentage of revenue 15 % 12 % 12 %

~~During fiscal 2010 and 2009, our SG&A expense was~~ ~~$321.9 million~~ ~~and~~ ~~$190.2 million, respectively, which represents an increase of~~ ~~69%. Our fiscal 2009~~ SG&A expense increased 9%69% ~~compared to~~ ~~$173.7 million~~ in fiscal 2008. The increase in SG&A expense year-over-year resulted primarily from higher spending in all of the functional areas to support th e growth of our business, including through acquisitions. Headcount related to SG&A expense increased from approximately ~~640~~ ~~on December 28, 2008 to~~ ~~675~~ ~~on January 3, 2010 to~~ ~~900~~ ~~on January 2, 2011. We expect our SG&A expense to increase in fiscal 2011 as compared to 2010 as we continue to invest in expanding our sales operations and continue to grow our business globally.~~

~~The increase in SG&A expense~~ in fiscal 2010 as compared to fiscal 2009 and was primarily related to: (i) ~~SunRay's~~additional operating and development expenses ~~being~~ consolidated into our financial results ~~from~~subsequent to our acquisition of SunRay in March ~~26, 2010 through January 2, 2011;~~2010; (ii) higher amortization ofassociated with other intangible assets related to acquired project assets ~~acquired from SunRay;~~(which were subsequently impaired in the third quarter for fiscal 2011); (iii) ~~amortization of the $14.0 million in promissory notes issued to SunRay's management shareholders in connection with the acquisition; (iv) SunRay~~ acquisition-related costs and integration-related costs such as legal, accounting, valuation and other professional services; ~~(v)~~(iv) costs associated with the formation of the AUOSP joint venture; ~~(vi)~~(v) personnel related ~~expense~~expenses (including ~~salary,~~ stock-based compensation costs, bonus and commission) as a result of increased headcount; ~~(vii)~~(vi) additional bad debt expense due to the overall increase in revenue and the collectability of outstanding accounts ~~receiva ble~~receivable related to several customers impacted by the difficult economic ~~conditions experienced in the last two years;~~conditions; and ~~(viii)~~(vii) $4.4 million of expenses incurred in the first quarter of fiscal 2010 associated with our Audit Committee independent investigation of certain accounting entries primarily related to cost of goods sold by our Philippines operations.

~~The increase in SG&A expense in~~Goodwill and Other Intangible Asset Impairment



	Year Ended
(In thousands)	January 1, 2012			January 2, 2011			January 3, 2010
Goodwill impairment	$	309,457		$	—		$	—
Other intangible asset impairment	40,301			—			—
	$	349,758		$	—		$	—
As a percentage of revenue	15		%	—		%	—		%

We conduct our annual impairment test of goodwill as of the Sunday closest to the end of the third fiscal ~~2009 as compared to 2008 primarily related to: (i) sales~~quarter of each year. Impairment of goodwill is tested at our reporting unit level. Management determined the UPP Segment and ~~marketing spending to expand our third-party global dealer network~~R&C Segment each have two reporting units, UPP-International and ~~global branding initiatives; (ii)~~UPP-Americas for UPP Segment, and Residential and Light Commercial and North American Commercial for R&C Segment. Based on the ~~launch of our new marketing campaign; and (iii) $3.6 million of expenses incurred in~~impairment test performed during the ~~fourth~~third quarter of fiscal ~~2009~~2011, as further described above under "Change in European Market", we determined that the carrying value of the UPP-International, UPP-Americas, and Residential and Light Commercial reporting units exceeded their fair value. As a result, we recorded a goodwill impairment loss of $309.5 million, representing all of the goodwill associated with these reporting units. As of January 1, 2012, the fair value of the remaining reporting unit exceeded the carrying value under the first step of the goodwill impairment test. Therefore, goodwill was not impaired (see Note 5).

We additionally review our ~~Audit Committee independent investigati on~~intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. During the third quarter of fiscal 2011, we determined the carrying value of certain ~~accounting entries primarily~~intangible assets related to strategic acquisitions of EPC and O&M project pipelines in Europe were no longer recoverable and therefore recognized an impairment loss of $40.3 million in the year ended January 1, 2012 (see Note 5).

Restructuring Charges



	Year Ended
(In thousands)	January 1, 2012			January 2, 2011			January 3, 2010
December 2011 Plan	$	7,477		$	—		$	—
June 2011 Plan	13,926			$	—		$	—
Restructuring charges	$	21,403		$	—		$	—
As a percentage of revenue	1		%	—		%	—		%

December 2011 Plan: To accelerate operating cost reduction and improve overall operating efficiency, in December 2011, we implemented a company-wide restructuring program (the "December 2011 Plan"). During the year ended January 1, 2012, $7.5 millionof ~~goods sold by~~restructuring charges in connection with the December 2011 Plan were recognized in our ~~Philippines operations. The increase was partially offset by reduced stock-based~~ Consolidated Statements of Operations, consisting of $7.3 million of employee severance and benefits, which includes $1.6 million of stock

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compensation associated with ~~shares~~the accelerated vesting of restricted stock units in accordance with certain grant and ~~options released from re-vesting restrictions.~~termination agreements, and $0.2 million of legal and other related charges. The December 2011 Plan eliminates 2% of SunPower's global workforce. We expect to record restructuring charges up to $17.0 million, related to both the UPP Segment and R&C Segment, in the twelve months following the approval and implementation of the plan. We expect greater than 80% of these charges to be cash.

June 2011 Plan: In response to reductions in European government incentives, primarily in Italy, which have had a significant impact on the global solar market, on June 13, 2011, our Board of Directors approved a restructuring plan (the "June 2011 Plan") to realign our resources. During the year ended January 1, 2012, $13.9 million of restructuring charges in connection with the June 2011 Plan were recognized in our Consolidated Statements of Operations consisting of $11.2 million of employee severance and benefits, which includes $1.4 million of compensation associated with the accelerated vesting of promissory notes previously issued as consideration for an acquisition completed in the first quarter of fiscal 2010, $0.7 million of lease and related termination costs, and $2.1 million of legal and other related charges. The June 2011 Plan eliminates 2% of our global workforce, in addition to the consolidation or closure of certain facilities in Europe. We expect to record restructuring charges of up to $17.0 million related to the UPP Segment in the twelve months following the approval and implementation of the plan. We expect greater than 90% of restructuring related charges to be cash.

Other Income (Expense), Net


		Year Ended
(Dollars in thousands)		January 2, 2011				January 3, 2010				December 28, 2008
													Year Ended
(In thousands)													January 1, 2012			January 2, 2011			January 3, 2010
Interest income	$	2,054			$	1,541			$	2,109
Non-cash interest expense		$	(23,709	)		$	(19,843	)		$	(16,716	)	(26,012		)	(23,709		)	(19,843		)
Other interest expense		(31, 567		)		(16,444		)		(6,699		)	(41,010		)	(31,567		)	(16,444		)
Total interest expense		$	(55,276	)		$	(36,287	)		$	(23,415	)	(67,022		)	(55,276		)	(36,287		)
Gain on sale of equity interest in unconsolidated investee													5,937			—			—
Gain on change in equity interest in unconsolidated investee													322			28,078			—
Gain on deconsolidation of consolidated subsidiary		$	36,849			$	—			$	—		—			36,849			—
Gain on change in equity interest in unconsolidated investee		$	28,078			$	—			$	—
Gain on mark-to-market derivatives		$	35,764			$	21,193			$	—		343			35,764			21,193
Gain (loss) on share lending arrangement		$	24,000			$	—			$	(213,372	)
Gain on share lending arrangement													—			24,000			—
Other, net		$	(26,410	)		$	(5,229	)		$	(26,313	)	(8,946		)	(26,410		)	(5,229		)
Other income (expense), net													$	(67,312	)	$	44,546		$	(18,214	)

Interest income during fiscal 2010, 2009 and 2008 primarily represents interest income earned on our cash, cash equivalents, restricted cash, restricted cash equivalents and available-for-sale securities during these periods. The decrease in interest income of ~~27%~~ ~~in fiscal 2010 as compared to 2009 and~~ ~~80%~~ ~~in 2009 as compared to 2008 both resulted from lower~~

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~~interest rates earned on cash holdings.~~

Interest expense during fiscal ~~2010~~2011 primarily ~~relates~~related to debt under our senior convertible debentures, fees for our outstanding letters of credit with Deutsche Bank AG New York Branch ("Deutsche Bank") and Deutsche Bank Trust Company, the mortgage loan with International Finance Corporation ("IFC"), debt under the loan agreement with California Enterprise Development Authority ("CEDA"), and debt under the revolving credit ~~facility~~facilities with Union Bank, N.A. ("Union Bank") and Société Générale, Milan Branch ("Société Générale") and Credit Agricole Corporate and Investment Bank ("Credit Agricole"). Interest expense during fiscal 2010 primarily related to issuances of our senior convertible debentures and borrowings under the facility agreement with the Malaysian government (deconsolidated in the third quarter of fiscal 2010), fees for our outstanding letters of credit with Deutsche Bank, and ~~the mortgage loan with International Finance Corporation ("IFC").~~acquired debt. Interest expense during fiscal 2009 primarily ~~relates~~related to borrowings under our senior convertible debentures, fees for our outstanding letters of credit with Wells Fargo Bank, N.A. ("Wells Fargo"), our borrowings under the ~~SPMY~~ facility agreement with the Malaysian government, ~~the~~ term loan with Union Bank and customer advance payments. ~~Interest~~The increase in interest expense ~~during~~of 21% in fiscal ~~2008 relates~~2011 as compared to ~~interest~~fiscal 2010 was due onto additional indebtedness related to our $250.0 million in principal amount of 4.50% senior cash convertible debentures ~~fees for~~("4.50% debentures") issued in April 2010, approximately €75.0 million borrowed from Société Générale in November 2010 under the revolving credit facility, as well as the $50.0 million borrowed from Union Bank in July 2011, both of which were repaid and terminated in September 2011 in connection with a borrowing of $250.0 million under a new Revolving Credit Agreement with Credit Agricole that provides up to $275.0 million of revolving loans, outstanding borrowings up to $75.0 million under our ~~outstanding letters of credit~~mortgage loan agreement with ~~Wells Fargo~~IFC beginning in November 2010, and ~~customer advance payments.~~$30 million borrowed under our loan agreement with CEDA in December 2010. The increase in interest expense of 52% in fiscal 2010 as compared to 2009 is due to: (i) additional indebtedness related to our $250.0 million in principal amount of 4.50% debentures issued in April 2010, $70.0 million borrowed from Union Bank in October 2010, approximately ~~$98.0~~$98.0 million borrowed from Société Générale in November 2010 and $50.0 million borrowed from IFC in November 2010; and (ii) fees for our outstanding letters of credit with Deutsche Bank. ~~The increase in interest expense~~

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During fiscal 2011, we recorded a net gain of ~~55%~~$5.9 million from the sale of 15.5 million shares of Woongjin Energy Co., Ltd (“Woongjin Energy”), which decreased our equity ownership from 31% to 6%. In January 2012, we sold our remaining equity interest in ~~fiscal 2009 as compared to 2008 is primarily~~Woongjin Energy. Non-cash gains recorded due to ~~additional indebtedness related to~~the dilution of our ~~$230.0 million~~equity interest in principal amount of 4.75% debentures, approximately $219.0 million outstanding under the facility with the Malaysian government and $30.0 million under the term loan with Union Bank. These increases were partially offset by the deconsolidation of the outstanding balance under the facility with the Malaysian government in the third quarter of fiscal 2010Woongjin Energy as a result of ~~the AUOSP joint venture transaction and the repurchase~~Woongjin Energy's issuance of ~~a portion of our 0.75% debentures during fiscal 2010 and 2009 with a principal amount of~~additional equity to other investors amounted to $~~143.8~~0.3 million and ~~$81.1~~$28.3 million in fiscal 2011 and 2010, respectively. ~~For additional details see Note 10 of Notes to Consolidated Financial Statements.~~

On July 5, 2010, we closed our joint venture transaction with AUO. Under the joint venture agreement our equity interest in SPMY, formerly our subsidiary, was reduced to 50% and the entity was renamed AUOSP. As a result of the shared power arrangement with AUO, we deconsolidated AUOSP and account for our direct investment under the equity method in the third quarter of fiscal 2010. We recognized a non-cash gain of $36.8 million as a result of the deconsolidation of AUOSP in the third quarter of fiscal 2010 in our Consolidated Statement of Operations. ~~For additional details see Note 9 of Notes to Consolidated Financial Statements.~~

On June 30, 2010, Woongjin Energy completed its IPO and the sale of 15.9 million new shares of common stock. We did not participate in this common stock issuance by Woongjin Energy. As a result of the new common stock issuance by Woongjin Energy in its IPO, our percentage equity interest in Woongjin Energy decreased from 42.1% to 31.3% of its issued and outstanding shares of common stock. In connection with the IPO, we recognized a non-cash gain of ~~$28.3 million~~ in the second quarter of fiscal 2010 in our Consolidated Statement of Operations as a result of our equity interest in Woongjin Energy being revalued upon a dilutive event. In the fourth quarter of fiscal 201 0, First Philec Solar issued an additional 0.5 million shares of common and preferred stock to investors which resulted in the reduction of our percent equity interest in First Philec Solar from ~~20%~~ to ~~15%~~ ~~of its issued and outstanding shares of preferred and common stock. In connection with the additional funding, we recognized a non-cash loss of~~The $0.3 million net gain on mark-to-market derivatives during fiscal 2011 related to the change in fair value of the ~~fourth quarter of fiscal 2010 as a result of our equity interest in First Philec Solar being diluted. For additional details see Note 9 of Notes to Consolidated Financial Statements.~~

following derivative instruments associated with the 4.50% debentures: (i) the embedded cash conversion option; and (ii) the bond hedge transaction. The $35.8 million net gain on mark-to-market derivatives during fiscal 2010 ~~relates~~related to the change in fair value of the following derivative instruments associated with the 4.50% debentures: (i) the embedded cash conversion option; (ii) the over-allotment option; (iii) the bond hedge transaction; and (iv) the warrant transaction. The changes in fair value of these derivatives are reported in our Consolidated ~~Statement~~Statements of Operations until such transactions settle or expire. The over-allotment option derivative settled on April 5, 2010 when the initial purchasers of the 4.50% debentures exercised the $30.0 million over-allotment option in full. As a result of the terms of the warrants being amended and restated so that they are settled in shares of our ~~class A~~ common stock rather than in cash, the warrants ~~will~~have not ~~require~~required mark-to-market accounting treatment subsequent to December 23, 2010. ~~For additional details see Note 10 of Notes to Consolidated Financial Statements.~~

The $21.2 million ~~non-cash~~net gain on mark-to-market derivatives during fiscal 2009 relates to changes in the ~~change in~~ fair value of the purchased options associated with the issuance of our 4.75% debentures. The purchased options, which ~~are~~were indexed to our ~~class A~~ common stock, were deemed to be ~~ma rk-to-market~~mark-to-market derivatives during the one-day period in which the over-allotment option in favor of the 4.75% debenture underwriters was unexercised. We entered into the debenture underwriting agreement on April 28, 2009 and the 4.75% debenture underwriters exercised the over-allotment option in full on April 29, 2009. During the one-day period that the ~~underwriters’~~underwriters' over-allotment option was outstanding, our ~~class A~~ common stock price increased substantially, resulting in a non-cash gain on purchased options of ~~$21.2~~$21.2 million in fiscal 2009 in our Consolidated Statement of Operations. ~~For additional details see Note 10 of Notes to Consolidated Financial Statements.~~

In connection with the issuance of our 1.25% debentures, we loaned 2.9 million shares of our former class A common stock to ~~LBIE~~Lehman Brothers International (Europe) Limited ("LBIE") under a share lending arrangement. On September 15, 2008, Lehman filed a petition for protection under Chapter 11 of

~~Table of Contents~~

the U.S. bankruptcy code and LBIE commenced administration ~~procee dings~~proceedings (analogous to bankruptcy) in the United Kingdom. As a result, we recognized a ~~$213.4~~$213.4 million non-cash loss in the third quarter of fiscal 2008 which was the then fair value of the 2.9 million shares of our former class A common stock loaned and unreturned by LBIE. On December 16, 2010, we entered into an assignment agreement with Deutsche Bank under which we assigned to Deutsche Bank our claims against LBIE and Lehman in connection with the share lending arrangement. We recovered ~~$24.0~~$24.0 million under the assignment agreement with Deutsche Bank which was reflected in the fourth quarter of fiscal 2010 as "Gain ~~(loss)~~ on share lending arrangement" in our Consolidated Statements of Operations. ~~For additional details see N otes 1 and 10 of Notes to Consolidated Financial Statements.~~

The following table summarizes the components of ~~other,~~Other, net:


	Year Ended
(Dollars in thousands)	January 2, 2011			January 3, 2010			December 28, 2008
										Year Ended
(In thousands)										January 1, 2012			January 2, 2011			January 3, 2010
Gain (loss) on derivatives and foreign exchange	$	(27,701	)	$	(3,902	)	$	(20,602	)	$	2,538		$	(27,701	)	$	(3,902	)
Gain on sale (impairment) of investments	770			(1,443		)	(5,408		)
Gain (loss) on sale of investments										(191		)	770			(1,443		)
Other income (expense), net	521			116			(303		)	(11,293		)	521			116
Total other, net	$	(26,410	)	$	(5,229	)	$	(26,313	)	$	(8,946	)	$	(26,410	)	$	(5,229	)



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

	For the fiscal year ended January ~~2, 2011~~1, 2012

	OR

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



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



Title of each class	Name of each exchange on which registered
~~Class A Common Stock $0.001 par value~~	~~Nasdaq Global Select Market~~
~~Class B~~ Common Stock $0.001 par value	Nasdaq Global Select Market



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

TABLE OF CONTENTS

		Page
PART I

	Item 1:1. Business	34

	Item ~~1A:~~1A. Risk Factors	1416

	Item ~~1B:~~1B. Unresolved Staff Comments	39

	~~Item 2: Properties~~	39

	~~Item 3: Legal Proceedings~~	39

	~~Item 4: Removed and Reserved~~	40

~~PART II~~

	~~Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	41

	~~Item 6: Selected Consolidated Financial Data~~	42

	~~Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	43

	Item ~~7A: Quantitative and Qualitative Disclosures About Market Risk~~2. Properties	7143

	Item ~~8: Financial Statements and Supplementary Data~~3. Legal Proceedings	7344

	Item 9:4. Mine Safety Disclosures	44

PART II

	Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	45

	Item 6. Selected Consolidated Financial Data	46

	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	47

	Item 7A. Quantitative and Qualitative Disclosure About Market Risk	78

	Item 8. Financial Statements and Supplementary Data	80

	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	~~137~~140

	Item ~~9A:~~9A. Controls and Procedures	~~137~~
~~&nb sp;~~
	~~Item 9B: Other Information~~	140

	Item 9B. Other Information	142

PART III
	~~&n bsp;~~
	Item ~~10:~~10. Directors, Executive Officers and Corporate Governance	~~141~~148

	Item ~~11:~~11. Executive Compensation	~~141~~148

	Item ~~12:~~12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~141~~148

	Item ~~13:~~13. Certain Relationships and Related Transactions, and Director Independence	~~141~~148

	Item ~~14:~~14. Principal Accountant Fees and Services	~~141~~148

PART IV

	Item ~~15:~~15. Exhibits and Financial Statement Schedules	~~142~~149

Signatures		157

Index to Exhibits		158


•	~~superior performance, including the ability to generate up to 50% more power per unit area than conventional solar cells;~~


•	~~superior aesthetics, with our uniformly black surface design that eliminates highly visible reflective grid lines and metal interconnect ribbons;~~


•	~~more KW per pound can be transported using less packaging, resulting in lower distribution costs; and~~


•	~~more efficient use of silicon, a key raw material used in the manufacture of solar cells.~~


•	~~channel breadth and flexible delivery capability, including turn-key systems;~~


•	~~high performance delivered by enhancing energy delivery and financial return through systems technology design; and~~


•	~~cutting edge systems design to meet customer needs and reduce cost, including non-penetrating, fast roof installation technologies.~~


•	~~SunPower~~® ~~T-10 Commercial Solar Roof Tiles ("T-10")~~


•	~~SunTile® Roof Integrated System for Residential Market~~



	Year Ended
~~(As a percentage of total revenue)~~Revenue	January 2, ~~2011~~ 1, 2012	January 3, ~~2010~~ 2, 2011	~~December 28,~~ ~~2008~~ January 3, 2010
Significant Customers:


•	~~UPP Segment:~~ Abengoa Solar S.A., Acconia Energia S.A., AES Solar Energy Ltd., Chevron Energy Solutions (a subs idiary of Chevron Corporation), EDF Energy plc, First Solar Inc., NextEra Energy, Inc., OPDE Group, Sempra Energy, Solar Millennium AG, Solargen Energy, Inc., SunEdison (a subsidiary of MEMC Electronic Materials Inc.), and Tessera Solar.


•	~~total system price;~~


•	~~aesthetic appearance of solar panels;~~


•	~~strength of distribution relationships;~~


•	R&C Segment: Canadian Solar Inc., JA Solar Holdings Co., Kyocera Corporation, Mitsubishi Corporation, ~~Mitsubishi Corporation,~~


•	~~levelized cost of energy (“LCOE”) evaluation of the lifecycle energy costs and lifecycle energy production;~~


• Ÿ	Penalty payments or customer termination rights if the system we are constructing is not commissioned within specified timeframes or other construction milestones are not achieved;


• Ÿ	Guarantees of certain minimum residual value of the system at specified future dates; and


• Ÿ	System put-rights whereby we could be required to buy-back a ~~customer’s~~customer's system at fair value on specified future dates if certain minimum performance thresholds are not met.


Ÿ	making it more difficult for us to meet our payment and other obligations under the 4.50% and 4.75% debentures and our other outstanding debt;


Ÿ	resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements (with certain covenants becoming more restrictive over time), which event of default could result in all of our debt becoming immediately due and payable if not cured pursuant to the Liquidity Support Facility;


Ÿ	reducing the availability of our cash flow to fund working capital, capital expenditures, project development, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;


Ÿ	subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates;


Ÿ	subjecting us to the risk of currency fluctuations and government-fixed foreign exchange rates and the effects of currency hedging activity or inability to hedge currency fluctuation;


Ÿ	limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and


Ÿ	placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.


•	~~making it more difficu lt for us to meet our payment and other obligations under the 1.25%, 4.50% and 4.75% debentures and our other outstanding debt;~~


•	~~subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates;~~


•	~~subjecting us to the risk of currency fluctuations and government-fix ed foreign exchange rates and the effects of currency hedging activity or inability to hedge currency fluctuation;~~


•	~~limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and~~


•	~~placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.~~


• Ÿ	incur additional debt, assume obligations in connection with letters of credit, or issue guarantees;


• Ÿ	redeem capital stock or make other restricted payments;


• Ÿ	declare or pay dividends or make other distributions to stockholders; and