UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

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

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

Commission File Number 1-8403

ENERGY CONVERSION DEVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware		38-1749884
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3800 Lapeer Road, Auburn Hills, Michigan		48326
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (248) 475-0100

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of each Exchange on which registered
Common Stock, $.01 par value per share		NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

 

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

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

     As of December 31, 2010, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $244.4 million based on the closing price as reported on the NASDAQ Global Select Market. As of August 19, 2011, there were 53,269,925 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the registrant’s Proxy Statement to be filed within 120 days of June 30, 2011 for the 2011 Annual Meeting of Stockholders.

 

 

TABLE OF CONTENTS
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
FORM 10-K
FISCAL YEAR ENDED JUNE 30, 2011

PART I
Item 1: Business			1
Item 1A: Risk Factors			8
Item 1B: Unresolved Staff Comments			22
Item 2: Properties			22
Item 3: Legal Proceedings			23
Item 4: Removed and Reserved			23
PART II
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
Item 6: Selected Financial Data			26
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 7A: Quantitative and Qualitative Disclosures about Market Risk			43
Item 8: Financial Statements and Supplementary Data			44
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			89
Item 9A: Controls and Procedures			89
Item 9B: Other Information			91
PART III
Item 10: Directors, Executive Officers and Corporate Governance			92
Item 11: Executive Compensation			92
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13: Certain Relationships and Related Transactions, and Director Independence			93
Item 14: Principal Accounting Fees and Services			93
PART IV
Item 15: Exhibits, Financial Statement Schedules			94
Schedule II - Valuation and Qualifying Accounts			97
Signatures			98
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32

PART I
Energy Conversion Devices, Inc. and Subsidiaries

Item 1: Business

     In this Report, we use the terms “Company,” “ECD,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, to refer to Energy Conversion Devices, Inc. and its consolidated subsidiaries. Certain disclosures included in this Report constitute forward-looking statements that are subject to risks and uncertainties. See Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements.”

Overview

     Energy Conversion Devices, Inc. (ECD) (NASDAQ: ENER), through its United Solar Ovonic (“USO”) subsidiary, is a global leader in building-integrated and rooftop photovoltaics (“PV”). The Company manufactures, sells and installs thin-film solar laminates that convert sunlight to clean, renewable energy using proprietary technology. ECD’s UNI-SOLAR^® brand products are unique because of their flexibility, lightweight, ease of installation, durability and real-world efficiency.

     In addition, ECD’s Ovonic Materials Division is a pioneer in advanced battery technology, primarily as the inventor and worldwide licensor of nickel-metal-hydride (“NiMH”) battery technology, as well as state-of-the-art cathode materials for Lithium-Ion (“Li-Ion”) batteries, and is developing low-cost fuel cells, hydrogen production from bioreformation and hydrogen storage technologies. In July 2011, we announced that we are seeking a strategic sale of our subsidiary, Ovonic Battery Company, Inc. (“OBC”), which comprises substantially all of the business of our Ovonic Materials Division, in order to focus on our United Solar Ovonic business activities.

Our Business Segments

     We operate our business in two segments: United Solar Ovonic and Ovonic Materials. Financial information regarding each segment is available in Note 25, “Business Segments,” to our Notes to the Consolidated Financial Statements.

United Solar Ovonic

     Our USO segment, which primarily consists of our wholly owned subsidiary, United Solar Ovonic LLC, is the world’s only large-scale manufacturer of flexible PV laminates designed to be integrated directly with roofing materials. Our PV laminates, which are marketed under the UNI-SOLAR^® brand, have several advantages over conventional, commodity glass-based solar panels, including: better aesthetics; lighter weight; suitability for a broader range of commercial roofs including the growing low-load bearing roof and building-integrated photovoltaic (“BIPV”) market; easier installation including the ability to be factory integrated into roofing materials; no roof penetrations; lower total installed cost; and higher incentives in key markets.

     We sell our PV laminates principally for commercial and industrial rooftop applications through roofing materials manufacturers, builders and building contractors, and solar power installers/integrators that incorporate our PV laminates into their products for commercial sale and then handle all aspects of

the customer relationship, including marketing, sales and service. Our products offer solutions for low load-bearing rooftops, BIPV and building-applied photovoltaics (“BAPV”).

     In addition to commercial rooftop solutions, we are expanding our product line to include residential applications. Our PowerShingle™ has the look of a conventional asphalt shingle and is installed in a similar fashion. The product leverages the unique characteristics of UNI-SOLAR^® laminates and opens the fast-growing residential rooftop solar market to us.

     We manufacture our PV laminates using our proprietary vacuum deposition and large-scale, roll-to-roll manufacturing process that deposits amorphous silicon as a thin film on a stainless steel substrate. We have designed, developed and manufactured the automated production equipment based on these proprietary technologies. We believe our manufacturing process and product design create significant barriers to entry for competitors who may seek to produce products similar to ours. We also believe that consolidating our PV equipment design and manufacturing activities with our PV laminate manufacturing process allows us to more effectively improve our manufacturing efficiency and reduce capital costs.

     Our PV modules compete with conventional electricity generation technologies and renewable energy generation technologies such as wind-powered turbines. Our principal competitors in the solar market include the following: Sharp Corporation, Q-Cells AG, Kyocera Corporation, Sanyo Electric Co., Ltd. (“Sanyo”), SunPower Corp., Mitsubishi Electric Corporation, Yingli Green Energy, Trina Solar Limited, and Suntech Power Holdings Co., Ltd., all of which predominantly manufacture crystalline or polycrystalline silicon PV modules, and First Solar, Inc., which manufactures thin-film cadmium telluride PV modules on glass substrates. Solyndra LLC, Global Solar Energy Inc. and Ascent Solar Technologies, Inc., all of which manufacture copper indium gallium diselenide (“CIGS”) solar modules, represent emerging technologies seeking to compete with us. The competitiveness of alternative energy generation products, including solar power products, is typically enhanced by governmental incentives designed to encourage the use of these products as compared to conventional energy-generation sources, which today are less expensive at the customer level in most locations. However, our long-term goal is to compete directly, without subsidies, in energy markets.

     We have entered into long-term supply agreements with our customers, some of which are “take-or-pay” agreements (under which we could demand that the customer purchase a specified minimum amount of our products). As of June 30, 2011, our backlog of anticipated product sales for fiscal years 2012 through 2016 was $303.0 million. As of June 30, 2010, our backlog of anticipated product sales was approximately $634.6 million. Anticipated product sales include future firm commitments under take-or-pay agreements (i.e., contractually required minimum quantities), confirmed orders from customers as of June 30, 2011, and government contracts. The Company’s estimate of anticipated product sales may be impacted by various assumptions, including anticipated price reductions, currency exchange rates and overall customer demand. Current macroeconomic conditions, including the global economic crisis, are adversely impacting our customers, including some customers (who are unable to fully comply) with take-or-pay agreements, and, as a result, our revenues and net income are likewise adversely impacted. We are working with our customers to preserve relationships and maximize long-term value by, among other things, reallocating product shipments to other customers and pursuing other remedies (including contract renegotiations), as appropriate on a case-by-case basis. For a discussion of the risks associated with our backlog and customer demand more generally, see Item 1A, “Risk Factors.”

     Our strategic customers include Soprema, Constellation Energy, General Membrane, Unimetal, Alwitra Flachdach Systeme GmbH, Marcegaglia Taranto S.p.A., and Derbigum Suisse Sarl. The only customer with sales in excess of 10% of our solar sales for the 2011 fiscal year were affiliates of the Winch Energy Group, which collectively represented 15% of our solar sales, in connection with a series

of solar installation projects in Southern Italy. The only customer with sales in excess of 10% of our solar sales for the 2010 fiscal year was Enel Green Power, which represented 20% of our solar sales, in connection with a solar project in Naples, Italy. For more information about our major customers and our revenues by geographic region, see Note 25, “Business Segments,” to our Notes to the Consolidated Financial Statements.

     We presently have 120 megawatts (“MW”) of nameplate manufacturing capacity. Our long-term research and development strategy involves reducing production costs, improving light-to-electricity conversion efficiency and identifying new commercial applications for our products. We seek to offset our research and development costs with third-party funding, including product development agreements and government funding. In June 2010, we announced our “Technology Roadmap” to improve our conversion efficiency and reduce manufacturing cost per watt by introducing new processes in our production machines. In the first phase, we modified, and are now optimizing, a deposition line at our Auburn Hills campus to incorporate our new high frequency (“HF”) deposition technology. The next phase will involve modifications of another deposition line at our Greenville campus to incorporate our HF technology depositing enhanced-efficiency silicon (“Nano-Crystalline™”), which is expected to further increase aperture area efficiency in calendar year 2012, with further reductions in cost per watt. These modifications will also increase the capacity of the modified lines.

     The key raw materials used in our United Solar Ovonic segment are stainless steel, high purity industrial gases (primarily argon, nitrogen, hydrogen, silane and germane) and polymer materials. We believe we have adequate sources for the supply of key raw materials and components for our PV laminate manufacturing needs. We have recently expanded our supplier base for certain key raw materials and components for efficiency, cost reduction and quality, while limiting the number of suppliers who act as the single-source supplier for a particular raw material. We are actively managing our direct material costs through purchasing strategies, product design and operating improvements. We have entered into long-term supply agreements, some of which are “take-or-pay” agreements that require us to purchase a specified minimum amount of materials, with our suppliers.

     Our United Solar Ovonic segment is headquartered in Auburn Hills, Michigan, and has manufacturing facilities in Auburn Hills and Greenville, Michigan, Tijuana, Mexico and LaSalle, Ontario. We maintain sales offices in France, Germany, Italy and the United States. Additionally, we have established a joint venture, United Solar Ovonic Jinneng Limited, which is organized under the laws of the People’s Republic of China, to manufacture solar products in China for sale in the Chinese market using solar cells purchased from, and technology licensed by, USO. We presently own 25% of the joint venture, with the option to increase our ownership to 51% in certain circumstances. Tianjin Jinneng Investment Co. owns the remainder of the joint venture. The joint venture commenced operations in the fourth quarter of fiscal year 2010.

Ovonic Materials

     Our Ovonic Materials segment invents, designs and develops materials and products based on our pioneering materials science technology. We seek to commercialize our proprietary technology internally and through third-party relationships, such as licenses and joint ventures. We commercialize our advanced battery technology, both NiMH batteries and Li-Ion cathode materials technologies, through this segment. We are also engaged in pre-commercialization activities for our emerging technologies the funding of which we seek to offset with royalties and licensing revenues and third-party funding, including product development agreements and government funding.

     In July 2011, we announced that we are seeking a strategic sale of our subsidiary OBC, which conducts our NiMH battery technology licensing and materials manufacturing activities and comprises substantially all of the business of this segment, in order to focus on our United Solar Ovonic business activities. OBC is a consolidated subsidiary, in which we have a 93.6% equity interest with the balance owned by Honda Motor Company, Ltd. (3.2%) and Sanoh Industrial Co., Ltd. (3.2%).

Advanced Battery Technology

     We have established our advanced battery technology platform based upon our proprietary NiMH and Li-Ion battery technologies. Our NiMH technology has historically formed the core of this business, and we are executing on a commercialization strategy focused principally upon licensing our NiMH battery technology to battery manufacturers throughout the world for consumer, transportation and stationary applications. We are in the process of implementing a similar commercialization strategy for our Li-Ion cathode materials technology. We also offer proprietary high-performance mixed-metal hydroxide cathode materials for use in both NiMH and Li-Ion batteries.

     NiMH batteries are rechargeable energy storage solutions offering high power and energy, long cycle life and maintenance-free operation. Li-Ion batteries are also rechargeable energy storage solutions typically offering higher energy density than comparable NiMH batteries but do not have the proven durability and abuse tolerance of NiMH batteries. Products using our NiMH battery technology compete with lithium battery technologies, lead-acid, nickel-cadmium and primary alkaline disposable batteries.

     Our advanced battery technologies are adaptable to a broad range of consumer, transportation and stationary applications. Transportation NiMH batteries are in widespread commercial use in hybrid electric vehicles where the NiMH chemistry offers proven cost, safety, performance and durability. The electrification of vehicles worldwide in hybrid electric vehicles (“HEV”), plug-in HEV (“PHEV”) and pure battery electric vehicles (“BEVs”) is expected to be a high-growth opportunity for rechargeable batteries, although there is significant competition in these transportation segments from emerging technologies such as Li-Ion.

Licensing

     We have licensed our NiMH battery technology to worldwide NiMH battery manufacturers, principally for consumer and transportation applications, on a royalty-bearing, non-exclusive basis. We receive royalties from manufacturers who are currently producing NiMH batteries using our technology. Royalties from Sanyo for consumer and transportation applications represented 48% and 36% of our revenues in this segment for fiscal years 2011 and 2010, respectively.

     We plan to commercialize our Li-Ion cathode materials technology through licensing and cooperative ventures with our existing and new licensees and strategic value-chain partners.

Materials Manufacturing

     We produce proprietary high-performance mixed-metal hydroxide cathode materials for use in NiMH and Li-Ion batteries. Our proprietary cathode materials offer advantages such as higher capacity and power, greater cycle life, high-temperature performance and lower costs. Sales to Gold Peak Industries (Holdings) Limited represented 100% of our NiMH materials product sales in this segment for both fiscal years 2011 and 2010, and 0.7% and 16%, respectively, of our total revenues in this segment for fiscal years 2011 and 2010. We conduct our manufacturing operations at a semi-automated facility in Troy, Michigan.

     The raw materials used in our mixed-metal hydroxide business are primarily nickel, cobalt and manganese. All of the raw materials used are generally readily available from numerous sources, but interruptions in production or delivery of key raw materials could have an adverse impact on our manufacturing operations in this segment. Prices for these raw materials fluctuate in the normal course of business due to supply and demand. Our product pricing formula to our customers is based on the raw material price.

Emerging Technologies

     Our research and development activities have generated new technologies, which we are seeking to commercialize. These technologies, some of which are discussed below, require further development and substantial additional funding to reach widespread commercial product status. We seek to offset our funding requirements by obtaining third-party funding through strategic alliances and government contracts.

     Ovonic Solid Hydrogen Storage Technologies

     Hydrogen is a clean and efficient fuel source, and we are developing a practical approach of storing hydrogen in a solid metal matrix at low pressures using a family of efficient metal hydrides. Our solid hydrogen storage solutions have several advantages over conventional gaseous and liquid storage solutions, including improved volumetric density and greater safety due to our technology’s low-pressure refilling and storage capabilities. We are presently selling pre-production volumes of portable hydrogen canisters manufactured in our Rochester Hills, Michigan facility.

     Ovonic Metal Hydride Fuel Cell Technologies

     Fuel cells are environmentally clean power generators in which hydrogen and oxygen are combined to produce electricity, with water and heat as the only by-products. Our proprietary Ovonic metal hydride-based alkaline fuel cell technology provides equivalent power at a much lower cost compared to conventional stationary proton exchange membrane (“PEM”) fuel cells, which use expensive platinum catalysts. As part of our development activities, we have demonstrated high power, long life fuel stacks that meet the power and life requirements of certain stationary market applications at a fraction of the cost of PEM fuel cells.

     Ovonic Bioreformation Technologies

     Hydrogen is a widely used industrial gas. Our Ovonic reformation technology produces high-purity hydrogen in a safe process from a variety of renewable biofuel and biomass sources at far lower operating temperatures than commercial processes and without the generation of carbon dioxide gas. Our proprietary process has the potential to dramatically reduce distributed hydrogen cost by eliminating high transportation costs.

     Ovonyx

     Our Ovonyx joint venture is commercializing our proprietary Ovonic Universal Memory (“OUM”) technology through licensing and product development arrangements. OUM is a type of nonvolatile memory that can replace conventional nonvolatile or FLASH memory in applications requiring retention of stored data when power is turned off, including in smartphones, computers, digital cameras and microelectronics. OUM, which is also known in the semiconductor industry as phase-change random access memory (“PCM” or “PRAM”), offers several advantages over conventional nonvolatile memory,

including significantly faster write time, greater scalability, lower power utilization and longer life, and is compatible with existing complementary metal-oxide-semiconductor manufacturing processes.

     We own 38.6% (or 33.3% on a fully diluted basis after giving effect to the potential exercise of stock options and warrants) of the common stock of Ovonyx. As part of this joint venture arrangement, we have contributed intellectual property, licenses, production processes and know how. In addition to our equity interest in Ovonyx, we receive 0.5% of the Ovonyx annual gross revenue as a royalty.

     Ovonyx has entered into royalty-bearing, nonexclusive license agreements with Intel Corporation, Samsung Electronics Co., Ltd., Elpida Memory, Inc., STMicroelectronics N.V., BAE Systems, Hynix Semiconductor, Inc. and Numonyx B.V. (acquired by Micron Technology, Inc.) to produce OUM products. Under most of these agreements, Ovonyx has participated in joint development programs to assist in the commercialization of OUM phase-change memory products.

Our Technology and Intellectual Property

     The principal markets in which we compete — the alternative energy generation, energy storage and information technology markets — are characterized by rapid change and competition driven by technological and product performance advantages, as well as cost. We have driven some of this activity through our pioneering and proprietary materials, product and production process technologies. At the same time, we are actively engaged in product design and development to commercialize and improve our materials, products and production processes.

Research and Development Expenditures

     Our research and development expenditures are reflected as cost of revenues from product development agreements and product development and research expenses in our Consolidated Statements of Operations. We seek to offset our research and development costs with third-party funding, including joint ventures, product development agreements and government funding.

Patents and Intellectual Property

     We maintain an extensive patent portfolio presently consisting of approximately 240 U.S. patents and 247 foreign counterparts to which we are regularly adding new patents based upon our continuing research and development activities. Importantly, our portfolio includes numerous basic and fundamental patents applicable to each of our segments, covering not only materials, but also the production technology and products we develop. Based on the breadth and depth of our patent portfolio, we believe that our proprietary patent position is sustainable notwithstanding the expiration of certain patents. We do not expect the expiration of any patents to materially affect the business prospects of any of our segments.

Competition

     Since our businesses are based upon our pioneering technologies that offer fundamental solutions in the alternative energy generation, energy storage and information technology markets, we compete not only at the product level for market share but also at the technology level for market acceptance. Consequently, our competition includes well-established conventional technologies, other alternative technology solutions and other technologies within an alternative solution. For example, our PV technology competes with conventional electricity-generation technologies, such as gas and coal; alternative electricity-generation technologies, such as wind and nuclear; and other solar technologies, such as crystalline and thin-film products. Our business competitors include some of the world’s largest

industrial companies, many of which are pursuing new technology solutions in addition to their well-established conventional technologies.

     A key factor affecting demand for PV systems is the levelized cost of energy (“LCOE”) supplied by such systems in comparison to other sources of electricity. LCOE is determined by dividing the net present value of the total lifetime cost of a PV system by the net present value of the total energy output of the system measured in kilowatt hours. Major factors affecting the LCOE of PV systems include the cost of the PV products, energy conversion efficiency of the PV products, cost of the remaining components of the PV system (“balance-of-system costs”), maintenance costs, and durability of performance, including energy yield. Incentive structures, if applicable, also affect the value of a PV system’s LCOE. Developers and purchasers of PV systems, particularly utility-scale and large commercial grid-connected systems, generally seek to obtain the lowest LCOE by choosing PV systems that optimize this combination of low PV product cost, high conversion efficiency, low balance-of-system and maintenance costs, and long-time durability. As a result of technology innovation, manufacturing scale and efficiency improvements and dramatic reductions in the cost of polycrystalline silicon and certain other raw materials used in many PV products, the LCOE of PV systems generally has been declining rapidly in recent years.

     We believe our research and development activities demonstrate our key business and technological advantages, mainly through our continuous efforts in inventing new technologies and improving existing materials, products and production processes. However, even as we successfully pursue these research and development activities, some of our technologies, particularly in the alternative energy generation and energy storage markets, presently face commercial barriers as compared to well-established conventional technologies, including infrastructural barriers, customer transition costs and higher manufacturing costs associated with present production volumes. The competitiveness of products based on our technologies in these areas is typically enhanced by external factors, including rising energy costs, concerns regarding energy security and governmental incentives at the consumer level. Our long-term goal is to compete directly in energy markets without subsidies.

Our Employees

     As of June 30, 2011, we employed approximately 1,300 people, approximately 610 of whom are located in the United States.

Available Information

     Our website address is energyconversiondevices.com. We make available on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). We also make available on our website, or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct, charters for the committees of our Board of Directors and other information related to the Company. The information found on our website is not part of this or any other report we file with, or furnish to, the SEC.

Item 1A: Risk Factors

Our success depends significantly on our ability through technology improvements to reduce the cost and improve the conversion efficiency of our solar laminates and otherwise to continue to develop and market new and innovative products. There can be no assurance that such efforts will be successful or the capital spending required will be available.

     Our financial performance depends in part on our ability to enhance our existing solar laminates, develop new and innovative products and product applications, reduce our costs of producing solar laminates, and adopt or develop new technologies that continue to differentiate our products from those of our competitors. The continued demand for our solar products is premised in part on the features of our solar laminates that distinguish them from the solar products of our competitors and the resulting unique product applications. These features include physical flexibility, the ability of our laminates to be integrated with roofing materials, light weight, superior resistance to wind uplift, durability, no roof penetration and ease of installation. There are companies using similar or competitive technologies that have introduced or announced plans to introduce solar products incorporating some or all of these features. In addition, all solar products compete based on efficiency and significant advances in the efficiency of the solar products of our competitors also could provide them with a competitive advantage. If we fail to enhance our existing solar laminates, develop new and innovative products and product applications, or adopt or develop new technologies that continue to differentiate our products from those of our competitors, our business, financial condition and results of operations could be adversely affected.

     We are executing on our Technology Roadmap to improve both the conversion efficiency and cost per watt of our laminates and thereby reduce the LCOE of PV systems that incorporate our laminates to enhance our ability to compete more effectively with other PV suppliers. Our Technology Roadmap requires a substantial investment of financial resources and novel alterations of our manufacturing processes and product designs. It also requires careful project management and coordination of multiple simultaneous activities. There is no assurance that we will have access to sufficient capital to fund our Technology Roadmap or otherwise be able to execute fully or timely on our Technology Roadmap in order to achieve the cost-reduction and conversion-efficiency goals that we have established. If we are unable to achieve these goals, our ability to compete effectively with other PV suppliers and our financial condition and results of operations will be adversely affected.

The continuing global economic, capital markets and credit disruptions, including sovereign debt issues, pose risks for our business segments.

     The continuing global economic, capital markets and credit disruptions, including the sovereign debt issues in Europe, pose risks for our business segments. These risks include slower economic activity and investment in construction projects that make use of our products and services. These economic developments, particularly decreased credit availability, have reduced demand for solar products, including our solar laminates. Further, these conditions have caused some of our customers to be unable to fully comply with the terms of their agreements to purchase our solar laminates.

     Continued decreases in credit availability, as well as continued economic instability, may adversely impact our existing or future business and require that we reallocate product shipments from customers who are unable to satisfy their contractual obligations to other customers or pursue other remedies, including contract renegotiation.

The decline in polysilicon prices, and the increase in the global capacity of PV products, is causing downward pressure on the prices of our products, resulting in lower revenues and earnings.

     Polysilicon, a key raw material for traditional crystalline PV products, is readily available to solar cell and module manufacturers after several years of short supply and prices have been falling rapidly. These price reductions by our competitors are contributing to price reductions of solar cells and modules that compete with our laminates. While we believe our laminates have unique characteristics that make them attractive for a variety of applications, particularly BIPV installations, the market price decline of competitive products is resulting in downward pressure on our pricing that negatively impacts our revenues and earnings and could impact inventory carrying values.

We have instituted demand-creation initiatives that are extending our business model and subjecting us to additional business and financial risks.

     We have instituted demand-creation initiatives in our United Solar Ovonic segment to stimulate demand for our products. Certain of these initiatives have extended our business model in this segment from principally manufacturing and selling laminates through our channel partners to include project origination, development, design, and installation. As a result, these initiatives have exposed us to additional business risks, such as credit risks (project financing), project construction and performance risks and risk of investment loss, which risks may be significant. There can be no assurance that these initiatives will successfully stimulate demand for our products.

In response to market conditions, we have instituted capital expenditure and cost-reduction initiatives that are impacting our financial performance and our cash resources and will continue to do so in the future.

     We have instituted a number of cost-reduction initiatives to improve our cost structure and preserve capital in response to market conditions. We have incurred restructuring expenses as a result of certain of these activities and may incur additional restructuring expenses as we pursue further cost-reduction activities in the future. In addition, in response to market conditions, we temporarily suspended our manufacturing expansion in our United Solar Ovonic segment and reduced our production in this segment. We recognized under-absorption of overhead costs resulting from our production adjustments and may recognize similar costs in the future if we do not operate our facilities at production capacity. If our production levels and related cash flows further reduce, we may be required to record an additional impairment to our property, plant and equipment, which could have a material adverse effect on our financial position and results of operations. Furthermore, there can be no assurance that market demand will align with our present manufacturing capacity and, as a result, our business could be materially adversely affected.

Volatility in customer demand in the solar industry could affect future levels of sales and profitability and limit our ability to predict such levels; if we are unable to balance our production levels with customer demand, our business and financial results will be materially adversely impacted.

     The market for solar products is volatile, fluctuating rapidly with global financial and political conditions. As a result of these market conditions, we have adjusted our production levels to meet expected demand with the result that we are operating significantly below capacity. If we are unable to balance our production levels with customer demand, our business and financial results will be materially adversely impacted.

     Historically, we have maintained moderate lead times, which have enabled customers to place orders close to their true needs for product. In defining our financial goals and projections, we consider inventory on hand, backlog, production cycles and expected order patterns from customers. If our estimates in these areas become inaccurate, we may not be able to meet our revenue goals and projections. Further, those orders may be for products that meet the customer’s unique requirements so that those cancelled orders would, in addition, result in an inventory of unsalable products, and thus potential inventory write-offs. We routinely estimate inventory reserves required for such products, but actual results may differ from these reserve estimates. If these differences are material, our business and financial results will be materially adversely impacted.

We face intense competition from other companies producing solar energy and other renewable energy products.

     The solar energy market is intensely competitive and rapidly evolving. The number of solar energy product manufacturers is rapidly increasing due to the growth of actual and forecast demand for solar energy products and the relatively low barriers to entry. If we fail to attract and retain customers in our target markets for our current and future core products, namely solar laminates, we will be unable to increase our revenue and market share. Some of our competitors have established more prominent market positions. If we fail to attract and retain customers and establish successful distribution networks in our target markets for our products, we will be unable to increase our sales. In addition, many of our competitors manufacture predominantly crystalline or polycrystalline silicon solar modules which are currently sold at lower cost and have higher conversion efficiency than our solar laminates.

     We may also face competition from new entrants to the solar energy market, including those that offer more advanced technological solutions or that have greater financial resources. A significant number of our competitors are developing or currently producing products based on more advanced solar energy technologies, including amorphous silicon, string ribbon, CIGS and nano technologies, which may eventually offer cost and technology advantages over the technologies currently used by us. A widespread adoption of any of these technologies could result in a rapid decline in our position in the solar energy market and our revenue if we fail to adopt such technologies or develop new competing technologies. Furthermore, the entire solar energy industry also faces competition from conventional energy (for example a decline in base grid electricity prices), and non-solar renewable energy providers. Due to the relatively high manufacturing costs compared to most other energy sources, solar energy is generally not competitive without government incentive programs.

     Many of our existing and potential competitors have substantially greater financial, technical, manufacturing and other resources than we do. Our competitors’ greater size in some cases provides them with a competitive advantage with respect to manufacturing because of their economies of scale and their ability to purchase raw materials at lower prices. As a result, those competitors may have stronger bargaining power with their suppliers and may have an advantage over us in negotiating favorable pricing, as well as securing supplies in times of shortages. Many of our competitors also have greater brand name recognition, more established distribution networks, balance of system capabilities, and larger customer bases. In addition, many of our competitors have well-established relationships with our current and potential distributors and have extensive knowledge of our target markets. As a result, they may be able to devote more resources to the research, development, promotion and sale of their products, or respond more quickly to evolving industry standards and changes in market conditions than we can. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors may materially and adversely affect our financial condition and results of operations.

Our customers increasingly need financing to purchase our products, which exposes us to additional business and credit risks.

     Availability and cost of financing are significant factors that affect demand for our products. Developers and owners of solar facilities typically require project financing before initiating a solar installation. Roofing contractors and other solar integrators must obtain working capital financing to carry inventory of our products and maintain their operations. Historically, most of our customers have arranged their own financing without assistance from us, but with the illiquidity of current financing markets some of our customers have sought various forms of credit support from us. From time to time, we may provide credit support to certain customers through open account sales or extended payment terms. Due to our size and capital constraints, we are not able to satisfy all credit requests by our customers. These credit support transactions expose us to credit risk, including the risk of default by customers. In addition, if we are unable to provide credit to our customers, or otherwise induce third parties to satisfy customer credit demands, we could lose sales and be unable to achieve our future business plan.

We have a history of losses and our future profitability is uncertain; the failure to maintain sustainable profitability could have a material adverse effect on our business, results of operations, financial condition and cash flows.

     Since our inception, we have incurred significant net losses. Principally as a result of ongoing operating losses, we had an accumulated deficit of $1,080.5 million as of June 30, 2011. Our goal is to operate our business in such a way that profitability is sustainable over the long term. Nonetheless, we may be unable to become profitable or sustain profitability in the future, which in turn could materially and adversely impact our ability to repay our debt and could materially decrease the market value of our common stock (and as a result, the value of our convertible senior notes). We expect to continue to make significant capital expenditures and anticipate that our cash needs will increase as we seek to:

	•		continuously improve our manufacturing operations, whether domestically or internationally;
	•		service our debt obligations;
	•		develop our distribution network;
	•		continue to research and develop our products and manufacturing technologies;
	•		implement our demand creation initiatives;
	•		implement internal systems and infrastructure to support our growth; and
	•		retain key members of management and other personnel, and hire additional personnel.

     We do not know whether our revenue will grow at all or grow rapidly enough to fund our cash needs and our limited operating history under our current business strategy and new management team makes it difficult to assess the extent of the expenses or their impact on our operating results. If we fail to achieve profitability, our business, results of operations, financial condition and cash flows could be materially adversely affected.

As a result of our outstanding convertible notes, we are highly leveraged. Our indebtedness, along with our other contractual commitments, could adversely affect our business, financial condition and results of operations, as well as our ability to meet any of our payment obligations. Additionally, if we are unable to generate sufficient cash flow to meet our payment obligations when they become due, we will need to refinance or restructure our payment obligations or pursue other alternatives, which may include seeking protection under federal bankruptcy laws.

     Together with our subsidiaries, we have a significant amount of debt and debt service requirements. As of June 30, 2011, we have approximately $263.2 million face value of outstanding debt due in June 2013 and approximately $60.7 million in other long-term obligations. This level of debt and related debt service could have significant consequences on our future operations, including:

	•		making it more difficult for us to meet our payment and other obligations;
	•		resulting in an event of default if we and our subsidiaries fail to comply with covenants contained in our debt agreements, which could result in such debt becoming immediately due and payable;
	•		reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
	•		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;
	•		making it difficult to attract additional investment capital or to consummate other transactions to fund our Technology Roadmap; and
	•		placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.

     Any of the above-listed factors could have an adverse effect on our business, financial condition, results of operations, liquidity and future prospects. Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that are beyond our control. Our ability to generate cash flow depends principally on the success of our Technology Roadmap to enhance our competitiveness by increasing the conversion efficiency and reducing the cost of our solar laminates. We cannot assure you that our Technology Roadmap will be successful, our business will generate cash flow from operations, or that future borrowings or other sources of capital will be available to us under existing or any future credit facilities or otherwise, in an amount sufficient to enable us to meet our payment obligations and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we will need to refinance or restructure our debt, sell assets, reduce or delay capital investments, seek to raise additional capital and/or undertake other transactions to meet our obligations. If we are unable to implement one or more of these alternatives in a satisfactory manner, we may not be able to meet our payment obligations under our debt and other obligations and we may be forced to seek protection under federal bankruptcy laws.

If we do not maintain compliance with NASDAQ Global Select Market continued listing requirements, our common stock may be delisted and we may be required to repurchase or refinance our convertible notes. Delisting may decrease our stock price and make it harder for our stockholders to trade our stock and would have a material adverse effect on our liquidity and potentially result in a default if we are required to repurchase our convertible senior notes before their current maturity in June 2013.

     Our common stock is currently listed for trading on the NASDAQ Global Select Market. The continued listing of our common stock is subject to the satisfaction of certain ongoing conditions pertaining to our financial performance and marketability of our stock, including the requirement that the minimum bid price of our common stock equal or exceed $1.00 at least once over any period of 30 consecutive trading days. The trading price of our stock is affected by numerous market factors apart from our financial performance and prospects that make it difficult to predict future stock prices. As of August 19, 2011, our common stock last exceeded the minimum bid requirement on August 2, 2011. If we are unable to meet the minimum bid price requirement, NASDAQ would promptly notify us of such deficiency and we generally would have a 180-day period to meet this requirement before our stock could be suspended from trading or delisted, although such period may be extended for appeals and, in the discretion of NASDAQ, for an additional compliance period of up to 180 days. During the 180-day compliance period, we would regain compliance with this listing standard if the minimum bid price exceeds $1.00 for 10 consecutive trading days (which may be extended to no more than 20 consecutive trading days at the election of NASDAQ staff). In addition, during any such period or any extension granted by NASDAQ we could seek to regain compliance with the minimum bid price requirement by obtaining stockholder approval of a reverse stock split. Due to the NASDAQ procedures and other methods of regaining compliance with the minimum bid criteria that are described above, we do not presently expect non-compliance with the minimum bid criteria to cause our common stock to be delisted. However, there can be no assurance that we will be able to maintain compliance with the minimum conditions for continued listing. If our common stock is removed from listing, the price of our common stock may decrease and it may become harder to trade our common stock. In addition, if our common stock ceases to be listed on the NASDAQ Global Select Market and is not listed on another U.S. national securities exchange, such event would constitute a “fundamental change” under the terms of our Convertible Senior Notes (“Notes”). In the event of a fundamental change, the holders of the Notes would have the right to require us to repurchase their Notes within 35 days, which would have a material adverse effect on our liquidity. There is no assurance that additional sources of liquidity to repay the notes can be obtained on terms acceptable to the Company, or at all. If we were unable to repurchase Notes under such circumstances, we would be in default under our indenture.

We may incur future restructuring charges and long-lived asset impairment losses.

     We have recorded long-lived asset impairment losses, including impairment losses for goodwill and intangible assets, and employee severance and restructuring charges. Generally, we record long-lived asset impairment losses when we determine that our estimates of the future undiscounted cash flows will not be sufficient to recover the carrying value of the long-lived assets. During 2011 and 2010, we recorded substantial long-lived asset impairment losses and wrote off the entire balance of our goodwill and intangible assets in 2010. In light of the continued volume reductions we have experienced, we may incur similar losses and charges in the future, and those losses and charges may be significant.

Significant warranty and product liability claims could adversely affect our business and results of operations.

     We may be subject to warranty and product liability claims in the event that our solar laminates or PV systems fail to perform as expected or if a failure of our solar laminates or PV systems results, or is

alleged to result, in bodily injury, property damage or other damages. Since our solar laminates and PV systems are electricity-producing devices, it is possible that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. In addition, because the products we are developing incorporate new technologies and use new installation methods, we cannot predict whether or not product liability claims will be brought against us in the future or the effect of any resulting negative publicity on our business. As a result of our acquisition of Solar Integrated Technologies, Inc. (“SIT”), we may be subject to warranty and product liability claims associated with the manufacture, sale and installation of products by SIT before the acquisition. Moreover, we may not have adequate resources in the event of a successful claim against us.

     Our current standard product warranty for our solar laminates ranges from 20-25 years. We believe our warranty periods are competitive with industry practice. Due to the long warranty period and our proprietary technology, we bear the risk of extensive warranty claims long after we have shipped product and recognized revenue. Although we test our solar power products for reliability and durability, we cannot ensure that we effectively simulate the 20-25 year warranty period. Any increase in the defect rate of our products would cause us to increase the amount of warranty reserves and have a corresponding negative impact on our financial results.

     A successful warranty or product liability claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation. The possibility of future product failures could cause us to incur substantial expenses to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share and cause sales to decline.

We have international operations, which we are expanding, that are vulnerable to risks associated with doing business in foreign countries.

     We have a PV laminate manufacturing facility in Tijuana, Mexico, a joint venture in Tianjin, China to manufacture PV laminates, and in 2011 we began establishing a PV laminate manufacturing facility in LaSalle, Ontario. Also, a portion of our expenses are denominated in currencies other than U.S. dollars. International operations and transactions are subject to certain risks inherent in doing business abroad, including:

	•		the potential that we may be forced to forfeit, voluntarily or involuntarily, foreign assets due to economic or political instability in the countries in which we choose to locate our manufacturing facilities;
	•		the potential that the debt crisis in certain European countries and financial restructuring efforts may cause the value of the Euro to further deteriorate and reduce the purchasing power of European customers;
	•		difficult and expensive compliance with the commercial and legal requirements of international markets;
	•		difficulty in interpreting and enforcing contracts governed by foreign law, which may be subject to multiple, conflicting and changing laws, regulations and tax systems;
	•		inability to obtain, maintain or enforce intellectual property rights;

	•		encountering trade barriers such as export requirements, tariffs, currency exchange controls, taxes and other restrictions and expenses, which could affect the competitive pricing of our solar laminates and reduce our market share in some countries;
	•		being subjected to additional withholding taxes or other tax on our foreign income or tariffs and other restrictions on foreign trade and investment, including currency exchange controls;
	•		being subjected to fluctuations in exchange rates which may affect product demand and our profitability in U.S. dollars to the extent the price of our solar laminates and cost of raw materials, labor and equipment is denominated in a foreign currency;
	•		limitations on dividends or restrictions against repatriation of earnings;
	•		difficulty in recruiting and retaining individuals skilled in international business operations;
	•		increased costs associated with maintaining international marketing efforts; and
	•		potentially adverse tax consequences associated with our permanent establishment of operations in more countries.

     In addition, since expanding our business globally is an important element of our strategy, our exposure to these risks will be greater in the future. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable. However, any such occurrences could be harmful to our business and our profitability.

Demand for our products is affected by existing regulations concerning the electrical utility industry; changes to such regulations may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products.

     The market for electricity generation products is influenced heavily by foreign, federal, state and local government regulations and policies concerning the electric utility industry, as well as internal policies and regulations promulgated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In the United States (at both the national level and the state and local level) and in a number of other countries, these regulations and policies are being modified and may continue to be modified.

     Customer purchases of, or further investment in the research and development of, alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our solar power products. For example, utility companies commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase the cost to our customers of using our solar power products and make them less desirable, thereby harming our business, prospects, results of operations and financial condition.

     We anticipate that our solar power products and their installation will be subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. There is also a burden in having to track the requirements of individual countries and states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us and our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar power products.

We receive a significant portion of our revenues from a small number of customers.

     We historically have entered into agreements with a relatively small number of major customers throughout the world. Our five largest customers represented approximately 41%, 42% and 46% of our total revenue for the fiscal years ended June 30, 2011, 2010 and 2009, respectively. Any loss or material reduction in sales to any of our top customers would be difficult to recoup from other customers and could have an adverse effect on our sales, results of operations, financial condition and cash flows.

The reduction or elimination of government incentives related to solar power could cause our revenues to decline.

     Today, the cost of solar power exceeds the cost of power furnished by the electric utility grid in most locations. As a result, federal, state and local government bodies in many countries, most notably Germany, Japan, Italy, Spain, France, Greece, China, Canada, United Kingdom and the United States, have provided incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy to reduce dependency on other forms of energy. Some of these government mandates and economic incentives have expired, are scheduled to be reduced or expire, or could be eliminated altogether. Reductions in, or eliminations or expirations of, incentives related to solar power could result in decreased demand for our solar laminates or result in increased price competition and lower our revenue. In 2011, changes to the government feed-in tariff programs in Italy and France adversely affected our business and may continue to do so.

The expansion of our business into new markets, such as residential, may increase our exposure to certain risks, including class action claims.

     We are developing and have launched new applications of our solar technology, including solar laminates to be integrated into residential roofing materials. Our new solar technology applications may not gain market acceptance and we may not otherwise be successful in entering new markets, including the market for residential applications. Moreover, entry into new markets may increase our exposure to certain risks that we currently face or expose us to new risks. For example, the residential construction market for solar energy systems is exposed to different risks than the commercial construction markets, including more acute seasonality, sensitivity to interest rates, and other macroeconomic conditions, as well as aesthetics and enhanced legal exposure. In particular, new home developments can result in class action litigation when one or more homes in a development experience problems with roofing or power systems. If we penetrate the residential market and experience product failures that create property damage or personal injury, we may be exposed to greater liability of a different nature than with respect to product failures in commercial building applications.

We have focused our business strategy on, and invested significant financial resources in, the BIPV segment of the PV market and there is no guarantee that the demand for BIPV systems will develop as we anticipate.

     Our recent business strategy has focused on increasing demand for BIPV systems. We believe that there has been an increase in demand for BIPV systems based in part on increasing interest and customer support from the building industry, solar customers and governments. As a result, we have invested, and will continue to invest, significant financial resources in the production and commercialization of our solar laminates for BIPV systems. If the BIPV segment does not develop as we anticipate, or takes longer to develop than we anticipate, we may experience difficulties implementing our growth and business targets. This in turn could adversely impact our business, financial condition and results from operations.

     We may be unable to obtain key raw materials that meet our quality, quantity and cost requirements.

     The key raw materials used in our business are stainless steel, resin-based polymers, nickel and high purity industrial gases, primarily argon, nitrogen, hydrogen, silane and germane. Most of our key raw materials are readily available from numerous sources; however, we have, in certain instances, selected single-source suppliers for certain key raw materials and components for efficiency, cost and quality. Our supply chain and operations could be adversely impacted by the failure of the suppliers of the single-sourced materials to provide us with the raw materials that meet our quality, quantity and cost requirements. In addition, significant shortages or price increases in raw materials that are not single-sourced may adversely impact our business. Any constraint on our production may cause us to be unable to meet our obligations under customer purchase orders, and any increase in the price of raw materials could constrain our margins, either of which would adversely impact our financial results. In order to limit the risk that raw materials would not be readily available to us, we entered into a number of firm volume contracts with raw material suppliers. Significant fluctuations in our purchasing volume for such raw materials could expose us to contract damages that would adversely impact our financial results.

     We actively manage our raw materials and other supply costs through purchasing strategies, product design and operating improvements; however, our management may not always be effective, which could adversely impact our supply chain and financial condition. Some of our suppliers may be unable to supply our demand for raw materials and components. In such event, we may be unable to identify new suppliers or qualify their products for use in our production lines in a timely manner and on commercially reasonable terms. Raw materials and components from new suppliers also may be less suited for our technology and yield solar laminates with lower conversion efficiencies, higher failure rates and higher rates of degradation than solar laminates manufactured with the raw materials from our current suppliers. Our failure to obtain raw materials and components that meet our quality, quantity and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar laminates or increase our manufacturing cost, either of which would adversely impact our prospects, financial condition and results of operations.

If we lose key personnel or are unable to attract and retain qualified personnel to maintain and expand our business, financial condition, results of operations and prospects could be adversely affected.

     Our success is highly dependent on the continued services of the senior management team and of a limited number of skilled managers, scientists and technicians. The loss of any of these individuals could have a material adverse effect on us. In addition, our success will depend upon, among other factors, the recruitment and retention of additional highly skilled and experienced management and technical personnel. There can be no assurance that we will be able to retain existing employees or to attract and retain additional personnel on acceptable terms given the competition for such personnel in industrial, academic and nonprofit research sectors.

We may become subject to legal or regulatory proceedings which may reach unfavorable resolutions.

     We are involved in legal proceedings arising in the normal course of business. Due to the inherent uncertainties of legal proceedings, the outcome of any such proceeding could be unfavorable, and we may choose to make payments or enter into other arrangements to settle such proceedings. Failure to settle such proceedings could require us to pay damages or other expenses, which could have a material adverse effect on our financial condition or results of operations. We have been subject to legal proceedings in

the past involving the validity and enforceability of certain of our patents. While such patent-related legal proceedings have been resolved, such proceedings can require the expenditure of substantial management time and financial resources and can adversely affect our financial performance. There can be no assurance that we will not be a party to other legal proceedings in the future.

We are subject to a variety of federal, state and local laws, rules and regulations related to the discharge or disposal of toxic, volatile or other hazardous chemicals that may expose us to liability and other compliance risks.

     Although we believe that we are in compliance with these laws, rules and regulations, the failure to comply with present or future regulations could result in fines, suspension of production or cessation of operations. Third parties may also have the right to sue to enforce compliance. Moreover, it is possible that increasingly strict requirements imposed by environmental laws and enforcement policies thereunder could require us to make significant capital expenditures.

     The operation of a manufacturing plant entails the inherent risk of environmental damage or personal injury due to the handling of potentially harmful substances. There can be no assurance that we will not incur material costs and liabilities in the future because of an accident or other event resulting in personal injury or unauthorized release of such substances into the environment. In addition, we generate hazardous materials and other wastes that are disposed of at licensed disposal facilities. We may be liable, irrespective of fault, for material cleanup costs or other liabilities incurred at these facilities in the event of a release of hazardous substances by such facilities into the environment.

Our success depends in part upon our ability to protect our intellectual property and our proprietary technology including our trade secrets and other confidential information.

     Our success depends in part on our ability to obtain and maintain intellectual property protection for products based on our technologies. Our policy is to seek to protect our products and technologies by, among other methods, filing United States and foreign patent applications related to our proprietary technology, inventions and improvements. The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. Our ability to maintain our proprietary position for our technology will depend on our success in obtaining effective patent claims and enforcing those claims once granted. We do not know whether any of our patent applications will result in the issuance of any patents. Our issued patents and those that we may issue in the future may be challenged, invalidated, rendered unenforceable or circumvented, which could limit our ability to stop competitors from marketing related products or the length of term of patent protection that we may have for our products and technologies. In addition, the rights granted under any issued patents may not provide us with competitive advantages against competitors with similar products or technologies. Furthermore, our competitors may independently develop similar technologies or duplicate technology developed by us in a manner that does not infringe our patents or other intellectual property. Because of the extensive time required for development and commercialization of products based on our technologies, it is possible that, before these products can be commercialized, any related patents may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of these patents and making it unlikely that we will be able to recover investments we have made to develop our technologies and products based on our technologies.

     In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we have entered into confidentiality agreements with our employees, agents and consultants upon the commencement of their relationships with us. These agreements require that all confidential

information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees also provide that inventions conceived by the individual in the course of rendering services to us will be our exclusive property. Individuals with whom we have these agreements may not comply with their terms. In the event of the unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection for our trade secrets or other confidential information. To the extent that our employees or consultants use technology or know-how owned by others in their work for us, disputes may arise as to the rights in related inventions. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets would impair our competitive position and could have a material adverse effect on our operating results, financial condition and future growth prospects.

We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.

     Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file patent infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

     Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and be a distraction to our management. We may not be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

     Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of this litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

     We may not prevail in any litigation or interference proceeding in which we are involved. Even if we do prevail, these proceedings can be expensive and distract our management.

Third parties may own or control patents or patent applications that are infringed by our products or technologies.

     Our success depends in part on avoiding the infringement of other parties’ patents and proprietary rights. In the United States and most other countries, patent applications are published 18 months after filing. As a result, there may be patents of which we are unaware, and avoiding patent infringement may be difficult. We may inadvertently infringe third-party patents or patent applications. These third parties could bring claims against us that, even if resolved in our favor, could cause us to incur substantial expenses and, if resolved against us, could additionally cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we and our joint venture partners and licensees could be

forced to stop or delay research, development, manufacturing or sales of products based on our technologies in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Such a license may not be available on acceptable terms, or at all, particularly if the third party is developing or marketing a product competitive with products based on our technologies. Even if we were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property.

     We also may be required to pay substantial damages to the patent holder in the event of an infringement. Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder.

     Any successful infringement action brought against us may also adversely affect marketing of products based on our technologies in other markets not covered by the infringement action. Furthermore, we may suffer adverse consequences from a successful infringement action against us even if the action is subsequently reversed on appeal, nullified through another action or resolved by settlement with the patent holder. The damages or other remedies awarded, if any, may be significant. As a result, any infringement action against us would likely harm our competitive position, be costly and require significant time and attention of our key management and technical personnel.

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may require us to pay substantial fines, suspend production or cease operations.

     The operation of our manufacturing facilities entails the use and handling of potentially harmful substances, including toxic and explosive gases that pose inherent risks of environmental damage or personal injury. Although we believe that we are in material compliance with environmental rules and regulations, there can be no assurance that we will not incur material costs and liabilities in the future because of an accident or other event resulting in personal injury or unauthorized release of such substances into the environment. We may be liable, irrespective of fault, for material cleanup costs or other liabilities incurred at these facilities in the event of a release of hazardous substances into the environment by our operations.

     For example, our manufacturing process involves the controlled storage and use of silane and germane gases, both of which are toxic and combustible. Although we have rigorous safety procedures for handling these materials, the risk of accidental injury from such hazardous materials cannot be completely eliminated. If we have an accident at one of our facilities involving a release of these substances, we may be subject to civil and/or criminal penalties, including financial penalties and damages, and possibly injunctions preventing us from continuing our operations.

     In addition, it is possible that increasingly strict requirements imposed by environmental laws and enforcement policies could require us to make significant capital expenditures. To date 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 more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial. The failure to comply with present or future regulations could result in fines, third-party lawsuits, and suspension of production or cessation of operations.

We have entered into joint ventures and licensing agreements to develop and commercialize products based on our technologies and we must manage such joint ventures and licensing agreements successfully.

     We have entered into licensing and joint venture agreements in order to develop and commercialize certain products based on our technologies. Any revenue or profits that may be derived by us from these agreements will be substantially dependent upon our ability to agree with our joint venture partners and licensees about the management and operation of the joint ventures and license agreements. In addition, any revenue or profits from such agreements will be substantially dependent on the willingness and ability of our joint venture partners and licensees to devote their financial resources and manufacturing and marketing capabilities to commercialize products based on our technologies. There can be no assurance that we will agree regarding the operation of such joint ventures and licensing agreements that required financial resources will be available on mutually agreeable terms or that commercialization efforts will be successful. If we and our joint venture partners and licensees are unable to agree with respect to the operation of our joint ventures and licensing agreements, are unwilling or unable to devote financial resources or are unable to commercialize products based on our technologies, we may not be able to realize revenue and profits based on our technologies and our business could be materially adversely affected.

Our government product development and research contracts may be terminated by unilateral government action, or we may be unsuccessful in obtaining new government contracts to replace those that have been terminated or completed.

     We have several government product development and research contracts. Any revenue or profits that may be derived by us from these contracts will be substantially dependent upon the government agencies’ willingness to continue to devote their financial resources to our research and development efforts. There can be no assurance that such financial resources will be available or that such research and development efforts will be successful. Our government contracts may be terminated for the convenience of the government at any time, even if we have fully performed our obligations under the contracts. Upon a termination for convenience, we would generally only be entitled to recover certain eligible costs and expenses we had incurred prior to termination and would not be entitled to any other payments or damages. Therefore, if government product development and research contracts are terminated or completed and we are unsuccessful in obtaining replacement government contracts, our revenue and profits may decline and our business may be adversely affected.

Our ability to utilize certain carryover tax attributes could be substantially limited if we experience an ownership change under the Internal Revenue Code, which may adversely affect our results of operations and financial condition.

     As a result of our past financial performance, we have significant net operating losses and research and development credit carryforwards which expire from 2012 to 2030. We also have certain built-in losses based on the tax basis of our assets. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), contains rules that limit the ability of a company that undergoes an ownership change to utilize its net operating loss carryforwards and certain built-in losses (generally, the excess of the tax basis in an asset over its fair market value as of the Section 382 change date) in years after the ownership change. The built-in loss rules apply to all future tax deductions, including depreciation, during a five-year period following the date of the ownership change. An “ownership change” for purposes of Section 382 of the Code generally refers to any change in ownership of more than 50% of the company’s stock over a three-year period. These rules generally operate by focusing on ownership

changes among stockholders owning, directly or indirectly, 5% or more of the stock of a company or any change in ownership arising from a new issuance of the company’s stock.

     If we undergo an ownership change for purposes of Section 382 as a result of future transactions involving our common stock, including purchases or sales of stock between our greater than 5% stockholders, our ability to use carryover tax attributes would be subject to the limitations of Section 382. Depending on the resulting limitations, a significant portion of our net operating loss carryforwards could expire before we would be able to use them and our future tax deductions for existing tax basis would be limited, which could potentially result in future tax payments. Our inability to utilize such carryover tax attributes may adversely affect our results of operations and financial condition.

Item 1B: Unresolved Staff Comments

     None.

Item 2: Properties

     Our corporate headquarters is located in Auburn Hills, Michigan. We currently own or lease facilities worldwide which are used for manufacturing, technical, research and development, sales, and administrative purposes. The manufacturing facilities range in size from 10,000 square feet to 326,000 square feet, with an aggregate of 1.7 million square feet. In addition, we own approximately 25 acres of land in Battle Creek, Michigan upon which we started the construction of a building for our manufacturing expansion and subsequently paused in the third quarter of fiscal year 2009. In August 2009, we acquired SIT which has its European headquarters in Mainz, Germany. We believe these facilities are adequate for our business needs.

     The following table presents the locations of our primary facilities and the segment that use such facilities:

Property Location		Own or Lease
Corporate Headquarters, Auburn Hills, Michigan		Lease
Ovonic Materials Segment
Rochester Hills, Michigan      Troy, Michigan		Lease Lease
United Solar Ovonic Segment
Auburn Hills, Michigan (2 facilities)      Greenville, Michigan (2 facilities)      Tijuana, Mexico      Los Angeles, California      Mainz, Germany      LaSalle, Ontario		Lease Own Lease Lease Lease Lease

     In addition, we lease sales offices for our United Solar Ovonic segment in Los Angeles, California and Mt. Laurel, New Jersey, USA; Villafranca, Italy; and Paris, France.

Item 3: Legal Proceedings

     We are involved in certain legal actions and claims arising in the ordinary course of business, including, without limitation, commercial disputes, intellectual property matters, personal injury claims, tax claims and employment matters. Although the outcome of any legal matter cannot be predicted with certainty, we do not believe that any of these other legal proceedings or matters in which we are currently involved, either individually or in the aggregate, will have a material adverse effect on our business, liquidity, consolidated financial position or results of operations.

Item 4: Removed and Reserved

PART II

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

     Our common stock is listed on the NASDAQ Global Select Market under the symbol “ENER.” As of August 19, 2011, there were 2,074 holders of record of our common stock.

     The following table sets forth the range of high and low closing prices for our common stock as reported by The Nasdaq Global Select Market, Inc. for each period indicated:

		For the year ended June 30,
		2011								2010
		High				Low				High				Low
						(in dollars per share)
First Quarter (July — September)		$	5.80			$	3.76			$	15.55			$	10.32
Second Quarter (October — December)			5.38				4.20				13.26				9.92
Third Quarter (January — March)			5.08				1.88				12.55				7.16
Fourth Quarter (April — June)			2.34				1.05				7.77				4.10

Dividends

     We have not paid any cash dividends in the past and do not expect to pay any in the foreseeable future.

Stock Price Performance Graph

     The following graph compares the cumulative 5-year total return provided stockholders on ECD’s common stock relative to the cumulative total returns of the NASDAQ Composite index and the NASDAQ Clean Edge Green Energy index. Data for the NASDAQ Composite and the NASDAQ Clean Edge Green Energy Index assume market cap weighting and reinvestment of dividends over a five-year period. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on June 30, 2006, and its relative performance is tracked through June 30, 2011.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Energy Conversion Devices, Inc., the NASDAQ Composite Index
and the NASDAQ Clean Edge Green Energy Index

		6/30/2006				6/30/2007				6/30/2008				6/30/2009				6/30/2010				6/30/2011
Energy Conversion Devices, Inc.			100.00				84.60				202.14				38.84				11.25				3.24
NASDAQ Composite			100.00				122.33				108.31				86.75				100.42				132.75
NASDAQ Clean Edge Green Energy			100.00				129.77				158.48				88.64				85.17				93.87

     The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Item 6: Selected Financial Data

     Set forth below is certain financial information derived from the Company’s audited consolidated financial statements.

		June 30,
		2011				2010(1)				2009(1)(2)				2008				2007
						(thousands, except per share data)
Consolidated Statements of Operations
Total Revenues		$	232,546			$	254,416			$	316,293			$	255,861			$	113,567
Impairment loss		$	228,831			$	359,228				—				—				—
Restructuring charges		$	6,700			$	4,736			$	2,231			$	9,396				—
Net (loss) income		$	(306,417	)		$	(457,175	)		$	7,839			$	3,853			$	(25,231	)
(Loss) earnings per share		$	(6.40	)		$	(10.75	)		$	0.19			$	0.10			$	(0.64	)
Diluted (loss) earnings per share		$	(6.40	)		$	(10.75	)		$	0.18			$	0.09			$	(0.64	)
Consolidated Balance Sheets
Total Assets		$	388,478			$	691,947			$	1,076,097			$	1,041,967			$	600,679
Long-Term Obligations		$	251,244			$	263,950			$	269,386			$	342,055			$	25,796

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

     This section summarizes significant factors affecting the Company’s consolidated operating results, financial condition and liquidity for the three-year period ended June 30, 2011. This section should be read in conjunction with the Company’s Consolidated Financial Statements and related notes appearing elsewhere in this report.

Overview

     We design, manufacture and sell photovoltaic (“PV”) products known as PV or solar laminates that generate clean, renewable energy by converting sunlight into electricity. Solar sales represent more than 90% of our revenues. Our subsidiary, Ovonic Battery Company, Inc. (“OBC”), generates most of the balance of our revenues through fees and royalties from licensees of our nickel metal hydride (“NiMH”) battery technology and sales of high performance nickel hydroxide used in NiMH batteries. In July 2011, we announced that we are seeking a strategic sale of OBC in order to focus on our United Solar Ovonic business activities.

     The following key factors should be considered when reviewing our results for the periods discussed:

	•		Our consolidated financial results are driven primarily by the performance of our United Solar Ovonic segment. Our United Solar Ovonic segment accounted for 95% and 93% of our total revenue in the fiscal years ended June 30, 2011 and 2010, respectively. Our United Solar Ovonic segment generated an operating loss of $269.4 million and $418.0 million in the fiscal years ended June 30, 2011 and 2010, respectively. Given the size of this segment relative to our other business activities, our overall success in the foreseeable future will be aligned primarily with the performance of our United Solar Ovonic segment and subject to the risks of that business. Additionally, we announced in July 2011 that we are seeking a strategic sale of OBC, which comprises substantially all of the business of our Ovonic Materials segment (see below). If we successfully consummate a strategic sale, of which there can be no assurance, then our consolidated financial results will be driven exclusively by the performance of our United Solar Ovonic business activities.
	•		Global economic, capital markets and credit disruptions have significantly impacted current market conditions in the solar market and created uncertainty that is substantially impacting our United Solar Ovonic solar business. We believe that there remains strong interest in alternative energy in general and solar in particular, but existing global political and financial conditions are significantly disrupting key solar markets. Our United Solar Ovonic segment has been significantly impacted by these disruptions as reflected by the substantial decline in our solar shipments, revenues and income during the fiscal third and fourth quarters, principally due to our concentration in two of these markets — Italy and France. While we believe that these markets will return as attractive markets for us, albeit with different dynamics, and other markets are emerging, including the North American market, we have undertaken several initiatives to improve our business to respond to the near-term disruptions and better position our Company for the future. These initiatives include restructuring to better align our cost structure to our expected near-term run rates and strategic priorities, including a substantial transition of our management leadership; enhancing our focus on our technology roadmap to improve the conversion efficiency and reduce the cost of our solar products; adjusting our sales focus in Europe to better balance direct project sales to our existing channel partners and other leading building materials companies; expanding our sales focus in North America and emerging markets, particularly with building materials companies, and solar integrators and distributors; and introducing new

			products and programs that leverage the unique characteristics of our products (e.g., lightweight, flexible and easy to install/integrate) (see below).
	•		We are focusing our business model on our core channel strategy and introducing new products and programs that leverage the unique characteristics of our products, and de-emphasizing our project execution activities, to enhance profitability. We believe that we are the only commercial scale manufacturer of lightweight flexible photovoltaic products and that the unique characteristics of our products (e.g., lightweight, flexible and easy to install/integrate) provide us a significant competitive advantage for certain applications that can lead to improved revenues and profitability. We have developed business relationships, particularly in key markets in Europe, with building materials manufacturers who value these unique characteristics and have core competencies to leverage these characteristics in delivering integrated solar solutions to their customers. We have extended this approach in North America and are also developing business relationships with large commercial roofing installers, who likewise value our product differentiation. Additionally, we are introducing new products and programs that leverage the unique characteristics of our products and substantially expand our addressable markets. For example, we have introduced our PowerShingle™ product for the residential market and have begun selling our PowerTilt™ product for the building-applied commercial rooftop market. We are also introducing our Open Solar™ initiative to unlock innovation and substantially reduce system costs for highly integrated solar solutions for the rooftop market and adjacent applications (such as landfills), as well as consumer applications. At the same time, we are de-emphasizing our project execution activities, which we had developed over the last several years in response to prior market conditions that temporarily favored larger systems. During fiscal 2011, project execution activities constituted $65.8 million of revenues, representing 28% of our consolidated revenues. We believe that there will continue to be large, direct project sale opportunities for our products, and we are competitively positioned to originate these opportunities based on our world-class rooftop expertise, which has been derived in part by our considerable project execution experience. However, we also believe that project execution in most cases can be handled more effectively by our channel partners and growing number of local, qualified installers. We, therefore, intend to focus our core rooftop competencies to secure product sales opportunities, including providing applications engineering and design support to our customers to facilitate rooftop installations rather than turnkey systems sales.
	•		We are aggressively reducing costs to improve our overall competitiveness. We are focused on reducing the cost per watt of our solar products through various initiatives, including material cost reductions, product enhancements, manufacturing and quality improvements, and execution of our Technology Roadmap to increase the conversion efficiency of our solar products. In August 2010, we announced a plan to realign our solar manufacturing capacity in our United Solar Ovonic segment among our existing facilities as part of our overall cost-reduction activities. As part of this plan, we shifted certain final assembly operations from our Auburn Hills, Michigan campus to our Tijuana, Mexico facility and relocated our corporate headquarters from Rochester Hills to our Auburn Hills location. In May 2011, we initiated a comprehensive cost- reduction program that included functional consolidations and organizational realignment addressing all levels of the organization. We recognized restructuring expenses in connection with these activities, as detailed elsewhere, and may incur additional restructuring expenses as we pursue further cost-reduction activities in the future. Additionally, due to market conditions that are impairing current demand for our solar products (see above), we are moderating production of our solar products. We are recognizing under-absorption of fixed overhead costs, and associated period costs, as a result of these production adjustments that substantially increase our production cost per watt and may recognize similar costs in the future if we do not sustainably operate our facilities at productive capacity.

•

We are seeking the strategic sale of OBC, which comprises substantially our entire Ovonic Materials segment, in order to focus on our United Solar Ovonic business activities. We have developed proprietary technologies in our Ovonic Materials segment that we believe have value, including technologies for advanced NiMH and Li-Ion batteries. The development activities for these technologies have been substantially balanced with external sources of revenues, such as royalties and development agreements (principally government contracts), to align our development commercialization efforts at sustainable levels. We continually evaluate commercialization opportunities and strategic alternatives to maximize value for these technologies, which may include licenses, joint ventures and sales. Accordingly, in July 2011, we announced that we are seeking the strategic sale of OBC, which comprises substantially our entire Ovonic Materials segment. We expect to account for OBC in the future as “Discontinued Operations” while the sale process continues in accordance with GAAP, effectively eliminating OBC’s financial performance from our consolidated financial results and consolidating our remaining activities into a single business segment.

Key Indicators of Financial Condition and Operating Performance

     In evaluating our business, we use product and system sales, gross profit, pre-tax income, earnings per share, net income, EBITDA, EBITDARS (Earnings Before Interest, Taxes, Depreciation, Amortization and Restructuring and Stock expenses), cash flow from operations and other key performance metrics. We also use production and shipments, both measured in megawatts (“MW”), and gross margins on product sales as key performance metrics for our United Solar Ovonic segment, particularly in connection with the manufacturing operations in this segment.

Results of Operations

     We have two segments, United Solar Ovonic and Ovonic Materials. We include the Solar Integrated Technologies, Inc. (“SIT”) business in our United Solar Ovonic segment.

     The following table summarizes our revenues and operating income (loss) for the last three fiscal years ended June 30, and reconciles to the amounts included in our consolidated financial statements. The grouping “Corporate and Other” below does not meet the definition of a segment as it contains our headquarters costs, consolidating entries and our investments in joint ventures, which are not allocated to the above segments; however, it is included below for reconciliation purposes only.

		Revenues												Operating Income (Loss)
		2011				2010				2009				2011				2010				2009(1)
		(in thousands)
United Solar Ovonic		$	221,899			$	237,437			$	302,758			$	(269,449	)		$	(418,001	)		$	44,447
Ovonic Materials			10,593				16,810				13,317				4,273				8,666				3,912
Corporate and Other			54				169				218				(22,891	)			(25,766	)			(27,763	)
Consolidated		$	232,546			$	254,416			$	316,293			$	(288,067	)		$	(435,101	)		$	20,596

Year Ended June 30, 2011 Compared to Year Ended June 30, 2010

United Solar Ovonic Segment

		Year Ended June 30,
		2011				2010
		(in thousands)
REVENUES
Product sales		$	154,284			$	197,554
System sales			65,832				29,781
Revenues from product development agreements			1,619				9,895
License and other revenues			164				207
TOTAL REVENUES			221,899				237,437
EXPENSES
Cost of product sales			144,600				201,087
Cost of system sales			65,280				33,087
Cost of revenues from product development agreements			599				8,184
Product development and research			6,697				7,900
Preproduction costs			397				305
Selling, general and administrative			42,238				40,421
Loss on disposal of property, plant and equipment			205				1,153
Impairment loss			228,831				359,228
Restructuring charges			2,501				4,073
TOTAL EXPENSES			491,348				655,438
OPERATING (LOSS) INCOME		$	(269,449	)		$	(418,001	)

     Total revenues for the year ended June 30, 2011 were $221.9 million, a decrease of $15.5 million, or 7%, compared to the same period in 2010. This decrease in total revenues was primarily due to a $43.3 million decline in product sales, as well as an $8.3 million decline in product development revenue, partially offset by a $36.1 million increase in system sales.

     The $43.3 million decline in product sales was primarily due to a $20.5 million decline in sales due to a lower average selling price and a $22.8 million decline in sales due to lower volume. The $36.1 million increase in system sales was due to revenues from large-scale projects in the United States and Italy. The $8.3 million decline in revenues from product development agreements was due to an accounting reclassification. Effective in the first quarter of fiscal year 2011, funding from cost-sharing agreements is recorded net with product development and research expenses. See Note 1, “Nature of Operations, Basis of Presentation and Summary of Accounting Policies — Revenues from Product Development Agreements,” to our Notes to the Consolidated Financial Statements for additional information.

     Cost of product sales for the year ended June 30, 2011 was $144.6 million, a decrease of $56.5 million, or 28%, compared to the same period in 2010. The decline was primarily due to a $37.4 million decline in cost due to a combination of lower cost product mix and lower volume and $10.3 million of reduced unabsorbed overhead charges, with the remainder due to improved operating efficiencies.

     Cost of product sales as a percentage of product sales in fiscal 2011 improved over fiscal 2010 due to higher overall production levels, lower material costs, lower depreciation, improved manufacturing efficiencies and the absence of incremental costs as a result of the SIT acquisition. However, in the second half of fiscal 2011, production was curtailed from planned 2011 levels to bring inventory to more normal levels, and as a result cost of product sales was negatively impacted by $12.4 million for unabsorbed overhead costs, $5.8 million for raw material and other commitments that will not be achieved, and $2.3 million to adjust inventory to its actual cost.

     Cost of system sales for the year ended June 30, 2011 was $65.3 million, an increase of $32.2 million, or 97%, compared to the same period in 2010. The increase was primarily due to costs from large- scale projects in the United States and Italy, with the majority of those costs being incurred in the second half of the current fiscal year.

     The combined cost of revenues from product development agreements and product development and research expenses for the year ended June 30, 2011 was $7.3 million, a decrease of $8.8 million, or 55%, compared to the same period in 2010. The decrease was primarily due to lower product development and research expenses on funded projects and a change in our accounting policy for revenues from product development agreements which requires government funding from cost-sharing agreements to be recognized as an offset to the aggregated research and development expense rather than contract revenues. The $10.8 million gross expense in the current year was partially offset by $3.5 million of funding from cost-share agreements. Effective in the first quarter of fiscal year 2011, funding from government cost-sharing agreements is recorded net with product development and research expenses.

     Selling, general and administrative expenses for the year ended June 30, 2011 were $42.2 million, an increase of $1.8 million, or 5%, compared to the same period in 2010. The increase was primarily related to increased bad debt and incentive plan expense, partially offset by savings in consulting-related services.

     During the third quarter, changing market conditions caused us to evaluate the recoverability of our assets. As a result, we recorded an impairment loss of $228.8 million in carrying value of our property, plant and equipment. During the same period of the prior year, changing market conditions, losses incurred to date, the increased near-term capacity anticipated from our Technology Roadmap developed

during the period and the implementation of our December 2009 restructuring plan caused us to evaluate the recoverability of our long-lived assets and goodwill. As a result, we recorded a total impairment loss of $359.2 million. See Note 17, “Impairment Loss,” to our Notes to the Consolidated Financial Statements for additional information.

     During the year ended June 30, 2011, we incurred restructuring charges to better align operating expenses with near-term revenue expectations. The $2.5 million of charges were primarily for employee severance offset by refinements to our existing reserve estimates. See Note 19, “Restructuring Charges,” to our Notes to the Consolidated Financial Statements for additional information.

Ovonic Materials Segment

		Year Ended June 30,
		2011				2010
		(in thousands)
REVENUES
Product sales		$	407			$	2,897
Royalties			8,069				7,984
Revenues from product development agreements			754				1,870
License and other revenues			1,363				4,059
TOTAL REVENUES			10,593				16,810
EXPENSES
Cost of product sales			366				2,423
Cost of revenues from product development agreements			408				1,215
Product development and research			3,561				3,447
Selling, general and administrative expenses			1,985				1,059
TOTAL EXPENSES			6,320				8,144
OPERATING INCOME		$	4,273			$	8,666

     Our Ovonic Materials segment’s total revenues decreased by $6.2 million, or 37%, in 2011. This decrease was due to decreases in license fees, product sales, and revenues from product development agreements. The license fee reduction was primarily due to a non-recurring 2010 consumer NiMH battery license fee of $2.5 million. The product sales decrease was primarily due to decreased sales of nickel hydroxide to our primary nickel hydroxide customer. The decrease in product development contract revenue was due to the successful completion of certain contracts, increased cost share for ongoing contracts, and a change in our accounting policy for revenues from product development agreements which requires government funding from cost-sharing agreements to be recognized as an offset to the aggregated research and development expense rather than contract revenues.

     Cost of product sales decreased $2.1 million for 2011, or 86%. This decrease was primarily due to lower sales of nickel hydroxide to our primary nickel hydroxide customer.

     The combined cost of revenues from product development agreements and product development and research expenses for the year ended June 30, 2011 was $4.0 million, a decrease of $0.7 million, or 15%, compared to the same period in 2010. The decrease was primarily due to lower product development and research expenses on funded projects and a change in our accounting policy for revenues from product development agreements which requires government funding from cost-sharing agreements to be recognized as an offset to the aggregated research and development expense rather than contract revenues. The $4.2 million gross expense in the current year was partially offset by $0.2 million of

funding from cost-share agreements. Effective in the first quarter of fiscal year 2011, funding from government cost-sharing agreements is recorded net with product development and research expenses.

     The increase in selling, general and administrative costs of $0.9 million was primarily due to a change in the facilities allocation from ECD and USO.

Corporate and Other

     Corporate activities consisting primarily of selling, general and administrative expenses, including human resources, legal, finance, strategy, information technology, business development and corporate governance, decreased by $3.4 million, or 13%, compared to the same period in 2010. Lower salary, wage and related expenses of $6.5 million, or 26%, were partially offset by a restructuring charge of $4.2 million related to employee severance costs.

Other Income (Expense)

     Other expense was $18.0 million in fiscal year 2011 compared to $24.1 million in fiscal year 2010. The decrease of $6.1 million was principally due to lower interest expense, higher interest income and foreign currency transaction gains in 2011. In fiscal year 2010, we received a $1.3 million distribution from our previously owned Cobasys joint venture.

Income Taxes

     Our income tax expense was $0.4 million for fiscal year 2011 compared to a benefit of $2.2 million in fiscal year 2010. Fiscal year 2010 included certain federal refundable research expenses and the benefit of net operating losses.

Year Ended June 30, 2010 Compared to Year Ended June 30, 2009

United Solar Ovonic Segment

		Year Ended June 30,
		2010				2009
		(in thousands)
REVENUES
Product sales		$	197,554			$	292,402
System sales			29,781				—
Revenues from product development agreements			9,895				10,356
License and other revenues			207				—
TOTAL REVENUES			237,437				302,758
EXPENSES
Cost of product sales			201,087				206,047
Cost of system sales			33,087				—
Cost of revenues from product development agreements			8,184				7,414
Product development and research			7,900				5,412
Preproduction costs			305				5,409
Selling, general and administrative			40,421				31,397
Loss on disposal of property, plant and equipment			1,153				979
Impairment loss			359,228				—
Restructuring charges			4,073				1,653
TOTAL EXPENSES			655,438				258,311
OPERATING (LOSS) INCOME		$	(418,001	)		$	44,447

     Total revenues for the year ended June 30, 2010 were $237.4 million, a decrease of $65.3 million, or 22%, compared to the same period in 2009. The decrease was primarily due to reductions in product sales of $43.6 million due to lower sales volume and a $65.2 million decrease due to lower average selling prices, offset by incremental system sales of $29.8 million and product sales of $14.0 million associated with our SIT business.

     Cost of product sales for the year ended June 30, 2010 was $201.1 million, a decrease of $5.0 million or, 2%, compared to the same period in 2009. Approximately $30.8 million of the decrease was due to decreased sales volume and change in product mix, $2.1 million of the decrease was due to reduced warranty costs and $1.3 million of the decrease related to improved manufacturing efficiencies. These decreases were offset by increased unabsorbed overhead costs of $15.8 million due to a planned decrease in production and incremental costs of $13.4 million attributable to sales in our SIT business.

     Cost of system sales for the year ended June 30, 2010 was $33.1 million which were incremental costs associated with our SIT business and system sales and included the write-off of certain inventory of $2.5 million and $1.0 million in unabsorbed overhead costs.

     Combined cost of revenues from product development agreements and product development and research expenses increased by $3.3 million in 2010. Our combined product development and research expenses are partially offset by revenues from product development agreements principally funded by government programs under contracts from the U.S. Air Force and the Department of Energy’s Solar America Initiative. The revenue remaining on each contract at the end of fiscal year 2010 was $4.8 million and $4.1 million, respectively. We continue to invest in product development and research to

improve the throughput of our PV cell manufacturing equipment, reduce the cost of production and increase the sunlight-to-electricity conversion efficiency of our PV laminates.

     Preproduction costs (consisting of new employee training, facilities preparation, set-up materials and supplies) decreased substantially for the year ended June 30, 2010, compared to fiscal year 2009, primarily because we paused the expansion of our Michigan and Mexico facilities.

     Selling, general, and administrative expenses for the twelve months ended on June 30, 2010 were $40.4 million, an increase of $9.0 million, or 29%, compared to the same period in 2009. The increase was primarily due to additional expenses from the SIT business of $11.6 million.

     The loss on disposal of property, plant and equipment increased by $0.2 million in 2010. The increase was primarily due to disposals of equipment at our Greenville and Auburn Hills, Michigan facilities.

     We incurred impairment losses of $1.3 million related to the December 2009 restructuring plan, of which $1.1 million was related to equipment and $0.2 million related to intangible assets which will no longer be utilized. During the third quarter, changing market conditions, losses incurred to date and the increased near-term capacity anticipated from our Technology Roadmap developed during the third quarter, caused us to evaluate the recoverability of our long-lived assets and goodwill. As a result, we recorded an additional impairment loss of $358.0 million, which consisted of $320.7 million for property, plant and equipment, $35.4 million for goodwill and $1.9 million for intangible assets. See Note 17, “Impairment Loss,” to our Notes to the Consolidated Financial Statements for additional information.

     During the year ended June 30, 2010, we incurred restructuring charges related to the severance of certain employees of $3.9 million and $0.2 million for equipment relocation costs associated with the consolidation of certain production operations from our Auburn Hills 1 facility. See Note 19, “Restructuring Charges,” to our Notes to the Consolidated Financial Statements for additional information.

Ovonic Materials Segment

		Year Ended June 30,
		2010				2009
		(in thousands)
REVENUES
Product sales		$	2,897			$	2,590
Royalties			7,984				6,355
Revenues from product development agreements			1,870				3,053
License and other revenues			4,059				1,319
TOTAL REVENUES			16,810				13,317
EXPENSES
Cost of product sales			2,423				2,581
Cost of revenues from product development agreements			1,215				2,093
Product development and research			3,447				3,574
Selling, general and administrative expenses			1,059				1,157
TOTAL EXPENSES			8,144				9,405
OPERATING INCOME		$	8,666			$	3,912

     Our Ovonic Materials segment’s total revenues increased by $3.5 million, or 26%, in 2010. This increase was primarily due to increased license sales comprised of a consumer NiMH battery license fee of $2.5 million, a $1.6 million increase in vehicle NiMH royalties, and a $0.3 million increase in product sales. These increases were partially offset by a $1.2 million decrease in product development contract revenue due to the successful completion of certain contracts and increased cost-share for ongoing contracts.

     Cost of product sales decreased $0.2 million, or 6%, for 2010. This decrease was primarily due to decreased costs for nickel, the primary cost in our nickel hydroxide manufacturing process.

     Combined cost of revenues from product development agreements and product development and research expenses decreased by $1.0 million in 2010. The decrease was primarily due to reduced research and development expenses resulting from reduced headcount and the completion of certain product development contracts.

Corporate and Other

     Selling, general and administrative expenses, which consist primarily of corporate operations, including human resources, legal, finance, strategy, information technology, business development, and corporate governance, decreased by $0.8 million in 2010. The reduction in selling, general and administrative expenses in fiscal 2010 was primarily due to lower salaries, wages and related expenses, lower stock and option award amortization offset by increases in administrative expenses.

Other Income (Expense)

     Other expense was $24.1 million in fiscal 2010 compared to $11.3 million in fiscal year 2009. The $12.8 million increase was principally due to increased interest expense of $13.3 million which is related to a reduced level of capitalized interest, reduced interest income of $3.9 million due to lower levels of investments in the period, and incremental foreign currency transaction losses of $2.4 million associated with our SIT business, offset by a $4.3 million gain on debt extinguishment, $1.3 million distribution

from our previously owned Cobasys joint venture and other-than-temporary impairment of $1.0 million related to our investment in a Lehman Brothers bond in fiscal 2009.

Income Taxes

     Our income tax benefit was $2.2 million for fiscal year 2010 compared to expense of $1.5 million in fiscal year 2009. The decrease in tax expense is primarily related to certain federal refundable research expenses and the benefit of the current year net operating loss which will be carried back to claim a refund of previously paid taxes under the current tax law.

Liquidity and Capital Resources

     At June 30, 2011, we had consolidated working capital of $196.9 million. Our principal sources of liquidity are cash, cash equivalents and short-term investments. We believe that cash, cash equivalents and investments will be sufficient to meet our liquidity needs for our current operations and planned capital expenditures during the fiscal year. However, during fiscal year 2012 we intend to continue to evaluate our liquidity to seek to address our longer term capital needs, including maturity of our convertible notes and full implementation of our Technology Roadmap. See Note 2, “Liquidity and Continued Listing Requirements,” to our Notes to the Consolidated Financial Statements for additional information.

Cash Flows

Year Ended June 30, 2011 Compared to Year Ended June 30, 2010

     Net cash used in our operating activities was $24.2 million in 2011 compared to $34.2 million in 2010. The $10.0 million decrease was driven by a reduction in our net income (loss) adjusted for non-cash items of $5.8 million with $4.2 million net cash increase due to collections of accounts receivable netted against cash outflow for inventory and accounts payable.

     Net cash used in investing activities was $22.1 million in 2011 compared to $70.9 million net cash provided by investing activities in 2010. This decrease was principally due to a $137.4 million decrease in proceeds from maturities and sale of investments and $6.4 million increased capital expenditures, offset by increased cash flows from the repayment of development loans, a decrease in restricted cash and a decrease in investment purchases of $48.6 million.

     Net cash used in financing activities was $1.6 million in 2011 compared to 15.2 million in 2010. The decrease in cash used was a result of repayment of convertible notes and revolving credit facility in 2010.

Cash Flows

Year Ended June 30, 2010 Compared to Year Ended June 30, 2009

     Net cash used in our operating activities was $34.2 million in 2010 compared to $11.1 million net cash provided by operating activities in 2009. The decrease was driven by a reduction in our net income (loss) adjusted for non-cash items of $111.4 million offset by $66.1 million cash used for changes in net working capital, specifically due to inventory, accounts receivable and accounts payable.

     Net cash provided by investing activities was $70.9 million in 2010 as compared to net cash used in investing activities of $440.5 million in 2009. This increase was principally due to reduced capital

expenditures of $210.3 million, reduced investment purchases of $100.7 million, increased proceeds from maturities and sales of our investments of $225.7 million, offset by $14.2 million of developmental loans.

     Net cash used in financing activities was $15.3 million in 2010 compared to net cash provided by financing activities of $0.9 million in 2009. This decrease was principally due to the $5.7 million repayment of the revolving credit facility and $8.0 million repayment of the convertible notes assumed as part of the SIT acquisition in 2010.

Short-term Borrowings

     During September 2010, we terminated our $30.0 million and $25.0 million secured revolving credit facilities entered into in February 2008 with JP Morgan Chase Bank, N.A. The security provided under the secured revolving credit facility has been released. The secured revolving credit facility was replaced with a Letter of Credit Facility, also with JP Morgan Chase Bank, N.A. Under the Letter of Credit Facility, we may issue up to $25.0 million in letters of credit, which will be secured by cash equal to 102% of the letters of credit exposure. The Letter of Credit Facility matures on February 4, 2013. Letters of credit totaling approximately $8.6 million as of September 30, 2010 were transferred from the cancelled secured revolving credit facility to the new Letter of Credit Facility. As of June 30, 2011, outstanding letters of credit totaled $7.0 million.

Convertible Senior Notes

     Our Convertible Senior Notes (“Notes”) bear interest at a rate of 3.0% per year, payable on June 15 and December 15 of each year. If the Notes are not converted, they will mature on June 15, 2013. The Notes are only convertible prior to March 13, 2013 under specific circumstances involving the price of our common stock, the price of the Notes and certain corporate transactions including, but not limited to, an offering of common stock at a price less than market, a distribution of cash or other assets to stockholders, a merger, consolidation or other share exchange, or a change in control. The holders of the Notes may convert the principal amount of their notes into cash and, if applicable, shares of our common stock initially at a conversion rate of 10.8932 shares (equivalent to an initial conversion price of approximately $91.80 per share) per $1,000 principal amount of the Notes. The holders of the Notes are only entitled to amounts in excess of the principal amount if shares of our common stock exceed a market price of $91.80 for a period of 20 consecutive trading days during the applicable cash settlement averaging period. The applicable conversion rate will be subject to adjustments in certain circumstances. The Notes are senior unsecured obligations of ECD and rank equal in right of payment with any future senior unsecured debt of ECD, and senior in right of payment to all of ECD’s existing and future debt, if any, that is subordinated to the Notes.

     In May 2010, we entered into exchange agreements with certain holders of our Notes whereby we issued an aggregate of 2,770,871 shares of our common stock in exchange for an aggregate of principal amount of $23.0 million held by the holders of the Notes. In connection with this exchange we recorded a gain on debt extinguishment of $4.3 million.

     In September 2010, we entered into exchange agreements with certain holders of our Notes whereby we issued an aggregate of 1,309,263 shares of our common stock in exchange for an aggregate principal amount of $9.1 million held by the holders of the Notes. In connection with this exchange we recorded a gain on debt extinguishment of $1.2 million. In addition, in December 2010, we entered into exchange agreements with certain holders of our Notes whereby we issued an aggregate of 3,401,355 shares of common stock in exchange for an aggregate principal amount of $21.0 million held by holders of the Notes. In connection with this we recorded a gain on debt extinguishment of $2.1 million.

     Our common stock is currently listed for trading on the NASDAQ Global Select Market. We must continue to satisfy NASDAQ’s continued listing requirements or risk delisting of our securities. In the event that our common stock is not listed on any of the NASDAQ Global Select Market, the NASDAQ Global Market or a U.S. national securities exchange, the holders of our existing convertible senior notes will have the right to require us to repurchase their notes. If we would be unable to do so, we would be in default under our notes indenture. See Note 2, “Liquidity and Continued Listing Requirements,” to our Notes to the Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

     Our off-balance sheet financing consists primarily of operating leases for equipment and property. These leases have terms ranging from a month-to-month basis to 10 years. We incurred lease expense of $6.5 million for the years ended June 30, 2011 and 2010 and $4.7 million for the year ended June 30, 2009.

Contractual Obligations

     We, in the ordinary course of business, enter into purchase commitments for certain raw materials and capital equipment. Our contractual obligations are as follows:

		Payments Due by Period
						Less than 1												More than 5
		Total				year				1-3 years				3-5 years				years
		(in thousands)
Convertible senior notes		$	263,153			$	—			$	263,153			$	—			$	—
Structured financing			11,657				630				1,339				1,438				8,250
Capital lease obligations			20,296				1,278				3,058				3,662				12,298
Interest on convertible senior notes, structured financing, and capital lease obligations			31,748				9,977				11,280				2,964				7,527
Operating leases			24,272				5,307				7,740				6,622				4,603
Purchase obligations			58,009				35,119				12,845				8,272				1,773
Total		$	409,135			$	52,311			$	299,415			$	22,958			$	34,451

     We anticipate capital expenditures to be approximately $40 million during fiscal year 2012, primarily for projects included in the Technology Roadmap.

Significant Accounting Policies and Critical Accounting Estimates

     Our significant accounting policies are more fully described in Note 1 “Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies,” to our Notes to the Consolidated Financial Statements. Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. However, they are subject to an inherent degree of uncertainty. As a result, actual results in these areas may differ significantly from our estimates.

     We consider an accounting estimate to be significant if it requires us to make assumptions about matters that were uncertain at the time the estimate was made and changes in the estimate would have had a significant impact on our consolidated financial position or results of operations.

Inventory Reserves

     We evaluate the recoverability of our inventory based upon assumptions about anticipated customer demand and future market conditions. The key factors we consider when estimating our inventory reserve include historical sales, anticipated demand, expected sales price, market trends, product obsolescence, the effect new products might have on the sale of existing products and other factors. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. Inventory reserves were $11.8 million and $15.9 million at June 30, 2011 and 2010, respectively.

Warranty Reserve

     The Company generally provides a five-year product warranty on workmanship and a 20-25 year product warranty on power output on all solar product sales. When the Company recognizes revenue for product sales, it accrues a liability for the estimated costs of meeting its warranty obligations for those products. The Company estimates its warranty liability based on past experience of specific individual claims and claims paid as well as the Company’s engineering and laboratory tests of its product under different conditions.

     For installed solar systems, the Company generally provides a 5-10 year workmanship warranty in addition to the applicable standard product warranty. Reserves for warranty costs are recognized at the date of sale of the relevant products, at management’s best estimate of the expenditure required to settle the liability, taking into account the specific arrangements of the transaction and past experience.

     At June 30, 2011 and 2010, the Company had recorded a liability for future warranty claims of approximately $38.0 million and $41.3 million, respectively.

Allowance for Uncollectible Accounts

     We maintain an allowance for uncollectible accounts and consider a number of factors, when estimating the allowance including the length of time trade accounts receivable are past due, trade credit insurance coverage, previous payment and loss history, the customer’s current ability to pay its obligation, and our knowledge of the customer and the customer’s business. The allowance for doubtful accounts was $3.9 million and $1.8 million at June 30, 2011 and 2010, respectively.

Accounting for Business Combinations

     We recorded all assets acquired and liabilities assumed, including goodwill and other intangible assets, at fair value as of the date of the acquisition. The determination of the fair values of assets acquired and liabilities assumed required us to make significant estimates and assumptions that are highly judgmental and affect our financial statements.

Valuation of Long-Lived Assets

     We periodically evaluate the carrying value of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. Our assessment utilizes quoted market prices, fair value appraisals, management forecasts and discounted cash flow

analyses. The impairment analysis is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a substantial impact on the amount of any impairment loss recorded. Discounted cash flow analyses are dependent upon management estimates and assumptions of future sales trends, current and expected future economic trends, market conditions and the effects of new technologies. The estimates and assumptions used in the impairment analysis are consistent with our business plan; however, actual cash flows in the future may differ significantly from those previously forecasted.

Share-Based Compensation

     We record the fair value of stock-based compensation grants as an expense. In order to determine the fair value of stock options on the date of grant, we apply the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility and option life assumptions require a greater level of judgment.

     We use an expected stock-price volatility assumption that is based on historical implied volatilities of the underlying stock which is obtained from public data sources.

     With regard to the weighted-average option life assumption, we consider the exercise behavior of past grants and models the pattern of aggregate exercises. Patterns are determined on specific criteria of the aggregate pool of optionees. Forfeiture rates are based on our historical data for stock option forfeitures.

Impact of Recent Accounting Pronouncements

     See Note 1, “Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies,” to our Notes to the Consolidated Financial Statements for a description of recent accounting pronouncements and the impact on our financial statements.

Forward-Looking Statements

     This Annual Report on Form 10-K includes “forward-looking statements” that involve risks and uncertainties. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future sales or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. When used in this report, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “foresees,” “likely,” “may,” “should,” “goal,” “target” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this report.

     These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in Item 1A, “Risk Factors.” Factors you should consider that could cause these differences are:

•

the worldwide credit markets including sufficiency and availability of credit financing for solar projects and for our customers;

	•		the impact of the current lack of credit financing capacity on our customer’s ability to meet their obligations to ECD and its subsidiaries;
	•		the worldwide demand for electricity and the market for renewable energy, including solar energy;
	•		the ability or inability of conventional fossil fuel-based generation technologies to meet the worldwide demand for electricity;
	•		government subsidies and policies supporting renewable energy, including solar energy;
	•		our expenses, sources of sales and international sales and operations;
	•		our ability to achieve expense reductions and anticipated levels of one-time costs, including restructuring charges;
	•		potential inability to repay or restructure our outstanding indebtedness;
	•		future pricing of, and demand for, our solar laminates;
	•		the performance, features, costs, and benefits of our solar laminates and plans for the enhancement of solar laminates;
	•		our ability to maintain high standards of quality in our product;
	•		the supply and price of components and raw materials;
	•		our ability to execute on our Technology Roadmap in a timely and cost-effective manner;
	•		our ability to retain our current key executives, integrate new key executives and attract and retain other skilled managerial, engineering, sales and marketing personnel;
	•		the viability of our intellectual property and our continued investment in research and development;
	•		our ability to divest non-core assets and businesses;
	•		payments and other obligations resulting from the unfavorable resolution of legal proceedings;
	•		changes in, or the failure to comply with, government regulations and environmental, health and safety requirements;
	•		interest rate fluctuations and both our and our end-users’ ability to secure financing on commercially reasonable terms or at all;
	•		general economic and business conditions, including those influenced by international and geopolitical events; and
	•		our ability to generate internal cash flow or arrange external financing for our anticipated capital expenditures and Technology Roadmap.

     There may be other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

Item 7A: Quantitative and Qualitative Disclosures about Market Risk

     The following discussion about our exposure to market risk of financial instruments contains forward-looking statements. Actual results may differ materially from those described.

Interest Rate Risk

     Our investments in financial instruments are comprised of debt securities. All such instruments are classified as securities available for sale. We do not invest in portfolio equity securities, or commodities, or use financial derivatives for trading purposes. Our debt security portfolio (corporate notes and U.S. government agency notes) represents funds held temporarily, pending use in our business and operations. We had $102.9 million of these investments as of June 30, 2011. It is our policy that investments shall be rated “A” or higher by Moody’s or Standard and Poor’s, no single investment shall represent more than 10% of the portfolio and at least 10% of the total portfolio shall have maturities of 90 days or less. Our market risk primarily relates to the risks of changes in the credit quality of issuers. An interest rate increase or decrease of 1% would increase or decrease the value of our portfolio by approximately $0.7 million as of June 30, 2011.

     Our Notes are subject to interest rate and market price risk due to the convertible feature of the Notes. As interest rates rise, the fair market value of the Notes will decrease and as interest rates fall, the fair market value of the Notes will increase. At June 30, 2011, the estimated fair market value of our Notes was approximately $139.8 million. An increase or decrease in market interest rates of 1% would increase or decrease the fair value of our Notes by approximately $2.0 million.

Foreign Exchange Risk

     We primarily conduct our business in U.S. Dollars, which may impact our foreign customers and suppliers as a result of changes in currency exchange rates. These factors may adversely impact our existing or future sales agreements and require us to reallocate product shipments or pursue other remedies.

     The majority of SIT’s sales in Europe are denominated in Euros while the related costs of sales are denominated in Euros and U.S. Dollars. An increase or a decrease in exchange rates of 1% would increase or decrease our foreign currency transaction gain by approximately $0.2 million.

     We recognized a net foreign currency transaction gain of $1.1 million for the year ended June 30, 2011, and a net foreign currency transaction loss of $2.4 million for the year ended at June 30, 2010.

Item 8: Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Energy Conversion Devices, Inc.

     We have audited the accompanying consolidated balance sheets of Energy Conversion Devices, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended June 30, 2011. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the table of contents under Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Energy Conversion Devices, Inc. and subsidiaries as of June 30, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2011, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of June 30, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 25, 2011 expressed an unqualified opinion.

     As discussed in Note 1 to the consolidated financial statements, the Company adopted new accounting guidance in the years ending June 30, 2011 and 2010 related to the accounting for convertible debt and new accounting guidance in the year ended June 30, 2010 related to business combinations.

/s/ Grant Thornton LLP
Southfield, Michigan
August 25, 2011

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

		Year Ended June 30,
		2011				2010(1)				2009(1)
Revenues
Product sales		$	154,691			$	200,451			$	294,992
System sales			65,832				29,781				—
Royalties			8,070				7,984				6,355
Revenues from product development agreements			2,373				11,765				13,409
License and other revenues			1,580				4,435				1,537
Total Revenues			232,546				254,416				316,293
Expenses
Cost of product sales			144,966				203,510				208,375
Cost of system sales			65,280				33,087				—
Cost of revenues from product development agreements			1,007				9,399				9,507
Product development and research			10,258				11,347				8,986
Preproduction costs			397				305				5,409
Selling, general and administrative			63,079				66,797				58,902
Net loss on disposal of property, plant and equipment			95				1,108				2,287
Impairment loss			228,831				359,228				—
Restructuring charges			6,700				4,736				2,231
Total Expenses			520,613				689,517				295,697
Operating (Loss) Income			(288,067	)			(435,101	)			20,596
Other Income (Expense)
Interest income			2,603				1,331				5,226
Interest expense			(25,404	)			(28,676	)			(15,390	)
Gain on debt extinguishment			3,327				4,294				—
Distribution from joint venture			—				1,309				—
Other nonoperating income (expense), net			1,609				(2,321	)			(1,118	)
Total Other Income (Expense)			(17,865	)			(24,063	)			(11,282	)
(Loss) Income before Income Taxes and Equity Loss			(305,932	)			(459,164	)			9,314
Income tax expense (benefit)			394				(2,248	)			1,475
(Loss) Income before Equity Loss			(306,326	)			(456,916	)			7,839
Equity loss			(91	)			(259	)			—
Net (Loss) Income			(306,417	)			(457,175	)			7,839
Net Loss Attributable to Noncontrolling Interest			(345	)			(113	)			—
Net (Loss) Income Attributable to ECD Stockholders		$	(306,072	)		$	(457,062	)		$	7,839
(Loss) Earnings Per Share, Attributable to ECD Stockholders		$	(6.40	)		$	(10.75	)		$	0.19
Diluted (Loss) Earnings Per Share, Attributable to ECD Stockholders		$	(6.40	)		$	(10.75	)		$	0.18

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS
(in thousands)

		June 30,
		2011				2010(1)
ASSETS
Current Assets:
Cash and cash equivalents		$	27,769			$	79,158
Short-term investments			102,926				113,771
Accounts receivable, net			39,153				72,021
Inventories, net			68,499				61,495
Other current assets			29,022				27,237
Total Current Assets			267,369				353,682
Property, Plant and Equipment, net			91,275				301,056
Other Assets:
Restricted cash			10,009				11,749
Lease receivable, net			10,094				10,854
Other assets			9,731				14,606
Total Other Assets			29,834				37,209
Total Assets		$	388,478			$	691,947
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses		$	46,958			$	56,035
Current portion of warranty liability			13,642				12,125
Other current liabilities			9,897				9,130
Total Current Liabilities			70,497				77,290
Long-Term Liabilities:
Convertible senior notes			232,226				243,654
Capital lease obligations			19,018				20,296
Warranty liability			24,338				29,210
Other liabilities			17,350				19,872
Total Long-Term Liabilities			292,932				313,032
Commitments and Contingencies (Note 16)
Stockholders’ Equity
Common stock, $0.01 par value, 150 million shares authorized, 53,311,152 and 48,554,812 issued at June 30, 2011 and 2010, respectively			533				486
Additional paid-in capital			1,106,961				1,079,910
Treasury stock			(798	)			(700	)
Accumulated deficit			(1,080,460	)			(774,388	)
Accumulated other comprehensive loss, net			(729	)			(3,570	)
Total ECD stockholders’ equity			25,507				301,738
Accumulated deficit — noncontrolling interest			(458	)			(113	)
Total Stockholders’ Equity			25,049				301,625
Total Liabilities and Stockholders’ Equity		$	388,478			$	691,947

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Year Ended June 30,
		2011				2010(1)				2009(1)
Cash flows from operating activities:
Net (loss) income		$	(306,417	)		$	(457,175	)		$	7,839
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Impairment loss			228,829				359,228				—
Depreciation and amortization			18,045				32,708				33,605
Amortization of debt discount and deferred financing fees			16,547				17,157				15,380
Share-based compensation			5,342				4,428				5,273
Gain on debt extinguishment			(3,327	)			(4,294	)			—
Other-than-temporary impairment of investment			—				—				1,002
Net loss on disposal of property, plant and equipment			95				1,258				2,287
Equity loss			91				259				—
Other			—				(180	)			(597	)
Changes in operating assets and liabilities, net of foreign exchange:
Accounts receivable			33,783				(8,538	)			(17,376	)
Inventories			(4,097	)			35,283				(43,054	)
Other assets			(5,855	)			(8,634	)			(7,054	)
Accounts payable and accrued expenses			(5,810	)			(7,201	)			13,714
Other liabilities			(1,376	)			1,525				70
Net cash (used in) provided by operating activities			(24,150	)			(34,176	)			11,089
Cash flows from investing activities:
Purchases of property, plant and equipment			(38,418	)			(31,992	)			(242,257	)
Acquisition of business, net of cash acquired			—				(2,088	)			—
Investment in joint venture			—				—				(1,000	)
Purchases of investments			(87,316	)			(102,657	)			(203,355	)
Proceeds from maturity and sale of investments			94,469				231,880				6,150
Proceeds from sale of property, plant and equipment			219				48				—
Development loans			7,177				(14,155	)			—
Restricted cash			1,740				(10,186	)			—
Net cash provided by (used in) investing activities			(22,129	)			70,850				(440,462	)
Cash flows from financing activities:
Principal payments under capitalized lease obligations and other debt			(1,610	)			(1,549	)			(1,054	)
Repayment of revolving credit facility			—				(5,705	)			—
Repayment of convertible notes			—				(8,000	)			—
Increase in long-term customer deposits							—				—
Proceeds from sale of stock and share-based compensation, net of expenses							—				1,966
Net cash (used in) provided by financing activities			(1,610	)			(15,254	)			912
Effect of exchange rate changes on cash and cash equivalents			(3,500	)			1,359				348
Net increase (decrease) in cash and cash equivalents			(51,389	)			22,779				(428,113	)
Cash and cash equivalents at beginning of period			79,158				56,379				484,492
Cash and cash equivalents at end of period		$	27,769			$	79,158			$	56,379

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)

(in thousands)

														Treasury Stock																Accumulated
		Common Stock								Additional				Number																Other				Total
		Number								Paid In				of								Accumulated				Noncontrolling				Comprehensive				Stockholders’
		of Shares				Amount				Capital				Shares				Amount				Deficit				Interest				Income (Loss)				Equity
Balance at June 30, 2008			45,575			$	456			$	969,421				(11	)		$	(700	)		$	(325,165	)		$	—			$	(2,100	)		$	641,912
Net income(1)			—				—				—				—				—				7,839				—				—				7,839
Unrealized gain on investments, net			—				—				—				—				—				—				—				2,292				2,292
Foreign currency translation losses, net			—				—				—				—				—				—				—				(1,622	)			(1,622	)
Unrealized losses on derivative instruments			—				—				—				—				—				—				—				(66	)			(66	)
Comprehensive income			—				—				—				—				—				—				—				—				8,443
Equity component from issuance of convertible debt(1)			—				—				84,630				—				—				—				—				—				84,630
Share-based compensation expense, net of shares issued			180				2				7,168				—				—				—				—				—				7,170
Equity offering expenses			—				—				(14	)			—				—				—				—				—				(14	)
Balance at June 30, 2009			45,755				458				1,061,205				(11	)			(700	)			(317,326	)			—				(1,496	)			742,141
Net loss(1)			—				—				—				—				—				(457,062	)			—				—				(457,062	)
Unrealized losses on investments, net			—				—				—				—				—				—				—				(469	)			(469	)
Foreign currency translation losses, net			—				—				—				—				—				—				—				(1,554	)			(1,554	)
Unrealized losses on derivative instruments			—				—				—				—				—				—				—				(51	)			(51	)
Comprehensive loss			—				—				—				—				—				—				—				—				(459,136	)
Noncontrolling interest loss			—				—				—				—				—				—				(113	)			—				(113	)
Common stock issued in connection with convertible debt exchange			2,771				28				14,277				—				—				—				—				—				14,305
Share-based compensation expense, net of shares issued			29				—				4,428				—				—				—				—				—				4,428
Stock repurchases			—				—				—				(4	)			—				—				—				—				—
Balance at June 30, 2010			48,555				486				1,079,910				(15	)			(700	)			(774,388	)			(113	)			(3,570	)			301,625
Net loss			—				—				—				—				—				(306,072	)			—				—				(306,072	)
Unrealized gains on investments, net			—				—				—				—				—				—				—				564				564
Foreign currency translation gains, net			—				—				—				—				—				—				—				2,513				2,513
Unrealized loss on derivative instruments																															(236	)			(236	)
Comprehensive loss																																			(303,231	)
Noncontrolling interest loss																											(345	)							(345	)
Common stock issued in connection with convertible debt exchange			4,711				47				21,709																								21,756
Share-based compensation expense, net of shares issued			45								5,342																								5,342
Stock repurchases															(29	)			(98	)															(98	)
Balance at June 30, 2011			53,311			$	533			$	1,106,961				(44	)		$	(798	)		$	(1,080,460	)		$	(458	)		$	(729	)		$	25,049

See notes to consolidated financial statements.

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES

Note 1 — Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations

     Energy Conversion Devices, Inc. (the “Company” or “ECD”), through its subsidiaries, commercializes materials, products and production processes for the alternative energy generation (primarily solar energy), energy storage and information technology markets.

     On August 19, 2009, the Company acquired 100% of the outstanding common shares of Solar Integrated Technologies, Inc. (“SIT”), a Los Angeles-based company that manufactures, designs and installs building integrated photovoltaic roofing systems for commercial rooftops. The results of SIT’s operations have been included in the Company’s Consolidated Financial Statements beginning August 19, 2009.

Basis of Presentation

     The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the Company and the accounts of the Company’s subsidiaries in which it holds a controlling financial or management interest. All significant intercompany balances and transactions have been eliminated in consolidation.

     The consolidated financial statements include the accounts of ECD and its 100%-owned subsidiaries United Solar Ovonic LLC and United Solar Ovonic Corporation (collectively referred to as “United Solar”), and its 93.6%-owned subsidiary Ovonic Battery Company, Inc. (“Ovonic Battery” or “OBC”) (collectively the “Company”). Beginning fiscal 2010, noncontrolling interests (previously minority interests) are reported below net (loss) income under the heading “Net Income (Loss) Attributable to Noncontrolling Interest” in the Company’s Consolidated Statements of Operations and shown as a component of equity in the Company’s Consolidated Balance Sheets.

     The Company has ownership interests in two joint ventures as discussed in Note 11, “Investment in Affiliates.” The Company applies the equity method of accounting for investments in voting stock which give it the ability to exercise significant influence over operating and financial policies of the investee. Significant influence is generally defined as 20% to 50% ownership in the voting stock of an investee. However, each investment in voting stock is analyzed to determine if other factors are present, such as representation on the investee’s board of directors, participation in policy making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency, which may indicate the Company’s ability to exercise significant influence absent a voting stock ownership greater than 20%.

     The Company has performed an evaluation of subsequent events through the date the Company’s financial statements were issued. No material subsequent events have occurred that required recognition or disclosure in these financial statements other than as discussed in Note 28, “Subsequent Events — Discontinued Operations,” to our Notes to the Consolidated Financial Statements.

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Use of Estimates

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods could differ from those estimates.

Foreign Currency Translation

     Assets and liabilities of the Company’s foreign operations for which the local currency is the functional currency are translated into U.S. dollars at period-end exchange rates, while income and expenses are translated at the average exchange rates during the period. Translation gains or losses are included in Accumulated Other Comprehensive Loss, net in the Stockholders’ Equity section of the Consolidated Balance Sheets and separately as a component of Accumulated Other Comprehensive Income (Loss) in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss). Gains and losses resulting from foreign currency transactions, which are transactions denominated in a currency other than the functional currency, are included as a component of Other nonoperating income (expense), net in the Consolidated Statements of Operations. The Company recognized net foreign exchange transaction income of $1.1 million for the year ended June 30, 2011 and a net foreign exchange transaction loss of $2.4 million and $0.6 million for the years ended June 30, 2010 and 2009, respectively.

Product Sales

     The Company recognizes revenue from product sales when evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable, and collectability is reasonably assured.

     The Company requires a written agreement to establish evidence of an arrangement. The written agreement defines the selling price and other material terms, including those that may have an impact on revenue, for example rebates and discounts (if applicable). The agreements generally take the form of a take-or-pay or supply agreement, or a purchase order.

     The Company determines product delivery based on the stated shipping terms in the agreement and on the International Chamber of Commerce Official Rules for the Interpretation of Trade Terms (Incoterms 2010). The Company primarily sells solar products under Incoterms 2010 ex-works terms, meaning the right of possession and risk of loss are transferred to the buyer when the Company places the products at the disposal of the buyer. For these sales, the Company affirmatively notifies the buyer that the goods are available for the buyer’s disposal at the named place of delivery, at which point the Company recognizes the sale. The majority of the remainder of the Company’s products are generally sold under free-on-board (“FOB”) shipping point terms, meaning ownership and risk of loss are transferred to the buyer when the products are placed with the buyer’s carrier, at which point title transfers to the buyer and the Company recognizes the sale.

     The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured. Customer acceptance, return policies, post shipment obligations, warranties, credits and discounts, rebates, price protection and similar privileges have not resulted in uncertainty that impacts revenue recognition. Sales agreements include ordinary course of business commercial terms for return of non-conforming goods (which have not historically been significant). Certain agreements include credits, discounts, rebates or price protection that have not historically been significant and have not

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

required establishment of an accrual. The agreements do not include significant post shipping obligations. The product sales agreements include a standard warranty, and the Company records a warranty reserve based upon the Company’s past experience and estimate of future warranty claims.

System Sales

     The Company accounts for installed solar systems using the percentage of completion method. Under this method, revenue arising from installed solar systems is recognized as work is performed based on the percentage of incurred costs to estimated total forecasted costs at completion utilizing the most recent estimates of forecasted costs. The Company records a receivable for costs and estimated earnings in excess of billings and a liability for billings in excess of costs incurred.

     For smaller projects of shorter durations, generally three months or less, the Company records revenue under the completed contract method when the project is complete.

Royalties

     Most license agreements provide for the Company to receive royalties from the sale of products which utilize the licensed technology. Typically, the royalties are incremental to and distinct from the license fee and are recognized as revenue upon the sale of the respective licensed product. In several instances, the Company has received cash payments for nonrefundable advance royalty payments which are creditable against future royalties under the licenses. Advance royalty payments are deferred and recognized in revenues as the creditable sales occur, the underlying agreement expires, or when the Company has demonstrable evidence that no additional royalties will be creditable and, accordingly, the earnings process is completed.

Business Agreements

     Revenues are also derived through business agreements for the development and/or commercialization of products based upon the Company’s proprietary technologies. The Company has two major types of business agreements.

     The first type of business agreement relates to licensing the Company’s proprietary technology. Licensing activities are tailored to provide each licensee with the right to use the Company’s technology, most of which is patented, for a specific product application or, in some instances, for further exploration of new product applications of such technologies. The terms of such licenses, accordingly, are tailored to address a number of circumstances relating to the use of such technology which have been negotiated between the Company and the licensee. Such terms generally address whether the license will be exclusive or nonexclusive, whether the licensee is limited to very narrowly defined applications or to broader-based product manufacture or sale of products using such technologies, whether the license will provide royalties for products sold which employ such licensed technology and how such royalties will be measured, as well as other factors specific to each negotiated arrangement. In some cases, licenses relate directly to product development that the Company has undertaken pursuant to product development agreements; in other cases, they relate to product development and commercialization efforts of the licensee; and other agreements combine the efforts of the Company with those of the licensee.

     License agreement fees are generally recognized as revenue at the time the agreements are consummated, which is the completion of the earnings process. Typically, such fees are nonrefundable, do not obligate the Company to incur any future costs or require future performance by the Company, and are not related to future production or earnings of the licensee. In some instances, a portion of such

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

license fees is contingent upon the commencement of production or other uncertainties. In these cases, license fee revenues are not recognized until commencement of production or the resolution of uncertainties. Generally, there are no current or future direct costs associated with license fees.

     In the second type of agreement, product development agreements, the Company conducts specified product development projects related to one of its principal technology specializations for an agreed-upon fee. Some of these projects have stipulated performance criteria and deliverables whereas others require “best efforts” with no specified performance criteria. Revenues from product development agreements that contain specific performance criteria are recognized on a percentage-of-completion basis which matches the contract revenues to the costs incurred on a project based on the relationship of costs incurred to estimated total project costs. Accordingly, expenses related to product development agreements are recorded as cost of revenues from product development agreements.

     Prior to fiscal 2011, revenues from product development agreements, where there are no specific performance terms, were recognized in amounts equal to the amounts expended on the programs. Generally, the agreed-upon fees for product development agreements contemplate reimbursing the Company, after its agreed-upon cost share, if any, for costs considered associated with project activities including expenses for direct product development and research, patents, operating, general and administrative expenses and depreciation. In July 2010, the Company began recording government-funded “best efforts” research and development cost sharing arrangements as research and development expense as incurred. The amounts funded by the customer are recognized as an offset to the aggregate research and development expense rather than as contract revenues.

Other Operating Revenues

     Other operating revenues consist principally of revenues related to services provided to certain related parties and third-party service revenue realized by certain of the Company’s service departments. Revenues related to services are recognized upon completion of performance of the applicable service.

Deferred Revenues

     Deferred revenues represent amounts received under business agreements in excess of amounts recognized as revenues.

Product Development, Patents and Technology

     Product development and research costs are expensed as they are incurred and, as such, the Company’s investments in its technologies and patents are recorded at zero in its financial statements, regardless of their values. The technology investments are the basis by which the Company is able to enter into strategic alliances, joint ventures and license agreements.

Preproduction Costs

     The Company recognizes in its Consolidated Statements of Operations costs in preparation for its new manufacturing facilities and equipment as preproduction costs. These costs include training of new employees, supplies and other costs for the new manufacturing facilities and equipment in advance of the commencement of manufacturing.

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Nonoperating Income (Expense)

     Other nonoperating income (expense) consists of gains and losses resulting from foreign currency transactions, deferred gains, rental income, net losses on sales and valuations of investments, insurance settlements, and other miscellaneous income and expenses.

Cash and Cash Equivalents

     Cash and cash equivalents consist of investments in short-term, highly liquid securities maturing 90 days or less from the date of acquisition. The Company maintains cash balances with high quality financial institutions and periodically evaluates the creditworthiness of such institutions. Cash balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation. The Company had cash equivalents of $9.7 million and $59.4 million at June 30, 2011 and 2010, respectively.

Restricted Cash

     In September 2010, the Company entered into a letter of credit facility with JPMorgan Chase Bank, which requires cash collateral equal to 102% of any exposure under letters of credit issued under the facility. Such collateral is recorded as “Restricted Cash” on the Company’s Consolidated Balance Sheets.

     In December 2009, the Company entered into guaranty and pledge agreement with JPMorgan Chase Bank in support of derivative financial instruments used to mitigate foreign currency risk exposure at certain of its subsidiaries. As part of this agreement, the Company is required to provide cash collateral equal to JPMorgan Chase Bank’s counterparty exposure with a minimum cash collateral balance requirement of $1 million. Such collateral is recorded as “Restricted Cash” on the Company’s Consolidated Balance Sheets.

     As part of the SIT acquisition, the Company acquired restricted cash. In connection with the structured financing arrangement with GE Commercial Finance Energy Financial Services (“GE EFS”), a business unit of General Electric Capital Corporation, SIT was required to deposit a portion of the proceeds from the borrowings with GE EFS. If necessary, GE EFS may use such amount to offset any shortfall in payments required from SIT under the structured finance arrangement. In addition, payments received from customers under sales-type lease agreements are deposited directly into a restricted bank account. Amounts deposited in the restricted bank account are used to fund the debt owed under the structured finance arrangements with GE EFS. Upon termination of the structured finance arrangement any remaining amounts in the restricted cash account will be transferred to the Company.

Investments

     Investments with a maturity of greater than three months to one year from date of acquisition are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term if the Company reasonably expects the investment to be realized in cash, sold or consumed during one year. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as other comprehensive income as a separate component of stockholders’ equity. Trading securities are carried at fair value, with unrealized holding gains and losses included in “Other nonoperating income (expense), net” in the Company’s Consolidated Statements of Operations.

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

     Trade accounts receivable are stated net of allowance for uncollectible accounts. When determining the allowance for uncollectible accounts, the Company evaluates the overall composition of the accounts receivable by considering a number of factors, including the length of time trade accounts receivable are past due, trade credit insurance coverage, previous payment and loss history, the customer’s current ability to pay its obligation, and our knowledge of the customer and the customer’s business. In addition, the Company will provide allowances for potential credit losses when necessary. Two customers accounted for 11.3% and 11.1% of the total accounts receivable balance as of June 30, 2011 and one customer accounted for 38.6% of the total accounts receivable balance as of June 30, 2010.

Inventories

     Inventories of raw materials, work in process and finished goods for the manufacture of solar cells and nickel hydroxide are valued at the lower of cost or market. The Company’s cost is primarily determined on a first-in, first-out basis. Cost elements included in inventory are materials, direct labor and manufacturing overhead. If the Company determines that its inventories have become obsolete or are otherwise not saleable, the Company will record a reserve for such loss. Unabsorbed fixed costs are calculated based on a formula of factory nameplate capacity and are expensed as a component of cost of sales in the period incurred.

Property, Plant, and Equipment

     All property, plant and equipment are recorded at cost. Plant and equipment are depreciated on the straight-line method over the estimated useful lives of the individual assets as follows:

		Years
Buildings and improvements*		1 to 33
Machinery and other equipment		3 to 12.5
Assets under capitalized leases		3 to 20

     Costs of machinery and other equipment acquired or constructed for a particular product development project, which have no alternative future use (in other product development projects or otherwise), are charged to product development and research costs as incurred.

     Assets under capitalized leases are amortized over the term of the lease, usually three to 20 years.

     Expenditures for maintenance and repairs are expensed as incurred. Expenditures for enhancements or major renewals are capitalized and are depreciated over their estimated useful lives. When assets are sold or otherwise retired, the cost and accumulated depreciation are removed from the ledgers and the resulting gain or loss is separately disclosed and is included in operating income (loss).

     The Company periodically evaluates the carrying value of the long-lived assets held for use whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. Upon the identification of an event indicating potential impairment, the Company compares the carrying value of its long-lived assets with the estimated undiscounted cash flows or fair value

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

associated with these assets. If the carrying value of the long-lived assets is more than the estimated undiscounted cash flows or fair value, then an impairment loss is recorded. The impairment review is generally triggered when events such as a significant industry downturn, product discontinuance, facility closures, product dispositions, or technological obsolescence occur.

Capitalized Interest

     Interest is capitalized during periods of active equipment construction. During the years ended June 30, 2011, 2010 and 2009, the Company incurred total interest costs of $27.4 million, $29.3 million and $15.1 million, respectively, of which $2.0 million, $0.6 million and $3.5 million, respectively, were capitalized.

Warranty Reserve

     The Company generally provides a five-year product warranty on workmanship and a 20-25 year product warranty on power output on all solar product sales. When the Company recognizes revenue for product sales, it accrues a liability for the estimated costs of meeting its warranty obligations for those products. The Company estimates its warranty liability based on past experience of specific individual claims and claims paid as well as the Company’s engineering and laboratory tests of its product under different conditions.

     For installed solar systems, the Company generally provides a 5-10 year workmanship warranty in addition to the applicable standard product warranty. Reserves for warranty costs are recognized at the date of sale of the relevant products, at management’s best estimate of the expenditure required to settle the liability, taking into account the specific arrangements of the transaction and past experience.

Asset Retirement Obligations

     The Company recognizes the fair value of a liability for an asset retirement obligation in the period when a reasonable estimate of fair value can be made. The associated asset retirement cost is capitalized as an asset and recognized as expense over the remaining useful life of the asset. The Company has recognized asset retirement obligations related to certain leased facilities which are near the end of their lease term and require the Company to return the facilities back to their original states at the end of the leases.

Income Taxes

     The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary difference between the tax bases of assets and liabilities and their reported amounts in the financial statements, using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

     The Company records net deferred tax assets to the extent it believes that the realization of such assets is more likely than not to occur. In making such determination, the Company considers all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of the net

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recorded amount, it would make an adjustment to the valuation allowance which would reduce the provision for income taxes or goodwill to the extent that the valuation allowance was established in purchase accounting.

Derivative Instruments

     The Company primarily enters into derivative financial instruments to manage its foreign currency risks. The Company accounts for these instruments in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 815 “Derivatives and Hedging” (“ASC 815”) which requires companies to recognize derivatives as either assets or liabilities in the balance sheet at fair value. For derivative instruments that qualify as a hedge, the effective portion of changes in the fair value is recorded in accumulated other comprehensive income (loss). Any ineffective portion of the change in fair value is recognized in current earnings.

Recent Accounting Pronouncements Not Yet Adopted

     In May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04 which clarifies the requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “Fair Value.” ASU 2011-04 is effective prospectively for the Company’s interim reporting period beginning after December 15, 2011. The Company does not believe the adoption of ASU 2011-04 will have a material impact on the Company’s financial position, results of operations or cash flows.

     In June 2011, FASB issued ASU 2011-05 that amends the reporting requirements for comprehensive income. The new requirements are intended to increase the prominence of other comprehensive income and its components. This guidance requires a reporting entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 is effective retroactively for the Company’s interim reporting periods beginning after December 15, 2011. The Company does not believe the adoption of ASU 2011-05 will have a material impact on the Company’s financial position, results of operations or cash flows.

Recently Adopted Accounting Pronouncements

     On October 1, 2010, the Company adopted the provisions of the FASB ASU 2010-20, “Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”), which amends Accounting Standards Codification (“ASC”) Topic 310 “Receivables” (“ASC 310”) by requiring more robust and disaggregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses. The objective of enhancing these disclosures is to improve the understanding of (1) the nature of an entity’s credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and reasons for those changes. The adoption of ASC 310 did not have a material effect on the Company’s consolidated financial statements.

     On July 1, 2010, the Company adopted the provisions of the FASB ASC, which amends Topic 810 “Consolidations” (“ASC 810”) to change the consolidation guidance applicable to a variable interest entity (“VIE”). It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE (and is therefore required to consolidate the VIE), by requiring a qualitative

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

analysis rather than a quantitative analysis. The qualitative analysis includes, among other things, consideration of which enterprise has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, reconsideration of whether an enterprise was the primary beneficiary of a VIE only was required when specific events had occurred. Qualifying special purpose entities, which were previously exempt from the application of this standard, are subject to the provisions of this standard when it becomes effective. ASC 810 also requires enhanced disclosures about an enterprise’s involvement with a VIE. ASC 810 is effective as of the beginning of the Company’s first annual reporting period that begins after November 15, 2009. The adoption of ASC 810 did not have a material effect on the Company’s consolidated financial statements.

     On July 1, 2010, the Company adopted FASB ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a Consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), which amends ASC Subtopic 605-25 for separate consideration in multiple-deliverable arrangements. ASU 2009-13 eliminates the use of the residual method for allocating consideration, as well as the criteria that requires objective and reliable evidence of fair value of undelivered elements in order to separate the elements in a multiple-element arrangement. The delivered element(s) will be considered a separate unit of accounting only if both of the following criteria are met: (i) the delivered item(s) has stand-alone value to the customer and (ii) if a general right of return exists relative to the delivered item(s), delivery or performance of the undelivered item(s) is substantially in the control of the vendor and is considered probable. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 did not have any impact on the Company’s consolidated financial statements.

     On July 1, 2010, the Company adopted FASB ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing” (“ASU 2009-15”), which amends ASC 470-20 clarifying that share lending arrangements that are executed in connection with convertible debt offerings or other financings should be measured at fair value and recognized as a debt issuance cost which is amortized using the effective interest method over the life of the financing arrangement as interest cost. In addition, ASU 2009-15 states that the loaned shares should be excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the common and diluted earnings per share calculation. The amended provisions of ASC 470-20 is effective for all arrangements outstanding as of the fiscal year beginning on or after December 15, 2009, and retrospective application is required for all periods presented. In addition, ASC 470-20 is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009.

     On July 1, 2009, the Company adopted the provisions of FASB ASC Subtopic 470-20, “Debt with Conversion and Other Options” (“ASC 470-20”), which requires issuers of convertible debt securities within its scope to recognize both the liability and equity components of convertible debt instruments with cash settlement features. The debt component is required to be recognized at the fair value of a similar instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from issuance of the convertible debt and the fair value of the liability, after adjusting for the deferred tax impact. ASC 470-20 also requires an accretion of the resulting debt discount over the expected life of the convertible debt. ASC 470-20 is required to be applied retrospectively to prior periods presented, and accordingly, the Statement of Operations and Statement of Cash Flows for the year ended June 30, 2009 have been adjusted to reflect its adoption.

ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following tables summarize the effect of adopting ASC 470-20 for Own-Share Lending Arrangements in Contemplation of Convertible Debt issuance or Other Financing for the year ended June 30, 2010:

		Consolidated Statement of Operations
		for the Year Ended June 30, 2010
		As Previously
		Reported				ASC 470-20				As Reported
		(in thousands, except per share amounts)
Interest expense		$	(27,510	)		$	(1,166	)		$	(28,676	)
Total Other Income (Expense)			(22,897	)			(1,166	)			(24,063	)
Loss before Income Taxes and Equity Loss			(457,998	)			(1,166	)			(459,164	)
Loss before Equity Loss			(455,750	)			(1,166	)			(456,916	)
Net Loss			(456,009	)			(1,166	)			(457,175	)
Net loss attributable to ECD Stockholders’			(455,896	)			(1,166	)			(457,062	)
Loss per share			(10.72	)			(0.03	)			(10.75	)
Diluted loss per share			(10.72	)			(0.03	)			(10.75	)