Press Releases

($ Millions except per-share data)

3rd Quarter

2011

2nd Quarter

2011

3rd Quarter

2010

Revenue

$705.4

$592.3

$550.6

GAAP gross margin

10.8%

3.3% (2)

20.4%

GAAP net income (loss)

($370.8)(1)

($147.9)

$20.1

GAAP net income (loss) per share

($3.77)(1)

($1.51)(2)(3)

$0.21

Non-GAAP gross margin(4)

11.4%

12.5%

22.3%

Non-GAAP net income (loss) per diluted share(4)

$0.16

($0.19)

$0.26

(1) Includes pre-tax non-cash charges totaling approximately $349.8 million related to the impairment of goodwill and intangible assets.

(2) Includes pre-tax charges totaling approximately $48.5 million, including $16.0 million related to the company's panel reallocation strategy and $32.5 million related to the write-down of third-party inventory and costs associated with the termination of third-party cell supply contracts

(3) Includes pre-tax charges totaling approximately $26.4 million, including $13.3 million related to the company's panel reallocation strategy and $13.1 million in expenses related to the Total tender offer

(4) A reconciliation of Non-GAAP to GAAP results is included at the end of this press release

SUNPOWER CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

Oct. 2,

Jan. 2,

2011

2011

ASSETS

Cash and cash equivalents

$                   374,562

$                   605,420

Restricted cash and cash equivalents

226,510

256,299

Investments

8,962

38,720

Accounts receivable, net

438,091

381,200

Costs and estimated earnings in excess of billings

98,828

89,190

Inventories

425,233

313,398

Advances to suppliers

296,518

287,092

Prepaid expenses and other assets

589,683

371,228

Property, plant and equipment, net

585,022

578,620

Project assets - plants and land

67,873

46,106

Goodwill and other intangible assets, net

41,897

412,058

Total assets

$                3,153,179

$                3,379,331

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

$                   428,489

$                   382,884

Accrued and other liabilities

340,035

268,836

Billings in excess of costs and estimated earnings

63,813

48,715

Bank loans

355,001

248,010

Convertible debt

612,638

591,923

Customer advances

179,749

181,529

Total liabilities

1,979,725

1,721,897

Stockholders' equity

1,173,454

1,657,434

Total liabilities and stockholders' equity

$                3,153,179

$                3,379,331

SUNPOWER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

Oct. 2,

Jul. 3,

Oct. 3,

Oct. 2,

Oct. 3,

2011

2011

2010

2011

2010

Revenue:

Utility and power plants

324,542

$                302,439

$                   257,803

$                   872,890

$                   521,896

Residential and commercial

380,885

289,816

292,842

876,210

760,261

Total revenue

705,427

592,255

550,645

1,749,100

1,282,157

Cost of revenue:

Utility and power plants

285,537

309,032

212,526

797,580

421,178

Residential and commercial

343,766

263,929

225,534

767,580

588,800

Total cost of revenue

629,303

572,961

438,060

1,565,160

1,009,978

Gross margin

76,124

19,294

112,585

183,940

272,179

Operating expenses:

Research and development

12,664

15,255

13,382

41,565

34,995

Selling, general and administrative

76,329

90,856

91,015

243,364

233,671

Restructuring charges

637

13,308

-

13,945

-

Goodwill and other intangible asset impairment

349,758

-

-

349,758

-

Total operating expenses

439,388

119,419

104,397

648,632

268,666

Operating loss

(363,264)

(100,125)

8,188

(464,692)

3,513

Other income (expense):

Gain on deconsolidation of consolidated subsidiary

-

-

36,849

-

36,849

Gain on change in equity interest in unconsolidated investee

-

322

-

322

28,348

Gain on sale of equity interest in unconsolidated investee

10,989

-

-

10,989

-

Gain (loss) on mark-to-market derivatives

472

(97)

(2,967)

331

28,885

Interest and other income (expense), net

(8,875)

(25,098)

(25,973)

(57,696)

(72,068)

Other income (expense), net

2,586

(24,873)

7,909

(46,054)

22,014

Income (loss) from continuing operations before income taxes and equity in earnings of unconsolidated investees

(360,678)

(124,998)

16,097

(510,746)

25,527

-

Benefit from (provision for) income taxes

(11,077)

(22,702)

(3,376)

(17,963)

(19,493)

Equity in earnings (loss) of unconsolidated investees

971

(172)

5,825

7,932

10,973

Loss from continuing operations

(370,785)

(147,872)

18,546

(520,778)

17,007

Income from discontinued operations, net of taxes

-

-

1,570

-

9,466

Net income (loss)

$               (370,784)

$               (147,872)

$                     20,116

$                 (520,777)

$                     26,473

Net income (loss) per share of class A and class B common stock:

Net income (loss) per share – basic:

Continuing operations

$                     (3.77)

$                     (1.51)

$                         0.19

$                       (5.34)

$                         0.18

Discontinued operations

-

-

0.02

-

0.10

Net income (loss) per share – basic

$                     (3.77)

$                     (1.51)

$                         0.21

$                       (5.34)

$                         0.28

Net income (loss) per share – diluted:

Continuing operations

$                     (3.77)

$                     (1.51)

$                         0.19

$                       (5.34)

$                         0.18

Discontinued operations

-

-

0.02

-

0.09

Net income (loss) per share – diluted

$                     (3.77)

$                     (1.51)

$                         0.21

$                       (5.34)

$                         0.27

Weighted-average shares:

- Basic

98,259

97,656

95,840

97,456

95,519

- Diluted

98,259

97,656

105,648

97,456

96,741

SUNPOWER CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

Oct. 2,

Jul. 3,

Oct. 3,

Oct. 2,

Oct. 3,

2011

2011

2010

2011

2010

Cash flows from operating activities:

Net income (loss)

$

(370,784)

$

(147,872)

$

20,116

$

(520,777)

$

26,473

Less:  Income from discontinued operations, net of taxes

-

-

1,570

-

9,466

Income (loss) from continuing operations

$

(370,784)

$

(147,872)

$

18,546

$

(520,777)

$

17,007

Adjustments to reconcile loss from continuing operations to net cash used in operating activities of continuing operations:

Stock-based compensation

11,848

12,817

15,665

37,829

38,064

Depreciation

30,315

27,967

26,407

83,979

75,680

Amortization of other intangible assets

6,682

6,868

11,578

20,614

28,039

Goodwill impairment

309,457

-

-

309,457

-

Other intangible asset impairment

40,301

-

-

40,301

-

Loss (gain on sale) of investments

-

319

-

191

(1,572)

Loss (gain) on mark-to-market derivatives

(472)

97

2,967

(331)

(28,885)

Non-cash interest expense

6,780

7,007

6,407

21,112

22,175

Amortization of debt issuance costs

1,462

1,478

2,240

4,196

4,030

Amortization of promissory notes

134

2,062

6,022

3,486

8,941

Gain on sale of equity interest in unconsolidated investee

(10,989)

-

-

(10,989)

-

Gain on change in equity interest in unconsolidated investee

-

(322)

-

(322)

(28,348)

Third-party inventories write-down

-

16,399

-

16,399

-

Project assets write-down

-

16,053

-

16,053

-

Gain on deconsolidation of consolidated subsidiary

-

-

(36,849)

-

(36,849)

Equity in (earnings) loss of unconsolidated investees

(971)

172

(5,825)

(7,932)

(10,973)

Deferred income taxes and other tax liabilities

1,224

87

6,489

(860)

18,708

Accounts receivable

(51,696)

(49,165)

(45,541)

(48,587)

(3,879)

Costs and estimated earnings in excess of billings

43,810

(6,476)

(48,155)

(3,304)

(80,719)

Inventories

(17,756)

60,202

(11,962)

(120,753)

(84,210)

Project assets

40,600

(56,198)

(98,362)

(43,242)

(146,268)

Prepaid expenses and other assets

(113,715)

4,905

30,541

(123,044)

(76,774)

Advances to suppliers

7,935

(4,650)

(2,085)

(9,535)

1,672

Accounts payable and other accrued liabilities

64,448

26,352

98,351

64,432

219,133

Billings in excess of costs and estimated earnings

16,825

(23,751)

6,557

14,345

1,269

Customer advances

6,114

(224)

(8,912)

(1,698)

(7,961)

Net provided by (cash used) in operating activities of continuing operations

21,552

(105,873)

(25,921)

(258,980)

(71,720)

Net cash used in operating activities of discontinued operations

-

-

(4,618)

-

(3,969)

Net cash provided by (cash used) in operating activities

21,552

(105,873)

(30,539)

(258,980)

(75,689)

Cash flows from investing activities:

Decrease (increase) in restricted cash and cash equivalents

(904)

35,421

72,927

29,789

64,674

Purchases of property, plant and equipment

(17,364)

(23,407)

(4,331)

(85,528)

(104,623)

Proceeds from sale of equipment to third-party

2

290

2,409

501

5,284

Cash decrease due to deconsolidation of consolidated subsidiary

-

-

(12,879)

-

(12,879)

Purchases of marketable securities

(8,962)

-

-

(8,962)

-

Proceeds from sales or maturities of available-for-sale securities

-

43,459

-

43,759

1,572

Cash paid for acquisitions, net of cash acquired

-

-

-

-

(272,699)

Cash received for sale of investment in joint ventures and other non-public companies

24,043

-

-

24,043

-

Cash paid for investments in joint ventures and other non-public companies

(30,000)

(30,000)

(2,180)

(80,000)

(3,798)

Net cash provided by (used in) investing activities of continuing operations

(33,185)

25,763

55,946

(76,398)

(322,469)

Net provided by in investing activities of discontinued operations

-

-

51,658

-

33,950

Net cash provided by (used in) investing activities

(33,185)

25,763

107,604

(76,398)

(288,519)

Cash flows from financing activities:

Proceeds from issuance of bank loans, net of issuance costs

300,000

25,000

-

489,221

-

Proceeds from issuance of project loans, net of issuance costs

-

-

51,189

-

56,323

Proceeds from issuance of convertible debt, net of issuance costs

-

-

-

-

244,241

Assumption of project loans by customers

-

-

(57,732)

-

(57,732)

Repayment of bank loans

(150,988)

(70,000)

(33,646)

(377,124)

(63,646)

Cash paid for repurchased convertible debt

-

-

(143,804)

-

(143,804)

Cash paid for bond hedge

-

-

-

-

(75,200)

Proceeds from warrant transactions

2,261

-

-

2,261

61,450

Proceeds from exercise of stock options

87

3,853

324

4,013

670

Purchases of stock for tax withholding obligations on vested restricted stock

(1,154)

(1,319)

(562)

(10,550)

(2,539)

Net cash provided by (used in) financing activities of continuing operations

150,206

(42,466)

(184,231)

107,821

19,763

Net cash provided by financing activities of discontinued operations

-

-

-

-

17,059

Net cash provided by (used in) financing activities

150,206

(42,466)

(184,231)

107,821

36,822

Effect of exchange rate changes on cash and cash equivalents

(9,801)

506

5,410

(3,301)

(7,281)

Net decrease in cash and cash equivalents

128,772

(122,070)

(101,756)

(230,858)

(334,667)

Cash and cash equivalents at beginning of period

245,790

367,860

382,968

605,420

615,879

Cash and cash equivalents at end of period

$

374,562

$

245,790

$

281,212

$

374,562

$

281,212

Non-cash transactions:

Property, plant and equipment acquisitions funded by liabilities

$

11,781

$

6,494

$

4,382

$

11,781

$

4,382

Non-cash interest expense capitalized and added to the cost of qualified assets

$

802

$

795

$

1,856

$

2,907

$

2,951

(In thousands, except per share data)

THREE MONTHS ENDED

NINE MONTHS ENDED

THREE MONTHS ENDED

NINE MONTHS ENDED

Oct. 2,

Jul. 3,

Oct. 3,

Oct. 2,

Oct. 3,

Oct. 2,

Jul. 3,

Oct. 3,

Oct. 2,

Oct. 3,

2011

2011

2010

2011

2010

2011

2011

2010

2011

2010

(Presented on a GAAP Basis)

(Presented on a non-GAAP Basis)

Gross margin

$               76,124

$               19,294

$           112,585

$               183,940

$               272,179

$                    80,292

$                    73,853

$           123,398

$               245,917

$               304,821

Operating income (loss)

$            (363,264)

$            (100,125)

$               8,188

$             (464,692)

$                   3,513

$                      6,642

$                    (4,090)

$             45,192

$                 23,800

$                 91,750

Net income (loss) per share of class A and class B common stock:

- Basic

$                  (3.77)

$                  (1.51)

$                 0.21

$                   (5.34)

$                     0.28

$                        0.16

$                      (0.19)

$0.27

$                     0.12

$                     0.48

- Diluted

$                  (3.77)

$                  (1.51)

$                 0.21

$                   (5.34)

$                     0.27

$                        0.16

$                      (0.19)

$0.26

$                     0.12

$                     0.47

About SunPower's Non-GAAP Financial Measures

To supplement its consolidated financial results presented in accordance with GAAP, SunPower uses non-GAAP measures which are adjusted from the most directly comparable GAAP results to exclude certain items, as described below. In addition, the presentation of non-GAAP gross margin and non-GAAP operating income includes the results of discontinued operations. Management does not consider these items in evaluating the core operational activities of SunPower. The specific non-GAAP measures listed below are gross margin, operating income (loss) and net income (loss) per share. Management believes that each of these non-GAAP measures (gross margin, operating income (loss) and net income (loss) per share) are useful to investors by enabling them to better assess changes in each of these key elements of SunPower's results of operations across different reporting periods on a consistent basis, independent of these items. Thus, each of these non-GAAP financial measures provides investors with another method for assessing SunPower's operating results in a manner that is focused on its ongoing core operating performance, absent the effects of these items. Management also uses these non-GAAP measures internally to assess the business and financial performance of current and historical results, for strategic decision making, forecasting future results and evaluating the company's current performance. Many of the analysts covering SunPower also use these non-GAAP measures in their analyses. Given management's use of these non-GAAP measures, SunPower believes these measures are important to investors in understanding SunPower's current and future operating results as seen through the eyes of management. These non-GAAP measures are not in accordance with or an alternative for GAAP financial data, the non-GAAP measures should be reviewed together with the GAAP measures and are not intended to serve as a substitute for results under GAAP, and may be different from non-GAAP measures used by other companies.

• Non-GAAP gross margin. The use of this non-GAAP financial measure allows management to evaluate the gross margin of SunPower's core businesses and trends across different reporting periods on a consistent basis, independent of charges including amortization of intangible assets, stock-based compensation, certain losses due to change in European government incentives, and interest expense. In addition, the presentation of non-GAAP gross margin includes the results of discontinued operations. This non-GAAP financial measure is an important component of management's internal performance measurement process as it is used to assess the current and historical financial results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents this non-GAAP financial measure to enable investors and analysts to evaluate SunPower's revenue generation performance relative to the direct costs of revenue of its core businesses.

• Non-GAAP operating income (loss). The use of this non-GAAP financial measure allows management to evaluate the operating results of SunPower's core businesses and trends across different reporting periods on a consistent basis, independent of charges including goodwill and other intangible asset impairment, amortization of intangible assets and promissory notes, stock-based compensation, Total investment related costs, certain losses due to change in European government incentives, and interest expense. In addition, the presentation of non-GAAP operating income (loss) includes the results of discontinued operations. Non-GAAP operating income (loss) is an important component of management's internal performance measurement process as it is used to assess the current and historical financial results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents this non-GAAP financial measure to enable investors and analysts to understand the results of operations of SunPower's core businesses and to compare results of operations on a more consistent basis against that of other companies in the industry.

• Non-GAAP net income (loss) per share. Management presents this non-GAAP financial measure to enable investors and analysts to assess SunPower's operating results and trends across different reporting periods on a consistent basis, independent of items including goodwill and other intangible asset impairment, amortization of intangible assets and promissory notes, stock-based compensation, Total investment related costs, certain losses due to change in European government incentives, interest expense, net gains (losses) on mark-to-market derivative instruments, changes in our equity investment in joint ventures, and the tax effects of these non-GAAP adjustments. In addition, investors and analysts can compare SunPower's operating results on a more consistent basis against that of other companies in the industry.

Excluded Items

• Goodwill and other intangible asset impairment. During the three and nine months ended October 2, 2011, the Company recorded a goodwill impairment of $309.5 million and an intangible asset impairment of $40.3 million attributable to the change in public market valuation of the solar sector. SunPower excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from prior acquisitions and have no direct correlation to the operation of SunPower's core businesses.

• Amortization of intangible assets. SunPower incurs amortization of intangible assets as a result of acquisitions, which includes in-process research and development, patents, project assets, purchased technology and trade names. SunPower excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from prior acquisitions and have no direct correlation to the operation of SunPower's core businesses.

• Stock-based compensation. Stock-based compensation relates primarily to SunPower stock awards such as stock options and restricted stock. Stock-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are difficult to predict. As a result of this unpredictability, management excludes this item from its internal operating forecasts and models. Management believes that non-GAAP measures adjusted for stock-based compensation provide investors with a basis to measure the company's core performance against the performance of other companies without the variability created by stock-based compensation.

• Total investment related costs. SunPower excludes expenses such as legal, banking and other professional services incurred in connection with Total Gas & Power USA, SAS's investment in SunPower. SunPower excludes such charges because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from  the investment made by Total and have no direct correlation to the operation of SunPower's core businesses.

• Amortization of promissory notes. Included in the total consideration for a prior acquisition completed on March 26, 2010 is $14 million in promissory notes to the acquiree's management shareholders issued by SunPower. Since the vesting and payment of the promissory notes are contingent on future employment, the promissory notes are considered deferred compensation and therefore are not included in the purchase price allocated to the net assets acquired. SunPower excludes this non-cash charge over the service period required under the terms of the promissory notes because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from prior acquisitions and have no direct correlation to the operation of SunPower's core businesses.

• Loss on change in European government incentives. On May 5, 2011, the Italian government announced a legislative decree which defined the revised feed-in-tariff ("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, 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 affected SunPower's financial results as follows:
  • Restructuring. In response to reductions in European government incentives, which have had a significant impact on the global solar market, on June 13, 2011, SunPower's Board of Directors approved a restructuring plan to realign its resources. As a result, SunPower recorded restructuring charges in the second quarter of fiscal 2011. Restructuring charges are excluded from non-GAAP financial measures because they are not considered core operating activities and such costs have not historically occurred in each year. Although SunPower has engaged in restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. As such, management believes that it is appropriate to exclude restructuring charges from SunPower's non-GAAP financial measures as they are not reflective of ongoing operating results or contribute to a meaningful evaluation of a company's past operating performance.
  • Write-down of project assets. 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. The fair market value of these project assets declined due to SunPower's inability to develop, commercialize and sell active projects within Europe. Such charges are excluded from non-GAAP financial measures as they are related to a discrete event and are not reflective of ongoing operating results.
  • Third-party inventory charges. Charges relate to the write-down of third-party inventory and costs associated with the termination of above-market third-party solar cell supply contracts as the decline in European government incentives, primarily in Italy, has driven down demand and average selling price in certain areas of Europe. Such charges are excluded from non-GAAP financial measures as they are related to a discrete event and are not reflective of ongoing operating results.
  • Loss on foreign currency derivatives. SunPower has an active hedging program designed to reduce its exposure to movements in foreign currency exchange rates. As a part of this program, SunPower designates certain derivative transactions as effective cash flow hedges of anticipated foreign currency revenues and records the effective portion of changes in the fair value of such transactions in accumulated other comprehensive income (loss) until the anticipated revenues have occurred, at which point the associated income or loss would be recognized in revenue. In the first quarter of fiscal 2011, in connection with the decline in forecasted revenue surrounding the change in the Italian FIT, SunPower reclassified an amount held in accumulated other comprehensive income (loss) to other income (expense), net for certain previously anticipated transactions which did not occur or were now probable not to occur. SunPower excludes this item as it is not reflective of ongoing operating results and excluding this data provides investors with a basis to compare the company's performance against the performance of other companies without such transactions.

• Non-cash interest expense. SunPower separately accounted for the liability and equity components of its convertible debt issued in 2007 in a manner that reflected interest expense equal to its non-convertible debt borrowing rate. In addition, SunPower measured the two share lending arrangements entered into in connection with its convertible debt issued in 2007 at fair value and amortized the imputed share lending costs in current and prior periods. As a result, SunPower incurs interest expense that is substantially higher than interest payable on its 1.25% senior convertible debentures and 0.75% senior convertible debentures.

In addition, SunPower separately accounted for the fair value liabilities of the embedded cash conversion option and the over-allotment option on its 4.5% senior cash convertible debentures issued in 2010 as an original issue discount and a corresponding derivative conversion liability. As a result, SunPower incurs interest expense that is substantially higher than interest payable on its 4.5% senior cash convertible debentures. SunPower excludes non-cash interest expense because the expense is not reflective of its ongoing financial results in the period incurred. Excluding this data provides investors with a basis to compare the company's performance against the performance of other companies without non-cash interest expense.

• Gain (loss) on mark-to-market derivative instruments. In connection with the issuance of its 4.5% senior cash convertible debentures in 2010, SunPower entered into certain convertible debenture hedge and warrant transactions with respect to its class A common stock intended to reduce the potential cash payments that would occur upon conversion of the debentures. The convertible debenture hedge and warrant transactions consisting of call option instruments are deemed to be mark-to-market derivatives until such transactions settle or expire. As of December 23, 2010, the warrant transactions were amended to be share-settled rather than cash-settled, therefore, the warrant transactions are not subject to mark-to-market accounting treatment subsequent to December 23, 2010. In addition, the embedded cash conversion option of the debt is deemed to be a mark-to-market derivative instrument during the period in which the cash convertible debt remains outstanding. Finally, the over-allotment option in favor of the debenture underwriters is deemed a mark-to-market derivative instrument during the period the over-allotment option remained unexercised, or from April 1, 2010 through April 5, 2010. SunPower excluded the net gain (loss) relating to the above mentioned derivative instruments from its non-GAAP results because it was not realized in cash and it is not reflective of the company's ongoing financial results. Excluding this data provides investors with a basis to compare the company's performance against the performance of other companies without a net non-cash gain (loss) on mark-to-market derivative instruments.

• Gain on change in equity interest in unconsolidated investee. On June 30, 2010, Woongjin Energy Co., Ltd ("Woongjin Energy") completed its initial public offering and the sale of 15.9 million new shares of common stock. In the second quarter of 2011, Woongjin Energy issued additional equity to other investors. SunPower did not participate in these common stock issuances by Woongjin Energy. As a result of the new common stock issuances by Woongjin Energy, SunPower's percentage equity interest in Woongjin Energy decreased and SunPower recognized a non-cash gain in both the second quarter of 2011 and 2010, representing the excess of the price over SunPower's per share carrying value of its shares. SunPower excluded the non-cash gain from its non-GAAP results because it was not realized in cash and it is not reflective of its ongoing financial results. Excluding this data provides investors with a basis to compare SunPower's performance against the performance of other companies without non-cash income from a gain on change in its equity interest in unconsolidated investees.

• Gain on sale of equity interest in unconsolidated investee. As noted in the "Gain on change in equity interest in unconsolidated investee" section above, SunPower previously excluded certain non-cash gains from its non-GAAP results.  During the third quarter of 2011, SunPower sold a portion of its equity interests in Woongjin Energy. As the gain on sale was now realized in cash, SunPower recognized an incremental gain on sale in its non-GAAP results based on the cumulative amount of gains previously excluded from non-GAAP results and the proportional amount of equity interests sold.

• Tax effect. This amount is used to present each of the amounts described above on an after-tax basis with the presentation of non-GAAP net income (loss) per share.

• Income from discontinued operations, net of taxes. In connection with a prior acquisition completed on March 26, 2010, it acquired an already completed and operating solar power plant. In the period in which an asset of SunPower is classified as held-for-sale, it is required to present the related assets, liabilities and results of operations associated with that asset as discontinued operations in its financial statements in accordance with GAAP. During the second quarter of 2010, SunPower generated electricity revenue and incurred costs and expenses associated with this owned asset. The presentation of SunPower's Consolidated Statements of Operations discloses the results of operations of the solar power plant as a one line item classification as discontinued operations in accordance with GAAP. As such, the presentation of GAAP gross margin and GAAP operating income in the second quarter of 2010 excludes the results of these discontinued operations. SunPower reclassified the results of the solar power plant operations from the one line discontinued operations classification for GAAP purposes to the natural account classifications (revenue, etc.) within non-GAAP gross margin and non-GAAP operating income. SunPower believes this reclassification of the solar power plant's results of operations provides an appropriate representation of the results of SunPower's operations during the quarter in operating a solar power plant.

For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of GAAP Measures to Non-GAAP Measures" set forth at the end of this release and which should be read together with the preceding financial statements prepared in accordance with GAAP.

SUNPOWER CORPORATION

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(Unaudited)

(In thousands, except per share data)

STATEMENT OF OPERATIONS DATA:

THREE MONTHS ENDED

NINE MONTHS ENDED

Oct. 2,

Jul. 3,

Oct. 3,

Oct. 2,

Oct. 3,

2011

2011

2010

2011

2010

GAAP utility and power plants revenue                               

$                 324,542

$                 302,439

$                 257,803

$                 872,890

$                 521,896

Discontinued operations

-

-

3,176

-

11,081

Non-GAAP utility and power plants revenue

$                 324,542

$                 302,439

$                 260,979

$                 872,890

$                 532,977

GAAP total revenue

$                 705,427

$                 592,255

$                 550,645

$              1,749,100

$              1,282,157

Discontinued operations

-

-

3,176

-

11,081

Non-GAAP total revenue

$                 705,427

$                 592,255

$                 553,821

$              1,749,100

$              1,293,238

GAAP utility and power plants gross margin

$                   39,005

12%

$                    (6,593)

-2%

$                   45,277

18%

$                   75,310

9%

$                 100,718

19%

Amortization of intangible assets

63

65

946

230

2,409

Stock-based compensation expense

1,762

2,414

2,442

5,061

5,265

Loss on change in European government incentives

-

29,082

29,082

-

Non-cash interest expense

193

601

293

1,179

969

Discontinued operations

-

-

3,176

-

11,081

Non-GAAP utility and power plants gross margin

$                   41,023

13%

$                   25,569

8%

$                   52,134

20%

$                 110,862

13%

$                 120,442

23%

GAAP residential and commercial gross margin

$                   37,119

10%

$                   25,887

9%

$                   67,308

23%

$                 108,630

12%

$                 171,461

23%

Amortization of intangible assets

-

2

1,745

195

5,994

Stock-based compensation expense

1,948

2,859

1,941

5,843

5,759

Loss on change in European government incentives

-

19,381

19,381

-

Non-cash interest expense

202

155

270

1,006

1,165

Non-GAAP residential and commercial gross margin

$                   39,269

10%

$                   48,284

17%

$                   71,264

24%

$                 135,055

15%

$                 184,379

24%

GAAP total gross margin

$                   76,124

11%

$                   19,294

3%

$                 112,585

20%

$                 183,940

11%

$                 272,179

21%

Amortization of intangible assets

63

67

2,691

425

8,403

Stock-based compensation expense

3,710

5,273

4,383

10,904

11,024

Loss on change in European government incentives

-

48,463

48,463

-

Non-cash interest expense

395

756

563

2,185

2,134

Discontinued operations

-

-

3,176

-

11,081

Non-GAAP total gross margin

$                   80,292

11%

$                   73,853

12%

$                 123,398

22%

$                 245,917

14%

$                 304,821

24%

GAAP operating loss

$                (363,264)

$                (100,125)

$                     8,188

$                (464,692)

$                     3,513

Goodwill and other intangible asset impairment

349,758

-

-

349,758

-

Amortization of intangible assets

6,682

6,868

11,578

20,614

28,039

Stock-based compensation expense

11,849

12,817

15,665

37,829

38,064

Total investment related costs

429

13,123

13,552

-

Amortization of promissory notes

134

2,062

6,022

3,486

8,941

Loss on change in European government incentives

637

60,407

61,044

-

Non-cash interest expense

417

758

563

2,209

2,134

Discontinued operations

-

-

3,176

-

11,059

Non-GAAP operating income

$                     6,642

$                    (4,090)

$                   45,192

$                   23,800

$                   91,750

NET INCOME (LOSS) PER SHARE:

THREE MONTHS ENDED

NINE MONTHS ENDED

Oct. 2,

Jul. 3,

Oct. 3,

Oct. 2,

Oct. 3,

2011

2011

2010

2011

2010

Basic:                                                                                             

GAAP net income (loss) per share

$