Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - SUNEDISON, INC.Financial_Report.xls
EX-10.1 - PURCHASE AGREEMENT - SUNEDISON, INC.exhibit101-purchaseagreeme.htm
EX-4.1 - INDENTURE - SUNEDISON, INC.exhibit41-indenture.htm
EX-10.9 - ADDITIONAL NOTE HEDGE TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit109-2014bondhedgeco.htm
EX-10.4 - BASE NOTE HEDGE TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit104-2014bondhedgeco.htm
EX-10.2 - BASE NOTE HEDGE TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit102-2014bondhedgeco.htm
EX-10.5 - BASE WARRANT TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit105-2014warrantconf.htm
EX-10.10 - WARRANT CONFIRMATION - SUNEDISON, INC.exhibit1010-2014warrantcon.htm
EX-10.12 - WARRANT CONFIRMATION - SUNEDISON, INC.exhibit1012-2014warrantcon.htm
EX-10.6 - BASE WARRANT TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit106-2014warrantconf.htm
EX-32 - MANAGEMENT CERTIFICATION - SUNEDISON, INC.sunedison-6302014xexhibit32.htm
EX-10.3 - BASE WARRANT TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit103-2014warrantconf.htm
EX-10.11 - WARRANT CONFIRMATION - SUNEDISON, INC.exhibit1011-2014warrantcon.htm
EX-10.7 - BASE NOTE HEDGE TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit107-2014bondhedgeco.htm
EX-31.2 - CFO CERTIFICATION - SUNEDISON, INC.sunedison-6302014xexhibit312.htm
EX-31.1 - CEO CERTIFICATION - SUNEDISON, INC.sunedison-6302014xexhibit311.htm
EX-10.13 - BOND HEDGE CONFIRMATION - SUNEDISON, INC.exhibit1013-2014bondhedgec.htm
EX-10.8 - ADDITIONAL NOTE HEDGE TRANSACTION CONFIRMATION - SUNEDISON, INC.exhibit108-2014bondhedgeco.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ______________________________________________________________
FORM 10-Q
 ______________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-13828
 ______________________________________________________________
SunEdison, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________
Delaware
 
56-1505767
(State or other jurisdiction of
incorporation or organization)
 
(I. R. S. Employer
Identification No.)
 
 
 
13736 Riverport Drive, Suite 180
Maryland Heights, Missouri
 
63043
(Address of interim principal executive offices)
 
(Zip Code)
(314) 770-7300
(Registrant’s telephone number, including area code)
 ______________________________________________________________
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.    x  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).    Yes  x    No  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 the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
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).    Yes  o     No  x
The number of shares of the registrant’s common stock outstanding at August 1, 2014 was 268,885,414.
 



Table of Contents




2



PART I—FINANCIAL INFORMATION

Item 1.
Financial Statements.
SUNEDISON, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
646.2

 
$
401.3

 
$
1,192.7

 
$
844.9

Cost of goods sold
620.4

 
352.1

 
1,119.7

 
746.0

Gross profit
25.8

 
49.2

 
73.0

 
98.9

Operating expenses:
 
 


 
 
 
 
Marketing and administration
119.2

 
78.8

 
229.0

 
149.1

Research and development
18.7

 
18.1

 
31.6

 
35.5

Restructuring reversals
(3.4
)
 
(1.1
)
 
(0.8
)
 
(5.6
)
Operating loss
(108.7
)
 
(46.6
)
 
(186.8
)
 
(80.1
)
Non-operating expense (income):
 
 
 
 
 
 
 
Interest expense
94.1

 
34.6

 
161.7

 
82.1

Interest income
(5.8
)
 
(0.8
)
 
(8.7
)
 
(1.3
)
Loss on convertible notes derivatives, net (see Note 5)
47.6

 

 
499.4

 

Gain on previously held equity investment (See Note 4)
(145.7
)
 

 
(145.7
)
 

Other, net
3.7

 
2.4

 
5.7

 
3.5

Total non-operating (income) expense
(6.1
)
 
36.2

 
512.4

 
84.3

Loss before income taxes and equity in earnings (loss) of joint ventures
(102.6
)
 
(82.8
)
 
(699.2
)
 
(164.4
)
Income tax expense (benefit)
(43.0
)
 
13.6

 
(22.5
)
 
33.1

Loss before equity in earnings (loss) of joint ventures
(59.6
)
 
(96.4
)
 
(676.7
)
 
(197.5
)
Equity in earnings (loss) of joint ventures, net of tax
8.4

 

 
9.5

 
(0.3
)
Net loss
(51.2
)
 
(96.4
)
 
(667.2
)
 
(197.8
)
Net (income) loss attributable to noncontrolling interests
10.0

 
(6.5
)
 
12.4

 
5.5

Net loss attributable to SunEdison stockholders
$
(41.2
)
 
$
(102.9
)
 
$
(654.8
)
 
$
(192.3
)
Basic loss per share (See Note 9)
$
(0.16
)
 
$
(0.45
)
 
$
(2.46
)
 
$
(0.85
)
Diluted loss per share (See Note 9)
$
(0.16
)
 
$
(0.45
)
 
$
(2.46
)
 
$
(0.85
)

See accompanying notes to unaudited condensed consolidated financial statements.

3



SUNEDISON, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
In millions
 
 
 
 
 
 
 
Net loss
$
(51.2
)
 
$
(96.4
)
 
$
(667.2
)
 
$
(197.8
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net foreign currency translation adjustments
9.7

 
(17.9
)
 
10.9

 
(52.3
)
Net unrealized loss on available-for-sale securities

 
0.7

 

 
0.1

Net gain (loss) on hedging instruments
(2.1
)
 
(16.1
)
 
7.3

 
(15.5
)
Net adjustments for benefit plans
(0.2
)
 

 
0.5

 

Other comprehensive income (loss), net of tax
7.4

 
(33.3
)
 
18.7

 
(67.7
)
Total comprehensive loss
(43.8
)
 
(129.7
)
 
(648.5
)
 
(265.5
)
Net (income) loss attributable to noncontrolling interests
10.0

 
(6.5
)
 
12.4

 
5.5

Net foreign currency translation adjustments attributable to noncontrolling interests

 
1.2

 
0.1

 
2.5

Comprehensive loss attributable to SunEdison stockholders
$
(33.8
)
 
$
(135.0
)
 
$
(636.0
)
 
$
(257.5
)

See accompanying notes to unaudited condensed consolidated financial statements.



4



SUNEDISON, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
 
 
June 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
954.7

 
$
573.5

Cash committed for construction projects, including consolidated variable interest entities of $126.9 and $143.6 in 2014 and 2013, respectively
176.1

 
258.0

Restricted cash
93.1

 
70.1

Accounts receivable, less allowance for doubtful accounts of $4.6 and $4.9 in 2014 and 2013, respectively

326.3

 
351.5

Inventories
219.5

 
248.4

Solar energy systems held for development and sale, including consolidated variable interest entities of $173.0 and $104.4 in 2014 and 2013, respectively
363.5

 
460.1

Prepaid expenses and other current assets
506.4

 
423.4

Total current assets
2,639.6

 
2,385.0

Investments
41.3

 
41.1

Property, plant and equipment, net:
 
 
 
Non-solar energy systems, net of accumulated depreciation of $1,333.9 and $1,228.6 in 2014 and 2013, respectively

1,771.0

 
1,108.7

Solar energy systems, including consolidated variable interest entities of $260.7 and $157.5 in 2014 and 2013, respectively, net of accumulated depreciation of $153.8 and $119.7 in 2014 and 2013, respectively

2,981.0

 
2,014.2

Restricted cash
103.2

 
73.8

Note hedge derivative asset

 
514.8

Other assets
856.7

 
542.9

Total assets
$
8,392.8

 
$
6,680.5


See accompanying notes to unaudited condensed consolidated financial statements.

5



 
June 30,
2014
 
December 31, 2013
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of Solar Energy non-solar energy systems debt
$
78.0

 
$

Current portion of Solar Energy systems debt, including financing and capital leaseback obligations, including consolidated variable interest entities of $15.1 and $5.8 in 2014 and 2013, respectively

402.3

 
394.7

Current portion of Semiconductor Materials debt
2.1

 
2.8

Accounts payable
1,030.9

 
867.7

Accrued liabilities
488.8

 
432.7

Current portion of deferred revenue
121.9

 
154.7

Current portion of customer and other deposits
36.2

 
36.7

Total current liabilities
2,160.2

 
1,889.3

Solar Energy non-solar energy systems debt, less current portion
1,614.6

 
868.2

Solar Energy systems debt, less current portion, including financing and capital leaseback obligations, including consolidated variable interest entities of $444.1 and $234.6 in 2014 and 2013, respectively

3,092.1

 
2,302.9

Semiconductor Materials debt, less current portion
205.8

 
7.6

Customer and other deposits, less current portion
23.7

 
103.3

Deferred revenue, less current portion
123.6

 
90.0

Conversion option derivative liability

 
506.5

Warrant derivative liability

 
270.5

Other liabilities
310.7

 
301.0

Total liabilities
7,530.7

 
6,339.3

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock, $.01 par value, 50.0 shares authorized, none issued and outstanding in 2014 and 2013


 

Common stock, $.01 par value, 700.0 shares authorized, 268.7 and 266.9 issued and outstanding in 2014 and 2013, respectively

2.7

 
2.7

Additional paid-in capital
1,188.7

 
457.7

Accumulated deficit
(822.7
)
 
(168.0
)
Accumulated other comprehensive loss
(4.8
)
 
(60.0
)
Treasury stock, 0.3 and less than 0.1 shares in 2014 and 2013, respectively

(5.8
)
 
(0.2
)
Total SunEdison stockholders’ equity
358.1

 
232.2

Noncontrolling interests
504.0

 
109.0

Total stockholders’ equity
862.1

 
341.2

Total liabilities and stockholders’ equity
$
8,392.8

 
$
6,680.5


See accompanying notes to unaudited condensed consolidated financial statements.

6



SUNEDISON, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
Six Months Ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(667.2
)
 
$
(197.8
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
153.8

 
121.8

Stock-based compensation
14.4

 
13.9

Expense for deferred taxes
(41.7
)
 
(25.9
)
Deferred revenue
(139.6
)
 
(24.1
)
Loss on convertible notes derivatives, net
499.4



Gain on previously held equity investment
(145.7
)
 

Other non-cash
13.2

 
(1.2
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
43.2

 
(15.1
)
Inventories
28.5

 
5.8

Solar energy systems held for development and sale
(2.3
)
 
(131.0
)
Prepaid expenses and other current assets
(103.5
)
 
(29.3
)
Accounts payable
(105.5
)
 
(9.7
)
Deferred revenue for solar energy systems
158.9

 
64.2

Customer and other deposits
(41.6
)
 
(33.8
)
Accrued liabilities
37.7

 
31.3

Other long term liabilities
(3.3
)
 
5.7

Other
7.5

 
20.2

Net cash used in operating activities
(293.8
)
 
(205.0
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(95.0
)
 
(69.6
)
Construction of solar energy systems
(651.7
)
 
(122.5
)
Purchases of cost and equity method investments
(53.8
)
 
(45.6
)
Net proceeds from equity method investments
6.0

 
62.1

Change in restricted cash
(48.5
)
 
10.6

Change in cash committed for construction projects
82.9

 
(69.4
)
Cash paid for acquisitions, net of cash acquired
(256.0
)
 

Other

 
(0.6
)
Net cash used in investing activities
(1,016.1
)
 
(235.0
)
Cash flows from financing activities:
 
 
 
Proceeds from long-term debt
600.0

 

Proceeds from SSL term loan
210.0

 

Proceeds from solar energy system financing and capital lease obligations
1,089.4

 
330.0

Principal payments on long term debt
(10.6
)
 
(1.4
)
Repayments of solar energy system financing and capital lease obligations
(263.4
)
 
(50.6
)
Payments for note hedge
(173.8
)
 

Proceeds from warrant transactions
123.6

 

Net repayments of customer deposits related to long-term supply agreements

 
(26.9
)
Proceeds from SSL IPO and private placement transactions
185.3

 

Common stock issued and repurchased
2.9

 
(0.6
)
Proceeds from noncontrolling interests
23.5

 
11.5

Cash paid for contingent consideration for acquisitions
(1.9
)
 
(0.8
)
Debt financing fees
(91.2
)
 
(23.0
)
Other
(3.5
)
 

Net cash provided by financing activities
1,690.3

 
238.2

Effect of exchange rate changes on cash and cash equivalents
0.8

 
(5.7
)
Net increase (decrease) in cash and cash equivalents
381.2

 
(207.5
)
Cash and cash equivalents at beginning of period
573.5

 
553.8

Cash and cash equivalents at end of period
$
954.7

 
$
346.3

Supplemental schedule of non-cash of financing activities:
 
 
 
Net debt transferred to and assumed by buyer upon sale of solar energy systems
$
83.8

 
$
33.3


See accompanying notes to unaudited condensed consolidated financial statements.

7



SUNEDISON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of SunEdison, Inc. and subsidiaries ("SunEdison"), in our opinion, include all adjustments (consisting of normal, recurring items) necessary to present fairly our financial position and results of operations and cash flows for the periods presented. SunEdison has presented the unaudited condensed consolidated financial statements in accordance with the Securities and Exchange Commission's (the "SEC's") requirements for Form 10-Q and Article 10 of Regulation S-X and consequently, these financial statements do not include all disclosures required by U.S. generally accepted accounting principles ("U.S. GAAP"). These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013, which contains SunEdison's audited financial statements for such year. Operating results for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Reclassifications

The accompanying unaudited condensed consolidated financial statements for prior periods contain certain reclassifications to conform to the presentation used in the current period. In our December 31, 2013 consolidated financial statements, we revised our presentation of cash and cash equivalents to separately disclose cash committed for construction projects. As a result, amounts in the condensed consolidated statement of cash flows have been revised from the amounts previously reported to reflect this presentation.

Use of Estimates

In preparing our unaudited condensed consolidated financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for investments; depreciation; amortization; leases; accrued liabilities including restructuring, warranties, and employee benefits; derivatives, including the embedded conversion option, note hedges, and warrants associated with our outstanding senior convertible notes; stock-based compensation; income taxes; solar energy system installation and related costs; percentage-of-completion on long-term construction contracts; the fair value of assets and liabilities recorded in connection with business combinations; and asset valuations, including allowances, among others. These estimates and assumptions are based on current facts, historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. To the extent there are material differences between the estimates and actual results, our future results of operations would be affected.

New Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 limits the requirement to report discontinued operations to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 also requires expanded disclosures concerning discontinued operations, disclosures of certain financial results attributable to a disposal of a significant component of an entity that does not qualify for discontinued operations reporting and expanded disclosures for long-lived assets classified as held for sale or disposed of. ASU 2014-08 is effective for us on a prospective basis in our first quarter of fiscal 2015. Early adoption is permitted, but only for disposals (or assets classified as held for sale) that have not been reported in financial statements previously issued or available for issuance. We are currently evaluating the impact that ASU 2014-08 will have on our consolidated financial statements and related disclosures upon adoption.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either a retrospective or cumulative effect transition method. We have not determined which transition method we will adopt, and we are currently evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures upon adoption.


8





2. INVENTORIES

Inventories consist of the following:
 
As of
 
As of
In millions
June 30, 2014
 
December 31, 2013
Raw materials and supplies
$
60.5

 
$
114.7

Goods and work in process
111.6

 
98.8

Finished goods
47.4

 
34.9

Total inventories
$
219.5

 
$
248.4


3. SOLAR ENERGY SYSTEMS HELD FOR DEVELOPMENT AND SALE

Solar energy systems held for development and sale (including consolidated variable interest entities, "VIEs") consist of the following:
 
As of
 
As of
In millions
June 30, 2014
 
December 31, 2013
Under development
$
363.5

 
$
419.7

Systems held for sale

 
40.4

Total solar energy systems held for development and sale
$
363.5

 
$
460.1


4. ACQUISITIONS

SMP Ltd.

In February 2011, we entered into a joint venture (SMP Ltd. or "SMP") with Samsung Fine Chemicals Co. Ltd. ("SFC") for the construction and operation of a new facility to produce high purity polysilicon in Ulsan, South Korea. SMP will manufacture and supply polysilicon to us and to international markets. Prior to May 28, 2014, our ownership interest in SMP was 50% and Samsung Fine Chemicals Co. Ltd. owned the other 50%. Also prior to May 28, 2014, we accounted for our interest in SMP using the equity method of accounting.

In September 2011, we executed a Supply and License Agreement with SMP under which we license and sell to SMP certain technology and related equipment used for producing polysilicon. In accordance with the Supply and License Agreement, we have received proceeds based on certain milestones we have achieved throughout the construction, installation and testing of the equipment, which we expect to continue through the first half of 2015. Proceeds received from SMP under the Supply and License Agreement were recorded as a reduction in our basis in the SMP investment and to the extent that our basis in the investment was zero, the remaining proceeds received were recorded as a long-term liability. The cash received was recorded as an investing inflow within the condensed consolidated statement of cash flows. As of May 28, 2014, our net equity method investment balance in SMP was $13.3 million.

On May 28, 2014, we acquired from SFC an approximate 35% interest in SMP for a cash purchase price of 144 billion South Korean won (approximately $140.7 million, $71.2 million, net of cash acquired). Prior to the completion of the SSL IPO (see Note 17), SunEdison contributed this approximate 35% interest in SMP to SSL. As a result, on a consolidated basis, we own an approximate 85% interest in SMP, and effectively control SMP's operations, and thus SMP's results are included in our consolidated financial statements from May 28, 2014 onwards. Further, we applied the provisions of U.S. GAAP applicable to business combinations as of the acquisition date, which resulted in the recognition of SMP's net assets acquired and our previously held equity interest at fair value. The remeasurement of the previously held equity interest at the acquisition date resulted in a net gain of $145.7 million that was recorded in the accompanying condensed consolidated statement of operations.

The initial accounting for this business combination is not complete because the evaluation necessary to assess the fair values of SMP, our previously held equity interest in SMP and certain net assets acquired, is in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that any additional information is obtained about the facts and circumstances that existed as of the acquisition date. Accordingly, the net gain resulting from the remeasurement of our previously held equity interest is subject to change.


9



The provisional estimated allocation of assets and liabilities is as follows:
In millions
 
Current assets
$
80.8

Property, plant and equipment (non-solar energy systems)
661.8

Other assets, including goodwill and intangible assets
127.4

Total assets acquired
870.0

Solar Energy non-solar energy systems debt
381.9

Accounts payable
134.8

Accrued and other liabilities
5.1

Total liabilities assumed
521.8

Noncontrolling interest
51.2

Fair value of net assets acquired
$
297.0


TerraForm Acquisitions

During the six months ended June 30, 2014, our yieldco subsidiary TerraForm Power, Inc. and its subsidiaries (collectively, “TerraForm”) completed the acquisitions of 100% of the ownership interests in entities that owned and operated 33 solar energy systems in the U.S. and U.K. with an aggregate capacity of 99.6 megawatts ("MW"). The aggregate consideration paid for these acquisitions, net of cash acquired, was $184.8 million. These acquisitions were made in order to support the development of TerraForm's initial portfolio of renewable energy generation assets.

The initial accounting for these business combinations is not complete because the evaluation necessary to assess the fair values of certain net assets acquired is in process. The provisional amounts are subject to revision until the evaluations are completed to the extent that any additional information is obtained about the facts and circumstances that existed as of the acquisition date.

The provisional estimated allocation of assets and liabilities is as follows:
In millions
 
Solar energy systems
$
184.4

Intangible assets (long-term power purchase agreements)
105.4

Other assets
15.4

Total assets acquired
305.2

Solar Energy systems debt
110.9

Accounts payable
3.7

Accrued liabilities
4.4

Total liabilities assumed
119.0

Fair value of net assets acquired
$
186.2


The preliminary purchase accounting resulted in the recording of provisional amounts for long-term power purchase agreements totaling $105.4 million. The long-term power purchase agreements are intangible assets subject to amortization with no residual value. The weighted average amortization period of these agreements is 17.3 years.

5. DEBT AND LEASEBACK OBLIGATIONS

Debt (including VIEs) and leaseback obligations outstanding consist of the following: 

10




 
As of June 30, 2014
 
As of December 31, 2013
In millions
 
Total
Current and Short-Term
Long-Term
 
Total
Current and Short-Term
Long-Term
Solar Energy non-solar energy systems debt:
 



 



Convertible senior notes due 2018, net of discount
 
$
472.6

$

$
472.6

 
$
460.0

$

$
460.0

Convertible senior notes due 2020, net of discount
 
416.9


416.9

 



Convertible senior notes due 2021, net of discount
 
418.5


418.5

 
408.2


408.2

SMP Ltd. credit facilities
 
384.6

78.0

306.6

 



Total Solar Energy non-solar energy systems debt
 
$
1,692.6

$
78.0

$
1,614.6

 
$
868.2

$

$
868.2

Solar Energy systems debt, including financing and capital leaseback obligations:
 
 
 
 
 
 
 
 
Short-term debt, weighted average interest rate of 6.38% and 6.55%, respectively
 
$
104.5

$
104.5

$

 
$
68.9

$
68.9

$

System pre-construction, construction and term debt
 
1,214.7

275.1

939.6

 
1,028.0

305.0

723.0

Capital leaseback obligations
 
81.9

2.7

79.2

 
94.0

4.5

89.5

Financing leaseback obligations
 
1,575.0

15.9

1,559.1

 
1,384.8

16.2

1,368.6

Acquisition facility
 
400.0

4.0

396.0

 



Other system financing transactions
 
118.3

0.1

118.2

 
121.9

0.1

121.8

Total Solar Energy systems debt, including financing and capital leaseback obligations
 
$
3,494.4

$
402.3

$
3,092.1

 
$
2,697.6

$
394.7

$
2,302.9

Semiconductor Materials debt:
 
 
 
 
 
 
 
 
SSL term facility
 
$
207.9

$
2.1

$
205.8

 
$

$

$

Long-term notes
 



 
10.4

2.8

7.6

Total Semiconductor Materials debt
 
$
207.9

$
2.1

$
205.8

 
$
10.4

$
2.8

$
7.6

Total debt outstanding
 
$
5,394.9

$
482.4

$
4,912.5

 
$
3,576.2

$
397.5

$
3,178.7


Solar Energy Non-solar Energy Systems Debt

Convertible Senior Notes Due 2018 and 2021
 
On December 20, 2013, we issued $600.0 million in aggregate principal amount of 2.00% convertible senior notes due 2018 (the "2018 Notes") and $600.0 million aggregate principal amount of 2.75% convertible senior notes due 2021 (the "2021 Notes", and together with the 2018 Notes, the "2018/2021 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $1,167.3 million in the offering, before the redemption of the $550.0 million outstanding aggregate principal amount of the 7.75% senior notes due 2019 and the repayment of the $200.0 million outstanding aggregate principle amount of the 10.75% second lien term loan and before payment of the net cost of the call spread overlay described below.

Interest on the 2018 Notes is payable on April 1 and October 1 of each year, beginning on April 1, 2014. Interest on the 2021 Notes is payable on January 1 and July 1 of each year, beginning on July 1, 2014. The 2018 Notes and the 2021 Notes mature on October 1, 2018 and January 1, 2021, respectively, unless earlier converted or purchased.

The 2018/2021 Notes are convertible at any time until the close of business on the business day immediately preceding July 1, 2018 (in the case of the 2018 Notes) or October 1, 2020 (in the case of the 2021 Notes) only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending March 31, 2014, if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 120% of the conversion price of the 2018/2021 Notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the 2018/2021 Notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events. As condition (1) was met during the second quarter of 2014, the 2018/2021 Notes were convertible as of June 30, 2014. On and after July 1, 2018 (in the case of the 2018 Notes) or October 1, 2020 (in the case of the 2021 Notes) and until the close of business on the second scheduled trading day immediately prior to the applicable stated maturity date, the 2018/2021 Notes are convertible regardless of the foregoing conditions based on an initial conversion price of $14.62 per share of our common stock.


11



The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2018/2021 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. However, we were required to settle conversions solely in cash until we obtained the requisite approvals from our stockholders to (i) amend our restated certificate of incorporation to sufficiently increase the number of authorized but unissued shares of our common stock to permit the conversion and settlement of the 2018/2021 Notes into shares of our common stock, and (ii) authorize the issuance of the maximum numbers of shares described above in accordance with the continued listing standards of The New York Stock Exchange. At our annual stockholders meeting on May 29, 2014, the requisite majority of the outstanding shares of our common stock approved these measures, and we subsequently filed a related amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Delaware. Holders may also require us to repurchase all or a portion of the 2018/2021 Notes upon a fundamental change, as defined in the indenture agreement, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. In the event of certain events of default, such as our failure to make certain payments, pay debts as they become due or perform or observe certain obligations thereunder, the trustee or holders of a specified amount of then-outstanding 2018/2021 Notes will have the right to declare all amounts then outstanding due and payable. We may not redeem the 2018/2021 Notes prior to the applicable stated maturity date.

The 2018/2021 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2018/2021 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and effectively subordinated to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.
 
From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle conversions in cash if exercised, the embedded conversion options (the "2018/2021 Conversion Options") within the 2018/2021 Notes were required to be separated from the 2018/2021 Notes and accounted for separately as derivative instruments (derivative liabilities) with changes in fair value reported in the condensed consolidated statements of operations, as further discussed in the Loss on Convertible Notes Derivatives section below. Upon obtaining the requisite approvals from our stockholders discussed above, the 2018/2021 Conversion Options were considered equity instruments. Thus, as of May 29, 2014, the 2018/2021 Conversion Options were remeasured at fair value, or $888.4 million, with the change in fair value reported in the condensed consolidated statement of operations, and the resulting fair value of the 2018/2021 Conversion Options was reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 will not be recognized in the condensed consolidated statement of operations as long as the instruments continue to qualify to be classified as equity.

Call Spread Overlay for Convertible Senior Notes Due 2018 and 2021
 
Concurrent with the issuance of the 2018/2021 Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the "2018/2021 Note Hedges") and warrant transactions (collectively, the "2018/2021 Warrants" and together with the 2018/2021 Note Hedges, the “2018/2021 Call Spread Overlay”), with certain of the initial purchasers of the 2018/2021 Notes or their affiliates. Assuming full performance by the counterparties, the 2018/2021 Call Spread Overlay is designed to effectively reduce our potential payout over the principal amount on the 2018/2021 Notes upon conversion.

Under the terms of the 2018/2021 Note Hedges, we purchased from affiliates of certain of the initial purchasers of the 2018/2021 Notes options to acquire, at an exercise price of $14.62 per share, subject to anti-dilution adjustments, up to 82.1 million shares of our common stock. Each 2018/2021 Note Hedge is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2018/2021 Notes. Each 2018/2021 Note Hedge is exercisable upon the conversion of the 2018/2021 Notes and expires on the corresponding maturity dates of the 2018/2021 Notes. The option counterparties are generally obligated to settle their obligations to us upon exercise of the 2018/2021 Note Hedges in the same manner as we satisfy our obligations to holders of the 2018/2021 Notes.

Under the terms of the 2018/2021 Warrants, we sold to affiliates of certain of the initial purchasers of the 2018/2021 Notes warrants to acquire, on the stated expiration date of each 2018/2021 Warrant, up to 82.1 million shares of our common stock at an exercise price of $18.35 per share, subject to anti-dilution adjustments. Each 2018/2021 Warrant transaction is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2018/2021 Notes.

From December 20, 2013 through May 29, 2014, the period in which we would have been required to settle the 2018/2021 Note Hedges and 2018/2021 Warrants in cash if exercised, these instruments were required to be accounted for as derivative instruments with changes in fair value reported in the condensed consolidated statements of operations, as further discussed in the Loss on Convertible Notes Derivatives section below. Upon obtaining the requisite approvals from our stockholders discussed above, the 2018/2021 Note Hedges and 2018/2021 Warrants were considered equity instruments. Thus, as of May

12



29, 2014, the 2018/2021 Note Hedges and 2018/2021 Warrants were remeasured at fair value (asset of $880.0 million and liability of $753.3 million respectively), with the changes in fair value reported in the condensed consolidated statement of operations, and the resulting fair values of the 2018/2021 Note Hedges and 2018/2021 Warrants were reclassified to Stockholders' Equity. Changes in fair value subsequent to May 29, 2014 will not be recognized in the condensed consolidated statement of operations as long as the instruments continue to qualify to be classified as equity.

The net increase in additional paid in capital during the second quarter of 2014 as a result of the reclassification of the 2018/2021 Conversion Options, 2018/2021 Note Hedges and 2018/2021 Warrants was $761.7 million.

Loss on Convertible Notes Derivatives

For the three and six month periods ended June 30, 2014, we recognized a net loss of $47.6 million and $499.4 million, respectively, related to the change in the fair value of the 2018/2021 Conversion Options, the 2018/2021 Note Hedges and 2018/2021 Warrants (the "2018/2021 Convertible Notes Derivatives") prior to the reclassification of these instruments to Stockholders' Equity as discussed above, which is reported in loss on derivatives, net in the condensed consolidated statement of operations, as follows:

In millions
Three Months Ended June 30, 2014
 
 Six Months Ended June 30, 2014
Conversion Options
$
65.5

 
$
381.9

Note Hedges
(65.5
)
 
(365.3
)
Warrants
47.6

 
482.8

Total loss on convertible note derivatives, net
$
47.6

 
$
499.4


The 2018/2021 Convertible Notes Derivatives were measured at fair value as of May 29, 2014 using a Black-Scholes valuation model as these instruments are not traded on an open market.  Significant inputs to the valuation model, which have been identified as Level 2 inputs, were as follows:

 
Conversion Option
 
Note Hedges
 
Warrants

Due 2018
 
Due 2021
 
Due 2018
 
Due 2021
 
Due 2018
 
Due 2021
Stock price
$20.50
 
$20.50
 
$20.50
 
$20.50
 
$20.50
 
$20.50
Exercise price
$14.62
 
$14.62
 
$14.62
 
$14.62
 
$18.35
 
$18.93
Risk-free rate
1.34%
 
1.95%
 
1.30%
 
1.93%
 
1.45%
 
2.30%
Volatility
45.0%
 
45.0%
 
45.0%
 
45.0%
 
42.0%
 
42.0%
Dividend yield
—%
 
—%
 
—%
 
—%
 
—%
 
—%
Maturity
2018
 
2021
 
2018
 
2021
 
2018
 
2021

Further details of the inputs above are as follows:

Stock price - The closing price of our common stock on May 29, 2014
Exercise price - The exercise (or conversion) price of the derivative instrument
Risk-free rate - The Treasury Strip rate associated with the life of the derivative instrument
Volatility - The volatility of our common stock over the life of the derivative instrument

Convertible Senior Notes Due 2020

On June 10, 2014, we issued $600.0 million in aggregate principal amount of 0.25% convertible senior notes due 2020 (the "2020 Notes") in a private placement offering. We received net proceeds, after payment of debt financing fees, of $584.5 million in the offering, before payment of the net cost of the call spread overlay described below.

Interest on the 2020 Notes is payable on July 15 and January 15 of each year, beginning on January 15, 2015. The 2020 Notes mature on January 15, 2020, unless earlier converted or purchased.


13



The 2020 Notes are convertible at any time until the close of business on the business day immediately preceding October 15, 2019 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending September 30, 2014, if the closing sale price of our common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the 2020 Notes in effect on each applicable trading day; (2) during the five consecutive business day period following any 10 consecutive trading-day period in which the trading price for the 2020 Notes for each such trading day is less than 98% of the closing sale price of our common stock on such trading day multiplied by the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate events. On and after October 15, 2019 and until the close of business on the second scheduled trading day immediately prior to the applicable stated maturity date, the 2020 Notes are convertible regardless of the foregoing conditions based on an initial conversion price of $26.87 per share of our common stock.

The conversion price will be subject to adjustment in certain events, such as distributions of dividends or stock splits. The 2020 Notes are convertible only into cash, shares of our common stock or a combination thereof at our election. Holders may also require us to repurchase all or a portion of the 2020 Notes upon a fundamental change, as defined in the indenture agreement, at a cash repurchase price equal to 100% of the principal amount plus accrued and unpaid interest. In the event of certain events of default, such as our failure to make certain payments or perform or observe certain obligations thereunder, the trustee or holders of a specified amount of then-outstanding 2020 Notes will have the right to declare all amounts then outstanding due and payable. We may not redeem the 2020 Notes prior to the applicable stated maturity date.

The 2020 Notes are general unsecured obligations and rank senior in right of payment to any of our future indebtedness that is expressly subordinated in right of payment to the 2020 Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and to all existing and future indebtedness (including trade payables) incurred by our subsidiaries.

The embedded conversion options within the 2020 Notes are indexed to our common stock and thus were classified as equity instruments upon issuance of the 2020 Notes. The initial fair value of the embedded conversion options was recognized as a reduction in the carrying value of the 2020 Notes in the condensed consolidated balance sheet and such discount will be amortized and recognized as interest expense over the term of the 2020 Notes. Subsequent changes in fair value are not recognized as long as the instruments continue to qualify to be classified as equity.

Call Spread Overlay for Convertible Senior Notes Due 2020

Concurrent with the issuance of the 2020 Notes, we entered into privately negotiated convertible note hedge transactions (collectively, the "2020 Note Hedge") and warrant transactions (collectively, the "2020 Warrants" and together with the 2020 Note Hedge, the “2020 Call Spread Overlay”), with certain of the initial purchasers of the 2020 Notes or their affiliates. Assuming full performance by the counterparties, the 2020 Call Spread Overlay is meant to effectively reduce our potential payout over the principal amount on the 2020 Notes upon conversion of the 2020 Notes.

Under the terms of the 2020 Note Hedge, we bought from affiliates of certain of the initial purchasers of the 2020 Notes options to acquire, at an exercise price of $26.87 per share, subject to anti-dilution adjustments, up to 22.3 million shares of our common stock. Each 2020 Note Hedge is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2020 Notes. Each 2020 Note Hedge is exercisable upon the conversion of the 2020 Notes and expires on the corresponding maturity dates of the 2020 Notes.

Under the terms of the 2020 Warrants, we sold to affiliates of certain of the initial purchasers of the 2020 Notes warrants to acquire, on the stated expiration date of each Warrant, up to 22.3 million shares of our common stock at an exercise price of $37.21 per share, subject to anti-dilution adjustments. Each 2020 Warrant transaction is a separate transaction, entered into by us with each option counterparty, and is not part of the terms of the 2020 Notes.

The 2020 Note Hedge and 2020 Warrants are indexed to our common stock and thus were classified as equity instruments upon issuance and recognized at fair value based on the negotiated transaction prices. Subsequent changes in fair value are not recognized as long as the instruments continue to qualify to be classified as equity.

Bridge Credit Facility

On December 20, 2013, we entered into a credit agreement with the lenders identified therein and Deutsche Bank AG New York Branch, as administrative agent, lender, and letter of credit issuer (the “Bridge Credit Facility”). The Bridge Credit

14



Facility provided for a senior secured letter of credit facility in an aggregate principal amount up to $320.0 million and had a term ending December 15, 2014. The purpose of the Bridge Credit Facility was to backstop outstanding letters of credit issued by Bank of America, N.A. under our former revolving credit facility, which was terminated simultaneously with our entry into the Bridge Credit Facility (subject to our obligation to continue paying fees in respect of outstanding letters of credit).

The Bridge Credit Facility was terminated on February 28, 2014, in connection with entering into the Solar Energy credit facility discussed below. The termination of the Bridge Credit Facility resulted in the writeoff of $2.5 million in unamortized deferred financing fees, which is reported in interest expense in the condensed consolidated statement of operations.

Solar Energy Credit Facility

On February 28, 2014, we entered into a credit agreement with the lenders identified therein, Wells Fargo Bank, National Association, as administrative agent, Goldman Sachs Bank USA and Deutsche Bank Securities Inc., as joint lead arrangers and joint syndication agents, and Goldman Sachs Bank USA, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC and Macquarie Capital (USA) Inc., as joint bookrunners (the “Credit Facility”). The Credit Facility provides for a senior secured letter of credit facility in an aggregate principal amount up to $265.0 million and has a term ending February 28, 2017. The Credit Facility will be used to backstop outstanding letters of credit issued by Bank of America, N.A. under our former revolving credit facility until they expire, as well as for general corporate purposes. We paid fees of $5.8 million upon entry into the Credit Facility, which were recognized as deferred financing fees. Subject to certain conditions, we may request that the aggregate commitments be increased to an amount not to exceed $400.0 million. In June 2014, the parties agreed to increase the amount available under the Credit Facility to $315.0 million.

Our obligations under the Credit Facility are guaranteed by certain of our domestic subsidiaries. Our obligations and the guaranty obligations of our subsidiaries are secured by first priority liens on and security interests in substantially all present and future assets of the company and the subsidiary guarantors, including a pledge of the capital stock of certain of our domestic and foreign subsidiaries.

Interest under the Credit Facility accrues on the daily amount available to be drawn under outstanding letters of credit or bankers' acceptances, at an annual rate of 3.75%. Interest is due and payable in arrears at the end of each fiscal quarter and on the maturity date of the Credit Facility. Drawn amounts on letters of credit are due within seven business days, and interest accrues on drawn amounts at a base rate plus 2.75%.

The Credit Facility contains representations, covenants and events of default typical for credit arrangements of comparable size, including maintaining a consolidated leverage ratio of 3.0 to 1.0 which excludes the 2018/2021 Notes and 2020 Notes(measurement commencing with the last day of the fiscal quarter ending December 31, 2014) and a minimum liquidity amount (measurement commencing with the last day of the fiscal quarter ending June 30, 2014) of the lesser of (i) $400.0 million and (ii) the sum of (x) $300.0 million plus (y) the amount, if any, by which the aggregate commitments exceed $300.0 million at such time. The Credit Facility also contains a customary material adverse effects clause and a cross default clause. The cross default clause is applicable to defaults on other indebtedness of SunEdison, Inc. in excess of $50.0 million, including the 2018/2021 Notes and 2020 Notes but excluding our non-recourse indebtedness.

The Credit Facility also contains mandatory prepayment and/or cash collateralization provisions applicable to specified asset sale transactions as well as our receipt of proceeds from certain insurance or condemnation events and the incurrence of additional indebtedness.

As of June 30, 2014, we had no borrowings outstanding under the Credit Facility, although we had $258.5 million of outstanding third party letters of credit backed by the Credit Facility, which reduced the available capacity. Therefore, funds available under the Credit Facility were $56.5 million as of June 30, 2014.

SMP Ltd. Credit Facilities

As a result of the acquisition of an additional interest in, and resulting consolidation of, SMP Ltd. discussed in Note 4, our consolidated long-term debt now includes SMP Ltd.'s long-term debt, which consists of four non-recourse term loan facilities and a working capital revolving credit facility. The term loan facilities provide for a maximum credit amount of 475 billion South Korean won in aggregate, which translates to $468.3 million as of June 30, 2014. The credit facilities hold maturity dates ranging from March 2019 to May 2019. Principal and interest on the term loan facilities are paid quarterly, with annual fixed interest rates ranging from 4.34% to 4.71%. As of June 30, 2014, a total of $382.9 million was outstanding under the term loan facilities. The working capital revolving facility provides for borrowings of up to 3 billion South Korean won, which translates to approximately $3.0 million as of June 30, 2014. The working capital facility matures in March 2015. Interest under the

15



working capital facility is paid quarterly and accrues at a variable rate based on the three-month South Korean bank deposit rate plus 1.87%. The interest rate as of June 30, 2014 was 4.52%. As of June 30, 2014, there was $1.7 million outstanding under the working capital revolving facility.

Other Financing Arrangements

We have short-term committed financing arrangements of $23.0 million at June 30, 2014, of which there was no short-term borrowings outstanding as of June 30, 2014. Of this amount, $16.3 million is unavailable because it relates to the issuance of third party letters of credit. Interest rates are negotiated at the time of the borrowings.

Solar Energy Systems Debt, Including Financing and Capital Leaseback Obligations

Our solar energy systems for which we have short-term and long-term debt, capital leaseback and finance obligations are included in separate legal entities. Of this total debt outstanding, $3,494.4 million relates to project specific non-recourse financing that is backed by solar energy system operating assets. This debt has recourse to those separate legal entities but no recourse to us under the terms of the applicable agreements. These finance obligations are fully collateralized by the related solar energy system assets and may also include limited guarantees by us related to operations, maintenance and certain indemnities.

Project Construction Facilities

On September 30, 2011, we amended and restated our non-recourse project construction financing revolver, which had a term of three years, from $50.0 million to $300.0 million. During 2012, due to various amendments and lenders entering and exiting the facility, the capacity was lowered from $300.0 million to $150.0 million. Additionally, under the terms of the 2012 amendments, depending on the credit ratings issued by the two credit agencies that provide ratings on the company, we were required to post, at our election, a letter of credit or surety bond equal to 15% of the total outstanding balance in order to continue to make additional borrowings under this facility. Interest on borrowings under the agreement were based on our election at LIBOR plus an applicable margin or at a defined prime rate plus an applicable margin. The construction financing revolver also required us to pay various fees, including a commitment fee. This construction financing facility was terminated in connection with the closing of the new construction facility discussed below.

On March 26, 2014, we entered into a financing agreement with certain lenders; Wilmington Trust, National Association, as administrative agent; Deutsche Bank Trust Company Americas, as collateral agent and loan paying agent; and Deutsche Bank Securities Inc., as lead arranger, bookrunner, structuring bank and documentation agent (the “Construction Facility”). The Construction Facility provides for a senior secured revolving credit facility in an amount up to $150.0 million and has a term ending March 26, 2017. During the second quarter of 2014, the parties agreed to increase the amount available under the Construction Facility to $235.0 million. The Construction Facility will be used to support the development and acquisition of new projects in the United States and Canada. Subject to certain conditions, we may request that the aggregate commitments be increased to an amount not to exceed $300.0 million. We paid fees of $7.5 million upon entry into the Construction Facility, which were recognized as deferred financing fees.

Loans under the Construction Facility are non-recourse debt to entities outside of the project company legal entities that subscribe to the debt and are secured by a pledge of collateral of the project company, including the project contracts and equipment. Interest on loans under the Construction Facility is based on our election of either LIBOR plus an applicable margin of 3.5%, or a defined prime rate plus an applicable margin of 2.5%. As of June 30, 2014, the interest rate under the Construction Facility was 5.75%.

The Construction Facility contains customary representations, warranties, and affirmative and negative covenants, including a material adverse effects clause whereby a breach may disallow a future draw but not acceleration of payment and a cross default clause whose remedy, among other rights, includes the right to restrict future loans as well as the right to accelerate principal and interest payments. Covenants primarily relate to the collateral amounts and transfer of right restrictions.

At June 30, 2014, we had borrowed $93.1 million under the Construction Facility, which is classified under system pre-construction, construction and term debt. In the event additional construction financing is needed, we have the ability to draw upon the available capacity of our Credit Facility (discussed above). In the event additional construction financing is needed beyond the amounts available under the Credit Facility and we are unable to obtain alternative financing, or if we have inadequate net working capital, such inability to fund future projects may have an adverse impact on our business growth plans, financial position and results of operations.


16



System Pre-Construction, Construction and Term Debt

We typically finance our solar energy projects through project entity specific debt secured by the project entity's assets (mainly the solar energy system) with no recourse to us. Typically, these financing arrangements provide for a construction loan, which upon completion will be converted into a term loan, and generally do not restrict the future sale of the project entity to a third party buyer. On June 30, 2014, we had system pre-construction, construction and term debt outstanding of $1,214.7 million. Included in this amount is $212.5 million of a fixed rate non-recourse debt financing arrangement used to finance the construction of a SunEdison owned solar power plant executed in the third quarter of 2013. Additionally, a portion also relates to variable rate debt with interest rates that are tied to the London Interbank Offered Rate, the Euro Interbank Offer Rate, the Canadian Dollar Offered Rate, the Johannesburg Interbank Acceptance Rate, or the PRIME rate. The variable interest rates have primarily been hedged by our outstanding interest rate swaps as discussed in Note 7. The interest rates on the remaining construction and term debt range from 3.0% to 18.0% and have maturities that range from 2014 to 2033. The weighted average interest rate on the same construction and term debt totaled 6.27%.

During the second quarter of 2012, we violated covenants of two non-recourse solar energy system loans as a result of the devaluation of the local currency (Indian Rupee). The solar energy systems for these two project companies collateralize the loans and there is no recourse outside of these project companies for payment. On September 28, 2012, we obtained a waiver from the lender for the covenant violations, which had a grace period which expired on November 20, 2013. As of June 30, 2014, we were in default and, accordingly, the amount outstanding of $22.6 million under these loans was classified as current. On July 4, 2014, we amended our loan agreements which included revisions to the financial covenants applicable to future periods and obtained a waiver for all prior covenant violations.

Capital Leaseback Obligations

We are party to master lease agreements that provide for the sale and simultaneous leaseback of certain solar energy systems constructed by us. As of June 30, 2014, we had $81.9 million of capital lease obligations outstanding. Generally, this classification occurs when the term of the lease is greater than 75.0% of the estimated economic life of the solar energy system and the transaction is not subject to real estate accounting. The terms of the leases are typically 25 years with certain leases providing terms as low as 10 years and providing for early buyout options. The specified rental payments are based on projected cash flows that the solar energy system will generate. We have not entered into any arrangements that have resulted in accounting for the sale leaseback as a capital lease since November 2009.

Financing Leaseback Obligations

For certain transactions we account for the proceeds of sale leasebacks as financings, which are typically secured by the solar energy system asset and its future cash flows from energy sales, but without recourse to us under the terms of the arrangement. The structure of the repayment terms under the lease results in negative amortization throughout the financing period, and we therefore recognize the lease payments as interest expense. The balance outstanding for sale leaseback transactions accounted for as financings as of June 30, 2014 is $1,575.0 million, which includes the below mentioned transactions. The maturities range from 2021 to 2039 and are collateralized by the related solar energy system assets with a carrying amount of $1,575.0 million.

On March 31, 2011, one of our project subsidiaries executed a master lease agreement with a U.S. financial institution which provides for the sale and simultaneous leaseback of certain solar energy systems constructed by us. The total capacity under this agreement is $124.4 million, of which $123.6 million is outstanding and $0.8 million is available as of June 30, 2014. The specified rental payments under the master lease agreement are based on projected cash flows that the solar energy systems generate.

On September 24, 2012, one of our project subsidiaries executed a master lease agreement with a U.S. financial institution which provides for the sale and simultaneous leaseback of certain solar energy systems constructed by us. The total capacity under this agreement was $101.4 million, of which $94.7 million is outstanding and $6.7 million was available as of June 30, 2014. The specified rental payments under the master lease agreement are based on projected cash flows that the solar energy systems generate.

Acquisition Facility

On March 28, 2014, TerraForm entered into a credit and guaranty agreement with various lenders and Goldman Sachs Bank USA, as administrative agent, collateral agent, documentation agent, sole lead arranger, sole lead bookrunner, and syndication

17



agent (the “Acquisition Facility”). The Acquisition Facility provides for a term loan credit facility in the amount of $250.0 million which will be used for the acquisition of certain renewable energy generation assets. In May 2014, the Acquisition Facility was amended to increase the amount of the term loan credit facility to 400.0 million. The Acquisition Facility will mature on the earlier of August 28, 2015 and the date on which all loans under the Acquisition Facility become due and payable in full, whether by acceleration or otherwise. The principal amount of loans under the Acquisition Facility is payable in consecutive semiannual installments on August 28, 2014 and February 28, 2015, in each case, in an amount equal to 0.5% of the original principal balance of the loans funded prior to such payment, with the remaining balance payable on the maturity date.
Loans under the Acquisition Facility are non-recourse debt to entities outside of the legal entities that subscribe to the debt. Loans and each guarantee under the Acquisition Facility are secured by first priority security interests in all of TerraForm's assets and the assets of its domestic subsidiaries, 100% of the capital stock of each of TerraForm's domestic subsidiaries and 65% of the capital stock of each of TerraForm's foreign subsidiaries and all intercompany debt. Prior to August 15, 2014, interest on loans under the Acquisition Facility is based on TerraForm's election of either a base rate plus 5.0% or a reserve adjusted eurodollar rate plus 6.0%. Thereafter, interest is based on TerraForm's election of either a base rate plus the sum of 5.00% and a spread (as defined) or a reserve adjusted eurodollar rate plus the sum of 6.0% and the spread. The reserve adjusted eurodollar rate will be subject to a floor of 1.0% and the base rate will be subject to a floor of 2.0%. The spread will initially be 0.50% per annum, commencing on August 15, 2014, and will increase by an additional 0.25% per annum every ninety days thereafter. As of June 30, 2014, the interest rate under the Acquisition Facility was 7.0%.
The Acquisition Facility contains customary representations, warranties, and affirmative and negative covenants, including a minimum debt service coverage ratio applicable to TerraForm (1.15:1.00 starting December 31, 2014) that will be tested quarterly and cross-default and cross-acceleration clauses in the event of default. The cross default clause is limited to defaults on other indebtedness of the subsidiary in excess of $75.0 million. The Acquisition Facility loans may be prepaid in whole or in part without premium or penalty, and outstanding Acquisition Facility loans must be prepaid in certain specified circumstances.
At June 30, 2014, TerraForm had borrowed $400.0 million under the Acquisition Facility and paid debt issuance fees of $14.7 million, which were recognized as deferred financing fees. Concurrently with the completion of the TerraForm IPO (see Note 18), TerraForm repaid the $400.0 million outstanding balance and related accrued interest under the Acquisition Facility.

Other System Financing Transactions

Other system financing transactions represent the cash proceeds that we received in connection with an executed solar energy system sales contract that has not met the sales recognition requirements under real estate accounting and has been accounted for as a financing. Included in other system financing is $18.2 million of proceeds collected under three separate solar energy system sales agreements with the buyer that provides the buyer with a put option that could become an obligation in the event that we are unable to fulfill certain performance warranties set to expire during 2015. The remaining portion of other system financings of $100.1 million relates to cash proceeds received in connection with separate solar energy system sales contracts for which we have substantial continuing involvement. There are no principal or interest payments associated with these transactions. Of the $100.1 million, $40.8 million relates to two projects sold in Italy which did not meet the requirements to record revenue due to an indemnification that expires in 2016. The remaining amount relates to twelve projects sold in the U.S., Korea, and Canada.

Capitalized Interest

During the three month periods ended June 30, 2014 and 2013, we capitalized $4.3 million and $3.3 million of interest to the condensed consolidated balance sheet, respectively. During the six months ended June 30, 2014 and 2013, we capitalized $14.7 million and $6.6 million of interest, respectively.

Semiconductor Materials Debt

SSL Credit Facility

On May 27, 2014, SunEdison Semiconductor Limited (“SSL”) and its direct subsidiary (the “Borrower”) entered into a
credit agreement with Goldman Sachs Bank USA, as administrative agent, sole lead arranger and sole syndication agent and,
together with Macquarie Capital (USA) Inc., as joint bookrunners, Citibank, N.A., as letter of credit issuer, and the lender
parties thereto (the “SSL Credit Facility”). The SSL Credit Facility provides for (i) a senior secured term loan facility in an aggregate principal amount up to $210.0 million (the “SSL Term Facility”) and (ii) a senior secured revolving credit facility in

18



an aggregate principal amount up to $50.0 million (the “SSL Revolving Facility”). Under the SSL Revolving Facility, the Borrower may obtain (i) letters of credit and bankers’ acceptances in an aggregate stated amount up to $15.0 million and (ii) swing line loans in an aggregate principal amount up to $15.0 million. The SSL Term Facility has a five year term, ending May 27, 2019, and the SSL Revolving Facility has a three-year term, ending May 27, 2017. The full amount of the SSL Term Facility was drawn on May 27, 2014 and remains outstanding. As of June 30, 2014, no amounts were drawn under the SSL Revolving Facility, and no third party letters of credit were outstanding which would have reduced the available capacity. The principal amounts of the SSL Term Facility will be repaid in consecutive quarterly installments of $0.5 million with the remainder repaid at final maturity.

The Term Facility was issued at a discount of 1.00%, or $2.1 million, which will be amortized as an increase in interest expense over the term of the Term Facility. SSL incurred approximately $9.8 million of financing fees related to the Credit Facility that have been capitalized and will be amortized over the term of the respective Term Facility and Revolving Facility.

The Borrower’s obligations under the SSL Credit Facility are guaranteed by SSL and certain of its direct and indirect subsidiaries. The Borrower’s obligations and the guaranty obligations of SSL and its subsidiaries are secured by first priority liens on and security interests in certain present and future assets of SSL, the Borrower and the subsidiary guarantors, including pledges of the capital stock of certain of SSL's subsidiaries.

Borrowings under the SSL Credit Facility bear interest (i) at a base rate plus 4.50% per annum or (ii) at a reserve-adjusted eurocurrency rate plus 5.50% per annum. The minimum eurocurrency base rate for the Term Facility shall at no time be less than 1.00% per annum. Interest will be paid quarterly in arrears, and at the maturity date of each facility, for loans bearing interest with reference to the base rate. Interest will be paid on the last day of selected interest periods (which will be one, three and six months), and at the maturity date of each facility, for loans bearing interest with reference to the reserve-adjusted eurocurrency rate (and at the end of every three months, in the case of any interest period longer than three months). A fee equal to 5.50% per annum will be payable by the Borrower, quarterly in arrears, in respect of the daily amount available to be drawn under outstanding letters of credit and bankers’ acceptances.

The SSL Credit Facility contains customary representations, covenants and events of default typical for credit arrangements of comparable size, including that SSL maintain a leverage ratio of not greater than (i) 3.5 to 1.0 for the fiscal quarters ending
September 30, 2014 and December 31, 2014, (ii) 3.0 to 1.0 for the fiscal quarters ending March 31, 2015 and June 30, 2015,
and (iii) 2.5 to 1.0 for the fiscal quarters ending on and after September 30, 2015. The SSL Credit Facility also contains a customary material adverse effects clause and a cross-default clauses. The cross-default clause is applicable to defaults on other
SSL indebtedness in excess of $30.0 million. As of June 30, 2014, SSL was in compliance with all covenants of the Credit Facility.

Long-term Notes

Long-term notes totaling $10.4 million as of December 31, 2013 were owed to a bank by SSL's Japanese subsidiary. The notes were guaranteed by us, and further secured by the property, plant and equipment of SSL's Japanese subsidiary. The original maturity dates of these loans ranged from 2014 to 2017. These long-term notes were paid in full in May 2014 using net proceeds from the SSL initial public offering and the related private placement transactions discussed in Note 17, along with the proceeds of the SSL Term Loan.



6. RESTRUCTURING CHARGES (REVERSALS)

During the second half of 2011, the semiconductor and solar industries experienced downturns, of which the downturn in solar was more severe. In order to better align our business to the then current and expected market conditions in the semiconductor and solar markets, as well as to improve our overall cost competitiveness and cash flows across both segments, we committed to a series of restructuring actions to reduce our global workforce, right size production capacity and accelerate operating cost reductions in 2012 and beyond (the "2011 Global Plan"). These restructuring actions included reducing the total workforce by approximately 20%, shuttering our Merano, Italy polysilicon facility, reducing production capacity at our Portland, Oregon crystal facility, slowing the ramp of the Kuching, Malaysia facility, as well as consolidating our solar wafering and solar energy systems operations into a single Solar Energy business unit effective January 1, 2012. The 2011 Global Plan was substantially completed in 2012, except for certain voluntary termination benefits and ongoing negotiations with certain vendors and suppliers, including those affecting our Merano, Italy polysilicon facility, related to these restructuring activities.


19



During the three and six months ended June 30, 2014, $3.5 million and $4.9 million of income was recognized pertaining to the 2011 Global Plan primarily as a result of a reversal of liabilities related to the costs associated with the Merano, Italy polysilicon and other semiconductor facilities due to settlements of certain obligations and changes in estimates, offset by immaterial expenses related to various restructuring activities.

Details of expenses, cash payments and expected costs related to the 2011 Global Plan are set forth in the following table:
 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2014
In millions
Accrued,
December  31, 2013
 
Year-to-Date
Restructuring
(Reversals)Charges
 
Cash
Payments
 
Non-Cash Settlements
 
Currency
 
Accrued June 30, 2014
 
Cumulative
Costs
Incurred
 
Total Costs
Expected to be Incurred
Severance and other employee benefits
$
21.3

 
$
(1.4
)
 
$
(2.7
)
 
$
(0.9
)
 
$
(0.2
)
 
$
16.1

 
$
50.9

 
$
50.9

Contract termination
40.2

 

 
(10.5
)
 

 

 
29.7

 
165.1

 
165.1

Other
24.3

 
(3.5
)
 
(7.3
)
 
2.0

 
(0.3
)
 
15.2

 
45.1

 
45.1

Total
$
85.8

 
$
(4.9
)
 
$
(20.5
)
 
$
1.1

 
$
(0.5
)
 
$
61.0

 
$
261.1

 
$
261.1


During the first quarter of 2014, we announced a plan to consolidate the Semiconductor Materials segment's crystal operations. The consolidation will include transitioning small diameter crystal activities from our St. Peters, Missouri facility to other crystal facilities in Korea, Taiwan and Italy. The consolidation of crystal activities will affect approximately 120 employees in St. Peters and will be implemented over the 12 months following commencement of the plan. Charges in the amount of $4.0 million were recorded for the six months ended June 30, 2014, which were mostly incurred during the first quarter of 2014, and are included within restructuring charges (reversals) on the condensed consolidated statement of operations.

7. DERIVATIVES AND HEDGING INSTRUMENTS

Derivatives and hedging activities consist of the following:
 
 
 
Assets (Liabilities or Equity) Fair Value
In millions
Balance Sheet Classification
 
As of June 30, 2014

As of December 31, 2013
Derivatives designated as hedging:
Interest rate swaps
Prepaid and other current assets
 
$

 
$
1.6

Interest rate swaps
Accumulated other comprehensive income
 

 
(1.6
)
Interest rate swaps
Accrued liabilities
 
(5.5
)
 
(2.4
)
Interest rate swaps
Accumulated other comprehensive loss
 
4.7

 
1.6

Cross currency swaps
Prepaid and other current assets (accrued liabilities)
 
3.8

 
(2.4
)
Cross currency swaps
Accumulated other comprehensive loss
 
(3.8
)
 
2.4

Derivatives not designated as hedging:
Note hedges (see Note 5)
Note hedge derivative asset
 
$

 
$
514.8

Conversion options (see Note 5)
Conversion option derivative liability
 

 
(506.5
)
Warrants (see Note 5)
Warrant derivative liability
 

 
(270.5
)
Currency forward contracts
Prepaid and other current assets
 
0.8

 
0.7

Currency forward contracts
Accrued liabilities
 
(0.9
)
 
(11.5
)
Interest rate swaps
Prepaid and other current assets
 
0.1

 
1.0

Interest rate swaps
Accrued liabilities
 
(2.5
)
 
(0.2
)

20



 
 
 
Losses (Gains)
 
Losses (Gains)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
In millions
Statement of Operations Classification
 
2014

2013
 
2014

2013
Derivatives not designated as hedging:
Currency forward contracts
Other, net
 
$
0.3

 
$
0.5

 
$
(0.7
)
 
$
10.5

Interest rate swaps
Interest expense (income)
 
3.4

 
(8.5
)
 
2.3

 
0.3

Note hedges (see Note 5)
Gain on convertible notes derivatives
 
(65.5
)
 

 
(365.3
)
 

Conversion options (see Note 5)
Loss on convertible notes derivatives
 
65.5

 

 
381.9

 

Warrants (see Note 5)
Loss on convertible notes derivatives
 
47.6

 

 
482.8

 


To mitigate the risks associated with changes in foreign currency exchange rates, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes. Gains and losses on these foreign currency exposures are generally offset by corresponding losses and gains on the related hedging instruments, reducing our net exposure. A substantial portion of our revenue and capital spending is transacted in U.S. dollars. However, we also enter into transactions in other currencies, primarily the euro, the U.K. pound, the Japanese yen, the South African rand and certain other Asian currencies. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. At any point in time, we may have outstanding contracts with several major financial institutions for these hedging transactions. Our maximum credit risk loss with these institutions is limited to any gain on our outstanding contracts. As of June 30, 2014 and December 31, 2013, these currency forward contracts had aggregate notional amounts of $379.0 million and $401.1 million, respectively, and are accounted for as economic hedges. There were no outstanding currency forward contracts designated as cash flow hedges as of June 30, 2014 or December 31, 2013.

During the second quarter of 2013, we entered into a cross currency swap with a notional amount of $185.8 million accounted for as a cash flow hedge. The amounts recorded to the condensed consolidated balance sheet, as provided in the table above, represent the fair value of the net amount that would settle on the balance sheet date if the swap was transferred to other third parties or canceled by us. The effective portion of this cash flow hedging instrument during the three and six month periods ended June 30, 2014 was recorded to accumulated other comprehensive income (loss) on the condensed consolidated balance sheet. No ineffectiveness was recognized during the three and six month periods ended June 30, 2014.
As of June 30, 2014, we are party to five interest rate swap instruments that are accounted for using hedge accounting. These instruments are used to hedge floating rate debt and are accounted for as cash flow hedges. Under the interest rate swap agreements, we pay the fixed rate and the financial institution counterparties to the agreements pay us a floating interest rate. The amount recorded in the condensed consolidated balance sheet represents the estimated fair value of the net amount that we would settle on June 30, 2014, if the agreements were transferred to other third parties or cancelled by us. The effective portion of these cash flow hedges as of June 30, 2014 and December 31, 2013 were losses of $5.5 million and $2.4 million, respectively. These were recorded to accumulated other comprehensive income (loss). There was no material ineffectiveness recorded during the three and six month periods ended June 30, 2014 and 2013, respectively.
As of June 30, 2014, we are party to four interest rate swap instruments that are accounted for as economic hedges. These instruments are used to hedge floating rate debt and are not accounted for as cash flow hedges. Under the interest rate swap agreements, we pay the fixed rate and the financial institution counterparties to the agreements pay us a floating interest rate. The amount recorded in the condensed consolidated balance sheet represents the estimated fair value of the net amount that we would settle on June 30, 2014, if the agreements were transferred to other third parties or cancelled by us. Because these hedges are deemed economic hedges and not accounted for under hedge accounting, the changes in fair value are recorded to interest expense (income) within the condensed consolidated statement of operations.

As of June 30, 2014, we have upward amortizing interest rate swap agreements that are used as an economic hedge related to several consolidated solar energy system projects for which we own 8.2% of the project companies. These instruments are used to hedge floating rate debt with a construction loan availability of $200.0 million and are not designated as a cash flow hedge. Under the swap agreement, we pay the fixed rate and the counterparty to the agreement pays us a floating interest rate. The amount recorded in the condensed consolidated balance sheet, as provided in the table above, represents the estimated fair value of the net amount that we would settle on June 30, 2014 if the agreements were transferred to other third parties or cancelled by us. Because these agreements are designated as an economic hedge and not accounted for under hedge accounting, the changes in fair value are recorded to interest expense (income) within the condensed consolidated statement of operations. During the three and six month periods ended June 30, 2014, we recorded $3.2 million and $1.6 million, respectively, to interest expense for fair value adjustments. These amounts are reduced in the condensed consolidated

21



statement of operations by $2.9 million and $1.5 million, respectively, attributable to a non-controlling interest representing the 91.8% of the project companies we do not own. We also have an upward amortizing interest rate swap agreement that is designated as a cash flow hedge related to a solar energy system project. This instrument is used to hedge floating rate debt with a construction loan availability of $185.8 million. The changes in fair value are recorded to accumulated other comprehensive income (loss) on the condensed consolidated balance sheets, as provided in the table above, with any ineffectiveness recorded in the condensed consolidated statement of operations. No such ineffectiveness was recognized during the three and six month periods ended June 30, 2014.
In connection with the senior convertible notes issued in December 2013 and June 2014 as discussed in Note 5, we entered into privately negotiated convertible note hedge and warrant transactions. Assuming full performance by the counterparties, these instruments are designed to effectively reduce our potential payout over the principal amount on the senior convertible notes upon conversion. Refer to Note 5 for additional information.

8. FAIR VALUE MEASUREMENTS

The following table summarizes the financial instruments measured at fair value on a recurring basis as classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the accompanying condensed consolidated balance sheets:

 
As of June 30, 2014
 
As of December 31, 2013
Assets (liabilities) in millions
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Interest rate swap assets
$

 
$
0.1

 
$

 
$
0.1

 
$

 
$
2.6

 
$

 
$
2.6

Interest rate swap liabilities

 
(8.0
)
 

 
(8.0
)
 

 
(2.6
)
 

 
(2.6
)
Currency forward contract assets
0.8

 

 

 
0.8

 
0.7

 

 

 
0.7

Currency forward contract liabilities
(0.9
)
 

 

 
(0.9
)
 
(11.5
)
 

 

 
(11.5
)
Cross currency swaps asset (liabilities)

 
3.8

 

 
3.8

 

 
(2.4
)
 

 
(2.4
)
Note hedge derivative asset (see Note 5)

 

 

 

 

 
514.8

 

 
514.8

Conversion option derivative liability (see Note 5)

 

 

 

 

 
(506.5
)
 

 
(506.5
)
Warrant derivative liability (see Note 5)

 

 

 

 

 
(270.5
)
 

 
(270.5
)
Contingent consideration liabilities

 

 
(32.2
)
 
(32.2
)
 

 

 
(35.2
)
 
(35.2
)
Total
$
(0.1
)
 
$
(4.1
)
 
$
(32.2
)
 
$
(36.4
)
 
$
(10.8
)
 
$
(264.6
)
 
$
(35.2
)
 
$
(310.6
)

There were no transfers into or out of Level 1, Level 2 or Level 3 financial instruments during the three and six month periods ended June 30, 2014.

The following table summarizes changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2013 and 2014:
 
In millions
 
Contingent
Consideration
Related to
Acquisitions
Balance, December 31, 2012
 
$
(24.9
)
Total unrealized losses included in earnings (1)
 
(2.7
)
Balance, June 30, 2013
 
$
(27.6
)
Balance December 31 2013
 
$
(35.2
)
Total unrealized losses included in earnings (1)
 
(1.2
)
Payments of contingent consideration
 
4.2

Balance, June 30, 2014
 
$
(32.2
)
The amount of total losses for the six months ended June 30, 2013 included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at the reporting date
 
$
(2.7
)
The amount of total losses for the six months ended June 30, 2014 included in earnings attributable to the change in unrealized losses relating to assets and liabilities still held at the reporting date
 
$
(1.2
)
__________________________

22



(1) 
Amounts included in earnings are recorded to non-operating expense (income) in the condensed consolidated statement of operations, except for the amount included in marketing and administration for the contingent consideration related to acquisitions, for which changes to the fair value were recorded to operating income (loss) in the condensed consolidated statement of operations.



The following table presents the carrying amount and estimated fair value of our outstanding short-term debt, long-term debt and capital lease obligations as of June 30, 2014 and December 31, 2013:
 
As of June 30, 2014
 
As of December 31, 2013
In millions
Carrying Amount
 
Estimated Fair Value (1)
 
Carrying Amount
 
Estimated Fair Value (1)
Total debt and capital lease obligations
$
5,394.9

 
$
4,937.8

 
$
3,576.2

 
$
2,681.2

__________________________
(1) 
Fair value of our debt, excluding our 2018, 2020 and 2021 Notes, is calculated using a discounted cash flow model with consideration for our non-performance risk (Level 3 assumptions). The estimated fair value of our 2018, 2020 and 2021 Notes were based on broker quotations (Level 1). The estimated fair value of our solar energy system debt related to sale-leasebacks is significantly lower than the carrying value of such debt because the fair value estimate is based on the fair value of our fixed lease payments over the term of the leases (Level 3 assumptions). Under real estate accounting, this debt is recorded as a financing obligation, and substantially all of our lease payments are recorded as interest expense with little to no reduction in our debt balance over the term of the lease. As a result, our outstanding sale-leaseback debt obligations will generally result in a one-time gain recognition at the end of the leases for the full amount of the debt. The timing difference between expense and gain recognition will result in increased expense during the term of the leases with a book gain at the end of the lease.

9. LOSS PER SHARE

For the three month periods ended June 30, 2014 and 2013, basic and diluted loss per share (“EPS”) were calculated as follows:

Three Months Ended June 30, 2014
 
Three Months Ended June 30, 2013
In millions, except per share amounts
Basic
 
Diluted
 
Basic
 
Diluted
EPS Numerator:
 
 
 
 
 
 
 
Net loss attributable to SunEdison stockholders
$
(41.2
)
 
$
(41.2
)
 
$
(102.9
)
 
$
(102.9
)
Adjustment for net income attributable to redeemable interest holder
(0.4
)
 
(0.4
)
 

 

Adjustment of redeemable noncontrolling interest

 

 
(2.0
)
 
(2.0
)
Adjusted net loss to SunEdison stockholders
$
(41.6
)
 
$
(41.6
)
 
$
(104.9
)
 
$
(104.9
)


 

 

 

EPS Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding
268.2

 
268.2

 
231.7

 
231.7

Loss per share
$
(0.16
)
 
$
(0.16
)
 
$
(0.45
)
 
$
(0.45
)

For the six month periods ended June 30, 2014 and 2013, basic and diluted EPS were calculated as follows:

23




 Six Months Ended June 30, 2014
 
Six Months Ended June 30, 2013
In millions, except per share amounts
Basic
 
Diluted
 
Basic
 
Diluted
EPS Numerator:

 

 

 

Net loss attributable to SunEdison stockholders
$
(654.8
)
 
$
(654.8
)
 
$
(192.3
)
 
$
(192.3
)
Adjustment for net income attributable to redeemable interest holder
(3.6
)
 
(3.6
)
 

 

Adjustment of redeemable noncontrolling interest

 

 
(4.4
)
 
(4.4
)
Adjusted net loss to SunEdison stockholders
$
(658.4
)
 
$
(658.4
)
 
$
(196.7
)
 
$
(196.7
)


 

 

 

EPS Denominator:

 

 

 

Weighted-average shares outstanding
267.7

 
267.7

 
231.5

 
231.5

Loss per share
$
(2.46
)
 
$
(2.46
)
 
$
(0.85
)
 
$
(0.85
)

For the three and six month periods ended June 30, 2014 and 2013, the numerator of the EPS calculation included the amount recorded to adjust a redeemable noncontrolling interest balance to redemption value.  For the three and six month periods ended June 30, 2014, the numerator of the EPS calculation was reduced by the holder’s share of the net income of certain subsidiaries as a result of the Share Sale Agreement entered into with the noncontrolling interest holder. Similar adjustments will be required through October 15, 2014, when we will have repurchased all of the holder’s shares.

Weighted-average shares outstanding for the three and six month periods ended June 30, 2014 includes the impact of the issuance of 34,500,000 shares of common stock on September 18, 2013 in a registered public offering.

For the three and six months ended June 30, 2014 and 2013, all options to purchase our stock and restricted stock units and the Conversion Options and Warrants associated with the convertible senior notes (see Note 5) were excluded from the calculation of diluted EPS because the effect was antidilutive due to the net loss incurred for the respective periods.

10. STOCKHOLDERS' EQUITY

At our annual stockholders meeting on May 29, 2014, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the authorized number of shares of common stock to 700 million shares.

The following table presents the change in total stockholders' equity for the six month period ended June 30, 2014:
 
In millions
SunEdison Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Balance, January 1, 2014
$
232.2

 
$
109.0

 
$
341.2

Net loss
(654.8
)
 
(12.4
)
 
(667.2
)
Other comprehensive income, net of tax
18.8

 
(0.1
)
 
18.7

Acquired noncontrolling interests

 
4.1

 
4.1

Stock plans, net
16.2

 

 
16.2

Acquisition of noncontrolling interest in MKC (see Note 17)
43.4

 
(43.4
)
 

SSL IPO (see Note 17)
(183.6
)
 
368.9

 
185.3

Acquisition of SMP Ltd. (see Note 4)

 
51.2

 
51.2

Net contributions from noncontrolling interests

 
26.7

 
26.7

Reclassification of conversion options, warrants and note hedges related to the 2018/2021 Notes (see Note 5)
761.7

 

 
761.7

Recognition of conversion options, warrants and note hedges related to the 2020 Notes (see Note 5)
124.2

 

 
124.2

Balance, June 30, 2014
$
358.1

 
$
504.0


$
862.1


Stock-Based Compensation


24



We have equity incentive plans that provide for the award of non-qualified stock options, restricted stock, performance shares, and restricted stock units to employees, non-employee directors and consultants. As of June 30, 2014, there were 15.7 million shares remaining available for future grant under these plans.

The following table presents information regarding outstanding stock options of SunEdison, Inc. as of June 30, 2014 and changes during the six month period then ended:  
 
Shares
 
Weighted-
Average
Exercise Price
 
Aggregate  Intrinsic
Value
(in millions)
 
Weighted-
Average
Remaining
Contractual
Life
(in years)
Outstanding at December 31, 2013
23,742,764

 
$
6.64

 
 
 
 
Granted
67,500

 
16.00

 
 
 
 
Exercised
(877,108
)
 
8.39

 
 
 
 
Forfeited
(316,393
)
 
4.21

 
 
 
 
Expired
(15,124
)
 
8.27

 
 
 
 
Outstanding at June 30, 2014
22,601,639

 
$
6.62

 
$
366.5

 
8
Options exercisable at June 30, 2014
7,750,297

 
$
8.72

 
$
114.8

 
6

The weighted-average grant-date fair value per share of options granted was $7.39 and $2.25 for the six month periods ended June 30, 2014 and 2013, respectively.

The following table presents information regarding outstanding restricted stock units SunEdison, Inc. as of June 30, 2014 and changes during the six month period then ended:
 
Restricted  Stock
Units
 
Aggregate  Intrinsic
Value
(in millions)
 
Weighted-
Average  Remaining
Contractual Life
(in years)
Outstanding at December 31, 2013
4,038,782

 
 
 
 
Granted
3,476,700

 
 
 
 
Converted
(1,211,202
)
 
 
 
 
Forfeited
(309,123
)
 
 
 
 
Outstanding at June 30, 2014
5,995,157

 
$
135.5

 
2

The weighted-average fair value of restricted stock units per share on the date of grant was $18.10 and $4.58 for the six month periods ended June 30, 2014 and 2013, respectively.

During the three month period ended June 30, 2014, we awarded 1,120,000 restricted share units, subject to achieving certain market conditions based on the Company’s stock price, to senior executives, including our CEO. The restricted share units will vest ratably on the anniversary date in 2017 and 2018 of achieving a $35.00 per share stock price for 30 consecutive trading days on or prior to June 30, 2016, or a $50.00 per share stock price for 30 consecutive trading days on or prior to June 30, 2018. Achievement of a $50.00 per share stock price for 30 consecutive trading days on or prior to June 30, 2016 will result in a 50% share multiplier for the CEO award and a 25% share multiplier for all remaining awards. If the individual stock price hurdles are not met by the dates specified above, the awards will be cancelled. The grant date fair value of these awards was $18.4 million which will be recognized as compensation cost on a straight line basis over the service period. The grant date fair value of these awards was calculated using a probabilistic approach under a Monte Carlo simulation taking into consideration volatility, interest rates and expected term. The target stock prices were not met as of June 30, 2014.

In connection with the formation of TerraForm, certain employees of ours who will perform services for TerraForm were granted equity incentive awards under the SunEdison Yieldco, Inc. 2014 Second Amended and Restated Long-Term Incentive Plan in the form of restricted shares of TerraForm. These awards have a total valuation of $2.8 million, with some awards vesting ratably over three years from the grant date, while others vest on a schedule that is conditioned upon the completion of the initial public offering. An immaterial amount of expense was recognized during the three and six month periods ended June 30, 2014 related to these awards.


25



In connection with the SSL initial public offering, SSL filed a registration statement to register the issuance of an aggregate of 11,000,000 ordinary shares reserved for issuance under the equity incentive plan adopted immediately prior to the initial public offering. As of June 30, 2014, there were 8.0 million shares remaining available for future grant under this plan. The total grant date fair value of the awards granted under SSL's equity incentive plan during the second quarter of 2014 granted was $30.0 million. An immaterial amount of expense was recognized during the three and six month periods ended June 30, 2014 related to these awards.

Stock-based compensation expense for the three month periods ended June 30, 2014 and 2013 was $5.8 million and $6.6 million, respectively. For the six month periods ended June 30, 2014 and 2013, stock based compensation expense was $14.4 million and $13.8 million, respectively.

11. COMPREHENSIVE LOSS

Comprehensive income (loss) represents a measure of all changes in equity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive loss includes foreign currency translations, gains (losses) on available-for-sale securities, gains (losses) on hedging instruments and pension adjustments.

The following tables present the changes in each component of accumulated other comprehensive loss, net of tax:

26



(In millions)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Available-for-sale securities
 
 
 
 
 
 
 
Beginning balance
$

 
$
(8.2
)
 
$

 
$
(7.6
)
Other comprehensive income before reclassifications

 
0.7

 

 
0.1

Amounts reclassified from other comprehensive loss

 

 

 

Other comprehensive income(2)

 
0.7

 

 
0.1

Balance at June 30
$

 
$
(7.5
)
 
$

 
$
(7.5
)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
 
 
 
 
 
 
 
Beginning balance
$
(18.7
)
 
$
(0.8
)
 
$
(20.0
)
 
$
32.3

Other comprehensive income (loss) before reclassifications
9.7

 
(16.7
)
 
11.0

 
(49.8
)
Amounts reclassified from other comprehensive loss(5)
36.4

 

 
36.4

 

Other comprehensive income (loss)(2)
46.1

 
(16.7
)
 
47.4

 
(49.8
)
Balance at June 30
$
27.4

 
$
(17.5
)
 
$
27.4

 
$
(17.5
)
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
Beginning balance
$
(3.0
)
 
$
(3.7
)
 
$
(12.4
)
 
$
(4.3
)
Other comprehensive income (loss) before reclassifications
(1.7
)
 
(15.7
)
 
7.7

 
(15.1
)
Amounts reclassified from other comprehensive loss(4)
(0.4
)
 
(0.4
)
 
(0.4
)
 
(0.4
)
Other comprehensive income (loss)(2)
(2.1
)
 
(16.1
)
 
7.3

 
(15.5
)
Balance at June 30
$
(5.1
)
 
$
(19.8
)
 
$
(5.1
)
 
$
(19.8
)
 
 
 
 
 
 
 
 
Benefit plans
 
 
 
 
 
 
 
Beginning balance
$
(26.9
)
 
$
(60.2
)
 
$
(27.6
)
 
$
(60.2
)
Other comprehensive income before reclassifications

 

 
0.8

 

Amounts reclassified from other comprehensive loss(3)
(0.2
)
 

 
(0.3
)
 

Other comprehensive income (loss)(2)
(0.2
)
 

 
0.5

 

Balance at June 30
(27.1
)
 
(60.2
)
 
(27.1
)
 
(60.2
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss at June 30
$
(4.8
)
 
$
(105.0
)
 
$
(4.8
)
 
$
(105.0
)
__________________________
(1)
Excludes foreign currency translation adjustments as it relates to noncontrolling interests. Refer to the condensed consolidated statements of comprehensive loss.
(2)
Total other comprehensive income (loss) was $7.4 million and $(32.1) million for the three month period ended June 30, 2014 and 2013, respectively, and $18.8 million and $(65.2) million for the six month periods ended June 30, 2014 and 2013, respectively.
(3)
Amounts reclassified from accumulated other comprehensive loss related to pension plans for amortization of prior service costs/credits and net actuarial gains/losses are classified in marketing and administration expense in the condensed consolidated statements of operations.
(4)
Amounts reclassified from accumulated other comprehensive loss related to cash flow hedges for realized losses on interest rate derivatives are classified in interest expense in the condensed consolidated statements of operations.
(5)
Amounts reclassified from accumulated other comprehensive loss to noncontrolling interest related to net SSL currency translation adjustment attributable to noncontrolling interests. See Note 17 for a description of the SSL IPO transaction. This reclassification is not reflected in the condensed consolidated statements of operations.

12. INCOME TAXES

In general, we record income tax expense (benefit) each quarter based on our best estimate as to the full year's effective tax rate. This estimated tax expense (benefit) is reported based on a pro-ration of the actual income earned in the period divided by

27



the full year forecasted income (loss). There are certain items, however, which are given discrete period treatment, and the tax effects of those items are reported in the quarter that such events arise. Items that give rise to discrete recognition include (but are not limited to) finalizing tax authority examinations, changes in statutory tax rates and expiration of a statute of limitations.

The process for calculating income tax expense (benefit) includes estimating current taxes due and assessing temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes. The income tax expense in the three and six month periods ended June 30, 2014 is associated with the result of the worldwide operational earnings mix at various rates, a reduction of the valuation allowance on certain deferred tax assets of $29.6 million due to the ability to realize those benefits in the future, and the establishment of deferred taxes related to certain convertible note transactions. The reduction of the valuation allowance and establishment of deferred taxes related to certain convertible note transactions were recorded in the three month period ended June 30, 2014. We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including cumulative losses, projected future pre-tax and taxable income (losses), the expected timing of the reversals of existing temporary differences and the expected impact of tax planning strategies. Our total deferred tax assets, net of valuation allowance, as of June 30, 2014 and December 31, 2013, were $103.0 million and $65.7 million, respectively. We believe that it is more likely than not, based on our projections of future taxable income in certain jurisdictions, that we will generate sufficient taxable income to realize the benefits of the net deferred tax assets which have not been offset by a valuation allowance at June 30, 2014.

We are subject to income taxes in the United States and numerous foreign jurisdictions. From time to time, we are subject to income tax audits in these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities may challenge certain positions, which may not be fully sustained. Our income tax expense includes amounts intended to satisfy income tax assessments that may result from these challenges. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires significant judgments and estimates. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. We review our liabilities quarterly, and we may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices, the resolution of entire audits or the expiration of statutes of limitations. Adjustments, if required, are most likely to occur in the year during which major audits are closed. The total accrual for uncertain tax positions was $17.2 million and $17.1 million as of June 30, 2014 and December 31, 2013, respectively.

The undistributed earnings of a substantial number of our foreign subsidiaries are not expected to be remitted to the U.S. parent corporation in the foreseeable future. The impact of the undistributed earnings that are currently expected to be remitted to the U.S. parent corporate in the foreseeable future is not material to the consolidated financial statements and would be fully offset by valuation allowances. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations. Of our cash and cash equivalents and cash committed for construction projects as of June 30, 2014, $508.6 million was held by our foreign subsidiaries, a portion of which may be subject to repatriation tax effects.

We are currently under examination by the IRS for the 2011 and 2012 tax years. We are also under examination by certain foreign tax jurisdictions. We believe it is reasonably possible that some portions of these examinations could be completed within the next twelve months and have currently recorded amounts in the financial statements that are reflective of the current status of these examinations.

13. VARIABLE INTEREST ENTITIES

Twelve VIEs in solar energy related entities were consolidated as of June 30, 2014. The carrying amounts and classification of our consolidated VIEs' assets and liabilities included in our condensed consolidated balance sheet are as follows:
In millions
As of June 30, 2014
 
As of December 31, 2013
Current assets
$
351.8

 
$
274.1

Noncurrent assets
285.5

 
167.2

Total assets
$
637.3

 
$
441.3

Current liabilities
$
26.6

 
$
22.0

Noncurrent liabilities
448.3

 
275.4

Total liabilities
$
474.9

 
$
297.4



28



The amounts shown in the table above exclude intercompany balances, which are eliminated upon consolidation. All of the assets in the table above are restricted for settlement of the VIE obligations and all of the liabilities in the table above can only be settled using VIE resources. There are two material consolidated VIEs for which we determined we were not the primary beneficiary.

14. REVENUE AND PROFIT DEFERRALS

Deferred revenue consists of the following:
 
In millions
As of June 30, 2014
 
As of December 31, 2013
Deferred revenue:
 
 
 
Short-term profit deferrals
$
121.9

 
$
154.7

Long-term profit deferrals
101.4

 
68.9

Deferred subsidy revenue
22.2

 
21.1

Total deferred revenue
$
245.5

 
$
244.7


On March 29, 2013, we amended a long-term solar wafer supply agreement with Tainergy Tech Co., LTD ("Tainergy"). Under the terms of the supply agreement, we were to supply solar grade silicon wafers over a ten-year period at pre-determined pricing for certain volumes on a take-or-pay basis. Tainergy had advanced funds to us in the form of both refundable and non-refundable deposits pursuant to the agreement. Tainergy did not meet its purchase obligations pursuant to the supply agreement and agreed to settle the purchase shortfalls for the first four contract years. As part of the settlement, Tainergy agreed that we would deduct and retain $25.0 million of the refundable capacity reservation deposit without recourse and as a result, we recognized $25.0 million as revenue in the first quarter of 2013. In addition to the settlement of purchase shortfalls for the first four contract years, we agreed to significantly reduce required minimum purchase volumes in the remaining six contract years, as well as to modify the pricing terms to be based on market rates similar to other SunEdison long-term solar wafer supply agreements. The remaining deposit will be refunded ratably as purchases are made over the remaining six contract years. The forfeiture of the deposit of $25.0 million, which was previously reflected as a liability, has been reflected as cash provided by operating activities and cash used in financing activities in the condensed consolidated statement of cash flows.

15. COMMITMENTS AND CONTINGENCIES

Purchase Obligations

We maintain long-term agreements with multiple suppliers in connection with the purchase of certain raw materials and long-term agreements with multiple subcontractors to manufacture solar wafers for us.

As part of our 2011 Global Plan, we provided notice to several of our vendors with whom we had long-term supply contracts that we would no longer be fulfilling our purchase obligations. In connection with the restructuring, we recorded significant restructuring liabilities associated with the estimated settlements arising from these actions based on management's best estimates of the ultimate outcome of these contract resolutions at that time. As of June 30, 2014, we have recorded total liabilities of $29.7 million associated with the estimated settlements arising from these purchase obligations with multiple vendors, all of which is recorded as long-term other liabilities in our condensed consolidated balance sheet. The amount accrued as of June