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FIRST SOLAR, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
[August 06, 2014]

FIRST SOLAR, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations


(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act") and the Securities Act of 1933, which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, among other things, concerning: our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, products, projected costs, warranties, solar module efficiency and balance of systems ("BoS") cost reduction roadmaps, restructuring, product reliability and capital expenditures; our ability to continue to reduce the cost per watt of our solar modules; our ability to reduce the costs to construct photovoltaic ("PV") solar power systems; research and development programs and our ability to improve the conversion efficiency of our solar modules; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as "estimate," "expect," "anticipate," "project," "plan," "intend," "believe," "forecast," "foresee," "likely," "may," "should," "goal," "target," "might," "will," "could," "predict," "continue" and the negative or plural of these words and 40 -------------------------------------------------------------------------------- other comparable terminology. Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, the matters discussed in Item 1A: "Risk Factors," of our Annual Report on Form 10-K for the year ended December 31, 2013 and elsewhere in this Quarterly Report on Form 10-Q, Current Reports on Form 8-K and other reports filed with the SEC. You should carefully consider the risks and uncertainties described under this section.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms "we," "our," "us," "Company," and "First Solar" refer to First Solar, Inc. and its subsidiaries.

When referring to our manufacturing capacity, total sales and solar module sales, the unit of electricity in watts for megawatts("MW") and gigawatts ("GW") is direct current ("DC") unless otherwise noted. When referring to our PV solar power systems, the unit of electricity in watts for MW and GW is alternating current ("AC") unless otherwise noted.

Executive Overview We are a global provider of solar energy solutions, focused on providing power solutions across key market segments. We design, manufacture and sell photovoltaic ("PV") solar modules with an advanced thin-film semiconductor technology, and we develop, design, construct and sell PV solar power solutions that primarily use the solar modules we manufacture. We are also developing crystalline silicon solar modules with proprietary high-power density, mono-crystalline technology, and we provide single-axis mounting systems with proprietary tracking capabilities. Additionally, we provide operations and maintenance ("O&M") services to plant owners that use solar modules manufactured by us or by other third-party manufacturers. We have substantial, ongoing research and development efforts focused on module and systems level innovations. We are the world's largest thin-film PV solar module manufacturer and one of the world's largest PV solar module manufacturers. Our mission is to create enduring value by enabling a world powered by clean, affordable solar energy.

Certain highlights of our financial results and other key developments include: • Net sales for the three months ended June 30, 2014 increased by 5% to $544.4 million compared to $519.8 million for the same period in 2013. This increase in net sales was due to higher systems business project revenues, partially offset by lower net sales to third-party module customers due to a decrease in average selling price per watt. The increase in systems revenue was primarily attributable to meeting the criteria for full revenue recognition on our 50 MW Macho Springs project. In addition, we continued construction and related revenue recognition on our AV Solar Ranch One, Desert Sunlight and Topaz projects.

• Net sales for the six months ended June 30, 2014 increased by 17% to $1,494.5 million compared to $1,275.0 million for the same period in 2013. The increase in net sales was due to higher systems business project revenues, partially offset by lower sales volumes to third-party module customers. The increase in systems revenue was primarily attributable to meeting the full revenue recognition on our 139 MW Campo Verde and 50 MW Macho Springs projects. We also commenced construction on a 102 MW AGL Nyngan Solar Project in Australia and multiple projects in California and recognized related initial revenue relating to progress made during the six months ended June 30, 2014. In addition, our systems revenue increased due to continued construction and related revenue recognition on our Topaz and Desert Sunlight projects.

• Module shipments were 0.4 GW DC during the quarter ended June 30, 2014.

Module shipments do not have a direct correlation to net sales as module shipments do not represent total systems revenues and do not consider the timing of when all revenue recognition criteria are met including timing of module installation.

• New bookings during the period April 1, 2014 through August 5, 2014 were 0.8 GW DC and reflects the 310 MW AC Tribal Solar solar power plant in California and 175 MW AC solar power plant in Southern California. The remainder of bookings consisted primarily of module only sales.

• Gross profit decreased 10.0 percentage points to 17.0% during the quarter ended June 30, 2014 from 27.0% during the quarter ended June 30, 2013, primarily due to a mix of lower gross profit projects sold and under construction during the period and lower average selling prices of our modules, partially offset by favorable capacity utilization, throughput improvements and lower manufacturing and raw materials costs.

• Gross profit decreased 2.3 percentage points to 22.0% during the six months ended June 30, 2014 from 24.3% during the six months ended June 30, 2013, primarily due to a mix of lower gross profit projects sold and under construction during the period and lower average selling prices of our modules, partially offset by favorable capacity utilization, throughput improvements and lower manufacturing and raw materials costs.

41--------------------------------------------------------------------------------• As of June 30, 2014, we had 28 installed production lines with an annual global manufacturing capacity of approximately 2.3 GW at our manufacturing plants in Perrysburg, Ohio, and Kulim, Malaysia. We produced 0.4 GW DC of solar modules during the quarter ended June 30, 2014 which represents a 15% increase from the same period in 2013. We expect to produce approximately 1.8 GW of solar modules during 2014 and have produced 0.8 GW of solar modules during the first six months of 2014. This increase in production year-over-year is due to improved plant utilization, higher module efficiency and throughput improvements on the same number of production lines. During the three months ended June 30, 2014, we ran our factories at approximately 80% capacity utilization, which represents a 5 percentage point increase from the quarter ended June 30, 2013.

• The average conversion efficiency of our modules was 14.0% in the second quarter of 2014, which is an improvement of 100 basis points year-over-year.

• We announced a new world record for CdTe cell efficiency at 21.0%, breaking our previous record of 20.4% that we announced in February 2014 and representing the seventh substantial update to CdTe record efficiency since 2011.

Market Overview The solar industry continues to be characterized by intense pricing competition, both at the module and system level. In the aggregate, we believe manufacturers of solar modules and cells have installed production capacity that exceeds global demand. We believe the solar industry will continue to experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periods will put pressure on pricing. In light of such market realities, we continue to execute our Long Term Strategic Plan described below under which we are focusing on our competitive strengths. A key core strength is our differentiated, vertically integrated business model that enables us to provide utility-scale PV generation solutions to sustainable geographic markets that have an immediate need for mass-scale PV electricity.

We believe industry module average selling prices have begun to show signs of stabilization in several markets, after a long period of significant decline across multiple markets. Lower industry module pricing, while currently challenging for certain solar manufacturers (particularly manufacturers with high cost structures), is expected to continue to contribute to global market diversification and volume elasticity. Over time, declining average selling prices are consistent with the erosion of one of the primary historical constraints to widespread solar market penetration, its affordability. In the near term, however, declining average selling prices could adversely affect our results of operations. If competitors reduce module pricing to levels below their cash manufacturing costs, or are able to operate at negative or minimal operating margins for sustained periods of time, our results of operations could be further adversely affected. We continue to mitigate this uncertainty in part by executing on and building our advance-stage utility-scale systems pipeline, accelerating our module efficiency improvement and BoS cost reduction roadmaps to maintain and increase our competitiveness, profitability and capital efficiency, adjusting our production plans and capacity utilization, and continuing the development of worldwide geographic markets.

In the components business, we continue to face intense competition from manufacturers of crystalline silicon solar modules and other types of solar modules and PV systems. Solar module manufacturers compete with one another in several product performance attributes, including reliability and selling price per watt, and, with respect to solar power systems, net present value ("NPV"), return on equity ("ROE") and levelized cost of electricity ("LCOE"), meaning the net present value of total life cycle costs of the solar power project divided by the quantity of energy which is expected to be produced over the system's life. We believe we are among the lowest cost PV module manufacturers in the solar industry on a module cost per watt basis, based on publicly available information. This cost competitiveness is reflected in the price at which we sell our modules and fully integrated PV solar power systems and enables our PV solar power systems to compete favorably. Our cost competitiveness is based in large part on our proprietary technology (which enables conversion efficiency improvements and enables us to produce a module in less than 2.5 hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), our scale, and our operational excellence. In addition, our CdTe modules use approximately 1-2% of the amount of the polysilicon that is used to manufacture traditional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels.

Polysilicon costs had periods of decline over the past several years, contributing to a decline in our manufacturing cost competitiveness over traditional crystalline silicon module manufacturers. Given the lower conversion efficiency of our modules compared to certain types of crystalline silicon modules, there may be higher BoS costs associated with systems using our modules. Thus, to compete effectively on the basis of LCOE, our modules need to maintain a certain cost advantage per watt compared to crystalline silicon-based modules with higher conversion efficiencies. We continue to focus on reducing BoS costs associated with PV solar power systems using our modules. We believe we can continue to reduce BoS costs by improving module conversion efficiency, leveraging volume procurement around standardized hardware platforms, using innovative installation techniques and know how, and accelerating installation times to reduce labor costs. BoS costs can represent a significant portion of the costs associated with the construction of a typical utility-scale PV solar power system.

42-------------------------------------------------------------------------------- While our modules and PV solar power systems are generally competitive in cost, reliability and performance attributes, there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all. Any declines in the competitiveness of our products could result in additional margin compression, further declines in the average selling prices of our solar modules, erosion in our market share for modules and PV solar power systems, decreases in the rate of net sales growth, and/or declines in overall net sales. We have taken, and continue to take, various actions to mitigate the potential impact resulting from competitive pressures, including adjusting our pricing policies as necessary, accelerating progress along our module efficiency improvement and BoS cost reduction roadmaps, and further focusing our research and development on increasing the conversion efficiency of our solar modules.

As we continue to expand our systems business into sustainable markets, we can offer value beyond the solar module, reduce our exposure to module-only competition, provide differentiated product offerings to minimize the impact of solar module commoditization, and provide comprehensive utility-scale PV solar power system solutions that significantly reduce solar electricity costs. Thus, our systems business allows us to play a more active role than many of our competitors in managing the demand for our solar modules. Finally, we continue to form and develop strong relationships with our customers and strategic partners around the world and continue to develop our range of product offerings, including EPC capabilities and O&M services, in order to enhance the competitiveness of systems using our solar modules. For example, we have and expect in the future to form joint ventures or other business arrangements with project developers in certain strategic markets in order to provide our modules and potential systems business PV generation solutions to the projects developed by such ventures.

Certain Trends and Uncertainties We believe that our continuing operations may be favorably or unfavorably impacted by the following trends and uncertainties that may affect our financial condition and results of operations. See "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K filed with the SEC on February 26, 2014 and the risks described elsewhere in this report (the "Risk Factors") for a discussion of other risks that may affect our financial condition and results of operations.

Long Term Strategic Plan In executing our Long Term Strategic Plan ("LTSP") we are focusing on providing solar PV generation solutions using our modules to sustainable geographic markets that we believe have a compelling need for mass-scale PV electricity, including markets throughout the Americas, Asia, Australia, the Middle East, and Africa. As part of our LTSP, we are focusing on opportunities in which our solar PV generation solutions will compete more directly with fossil fuel offerings on an LCOE or similar basis. Execution of the LTSP entails a reallocation of resources around the globe, in particular dedicating resources to regions such as Latin America, Asia, the Middle East, and Africa where we have not traditionally conducted significant business to date. We are evaluating and managing closely the appropriate level of resources required as we transition into and penetrate these specific markets. We have and intend to continue to dedicate significant capital and human resources to reduce the total installed cost of solar PV generation, to optimize the design and logistics around our solar PV generation solutions, and to ensure that our solutions integrate well into the overall electricity ecosystem of each specific market.

We expect that, over time, an increasing portion of our consolidated net sales, operating income and cash flows will come from solar offerings in the sustainable markets described above as we execute on our LTSP. The timing, execution and financial impacts of our LTSP are subject to risks and uncertainties, as described in the Risk Factors. We are focusing our resources in those markets and energy applications in which solar power can be a least-cost, best-fit energy solution, particularly in regions with high solar resources, significant current or projected electricity demand and/or relatively high existing electricity prices. As part of these efforts, we continue to expand resources globally, including by appointing country heads and supporting professional, sales and other staff in target sustainable markets. Accordingly we are shifting current costs and expect to incur additional costs over time as we establish a localized business presence in these regions.

Joint ventures or other business arrangements with strategic partners are a key part of our LTSP, and we have begun initiatives in several markets using such arrangements to expedite our penetration of those markets and establish relationships with potential customers and policymakers. Some of these business arrangements have and are expected in the future to involve significant investments or other allocations of capital on our part. We are in the process of developing relationships with policymakers, regulators, and end customers in each of these markets with a view to creating markets for utility scale PV solar power systems. We sell solar power solutions directly to end customers, including independent power producers, utilities, retail electricity providers and commercial and industrial customers. Depending on the market opportunity, our sales offerings range from module only sales, to module sales with a range of development, engineering, procurement and construction services and solutions, to full turn-key PV solar power system sales. We expect these sales offerings to continue to evolve over time as we work with our customers to optimize how our PV solar generation solutions can best meet our customers' energy and economic needs. In addition to our utility-scale power plant offerings, we have fuel displacement, commercial and industrial and off-grid and energy access offerings.

43 -------------------------------------------------------------------------------- In order to create or maintain a market position in certain strategically targeted markets our offerings from time to time may need to be competitively priced at levels associated with minimal gross profit margins, which may adversely affect our results of operations. We expect the profitability associated with our various sales offerings to vary from one another over time, and possibly vary from our internal long-range profitability expectations and targets, depending on the market opportunity and the relative competitiveness of our offering compared with other energy solutions, fossil fuel based or otherwise, that are available to potential customers.

We expect to use our working capital, the availability under our Revolving Credit Facility, or non-recourse or limited-recourse project financing to finance the construction of certain of our PV solar power systems, if the sale of such systems prior to construction beginning does not meet our economic return expectations or we cannot sell under terms and conditions that are favorable to us. From time to time we may own and operate certain PV solar power systems, often with the intention to sell at a later date. The ability to do so allows us to gain control of the sales process, provide a lower risk profile to a future buyer of a PV solar power system and improve our ability to drive higher eventual sale values. We may also elect to construct and retain ownership interests in merchant and other power plants. We continue to pursue strategic partnerships that open up new geographic markets. We also continue to assess and pursue other business arrangements that provide access to a lower cost of capital and optimize the value of our projects. Business arrangements that can lower the cost of capital and provide other benefits relating to project sales process, such as YieldCo arrangements, have been used increasingly by renewable energy companies. Additionally, our joint ventures and other business arrangements with strategic partners have and may in the future result in us temporarily retaining a minority or non-controlling ownership interest in the underlying systems projects we develop, supply modules to, or construct potentially for a period of up to several years. Such business arrangements could become increasingly important to our competitive profile in markets globally, including North America. In each of the above mentioned examples, we may retain such ownership interests in a consolidated and/or unconsolidated separate entity.

Construction of Some of the World's Largest PV Solar Power Systems In North America, we continue to execute on our advanced-stage utility-scale project pipeline. We expect a substantial portion of our consolidated net sales, operating income and cash flows through 2016 to be derived from several large projects in North America, including the following projects which are currently or will be among the world's largest PV solar power systems: the 550 MW Topaz Solar Farm, located in San Luis Obispo County, California; the 550 MW Desert Sunlight Solar Farm, located west of Blythe, California; the 250 MW McCoy Solar Energy Project, located in Riverside County, California; the 250 MW Silver State South project, located near Primm in Clark County, Nevada; and the 150MW Imperial Solar Energy Center West project, located in California, which are all under contract and the following projects which are not yet sold or contracted: the 300MW Stateline project, located in San Bernardino County, California; the 250MW Moapa project, located in Clark County, Nevada; and the 150MW SolarGen 2 project located in Imperial County, California. Please see the tables under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Systems Project Pipeline" for additional information about these and other projects within our systems business advanced-stage project pipeline.

Construction progress of these projects is subject to risks and delays as described in the Risk Factors. Revenue recognition for these and other systems projects is in many cases not linear in nature due to the timing of when all revenue recognition criteria have been or are expected to be met, and consequently period over period comparisons of results of operations may not be meaningful. As we progress construction towards substantial completion of these PV solar power systems, we may have a larger portion of our net sales, operating income and cash flows come from future sales of solar offerings outside of North America, pursuant to our LTSP described above. North America however, will continue to represent a meaningful portion of our net sales, operating income and cash flows as a significant portion of our advance-stage project pipeline, excluding the projects above, is also comprised of projects in North America.

Systems Project Pipeline The following tables summarize, as of August 5, 2014, our approximately 4.0 GW systems business advanced-stage project pipeline. As of June 30, 2014, for the Projects Sold/ Under Contract in our advanced-stage project pipeline of approximately 2.6 GW, we have recognized revenue with respect to the equivalent of approximately 1.1 GW. Such MW equivalent amount refers to the ratio of revenue recognized for the Projects Sold/ Under Contract in our advanced-stage project pipeline compared to total contracted revenue for such projects, multiplied by the total MW for such projects. The remaining revenue to be recognized subsequent to June 30, 2014 for the Projects Sold/ Under Contract in our advanced-stage project pipeline is expected to be approximately $3.7 billion. The substantial majority of such amount is expected to be recognized as revenue through the later of the substantial completion or project closing dates of the Projects Sold/ Under Contract. The remaining revenue to be recognized does not have a direct correlation to expected remaining module shipments for such Projects Sold/ Under Contract as expected module shipments do not represent total systems revenues and do not consider the timing of when all revenue recognition criteria are met including timing of module installation. With regard to gross profit margin of the projects in the tables below, as we move to a higher-mix of third-party construction contracts, gross profit on those projects are lower than gross profit on construction 44 -------------------------------------------------------------------------------- contracts relating to our self-developed projects. The actual volume of modules installed in our Projects Sold/ Under Contract will be greater than the Project Size in MW AC as module volumes required for a project are based upon MW DC, which will be greater than the MW AC size pursuant to a DC-AC ratio typically ranging from 1.2 to 1.4. Such ratio varies across different projects due to various system design factors. Projects are removed from our advanced-stage project pipeline tables below once we have completed construction and after all revenue has been recognized. Projects, or portions of projects may also be removed from the tables below in the event an EPC contract or partner developed project does not get permitting or financing or an unsold or uncontracted project ultimately does not get sold or contracted due to the changing economics of the project or other factors.

We continually seek to make additions to our advanced-stage project pipeline. We are actively developing our early to mid-stage project pipeline in order to secure PPAs and we are also pursuing opportunities to acquire advanced-stage projects, which already have PPAs in place. New additions to our project pipeline during the period May 7, 2014 through August 5, 2014 include the 310 MW AC Tribal Solar solar power plant in California, the 175 MW AC solar power plant in Southern California and 45 MW AC for various projects in India.

Projects Sold/Under Contract (Includes uncompleted sold projects, projects under sales contracts subject to conditions precedent, and EPC agreements including partner developed projects that we will be or are constructing) As of June 30, 2014 Expected Year Revenue Power Recognition Project Purchase Will Be Percentage Size in Agreement Third Party Completed Percentage of Revenue Project/Location MW AC (1) ("PPA") Owner/Purchaser By Complete Recognized Topaz, California 550 PG&E MidAmerican 2014/2015 91% 91% Desert Sunlight, California 550 PG&E / SCE NextEra/GE/Sumitomo 2014/2015 90% 72% McCoy, California 250 SCE NextEra (2) 2016 -% -% Silver State South, Nevada 250 SCE NextEra 2016 5% -% AVSR, California 230 PG&E Exelon 2014 99% 99% Southern California 175 Various Various 2016 -% -% AGL, Australia 155 AGL AGL (2) (6) 2015 7% 7% Imperial Solar Energy Center West, California 150 SDG&E Tenaska(2) 2016 -% -% California (Multiple Locations) (9) 79 PG&E/ SCE Various (2) 2014 13% 13% Copper Mountain 2, Nevada 58 PG&E Sempra (2) 2015 (3) -% -% NEPCO (2) Shams Ma'an, Jordan 53 (11) Various (2) 2016 -% -% PG&E / Marin CID Solar and Cottonwood, Clean EDF Renewable California 43 Energy Energy (2) 2015 2% -% PNM3, New Mexico 23 UOG (2)(4) PNM (2) 2015 -% -% Total 2,566 Projects with Executed PPA - Not Sold/ Not Contracted 45 -------------------------------------------------------------------------------- Expected or Actual As of June Project Substantial 30, 2014 Fully Size in Power Purchase Completion Percentage Project/Location Permitted MW AC (1) Agreement ("PPA") Year Complete Tribal Solar, California No 310 SCE 2019 -% Stateline, California No 300 SCE 2016 -% Moapa, Nevada No 250 LADWP 2015 8% SolarGen 2, California Yes 150 SDG&E 2014 93% California Flats, California No 150 PG&E 2016 (5) -% North Star, California No 60 PG&E 2015 -% India (Multiple Locations) No 45 TSSPDCL (12) 2015 -% 2015/2016 Cuyama, California No 40 PG&E (5) -% SCPPA (8)/City of Kingbird, California No 40 Pasadena 2015 -% Lost Hills, California Yes 32 PG&E 2015 (7) -% Barilla, Texas No 22 (10) 2014 60% Total 1,399 Key:(1) The volume of modules installed in MW DC ("direct current") will be higher than the MW AC ("alternating current") size pursuant to a DC-AC ratio typically ranging from 1.2-1.4. Such ratio varies across different projects due to various system design factors (2) EPC contract or partner developed project (3) First 92 MW AC phase was completed in 2012. Remaining phase is 58 MW AC for which substantial completion is expected in 2015 (4) UOG = Utility Owned Generation (5) PPA term does not begin until 2019 (6) First Solar will own five percent of projects (102 MW AC Nyngan and 53 MW AC Broken Hill) (7) Project has short-term PPA that begins in 2015 with PG&E PPA beginning in 2019 (8) SCPPA = Southern California Public Power Authority (9) Kent South (Kings County), Kansas (Kings County), Adams East (Fresno County) and Old River (Kern County) (10) Merchant Plant - No PPA (11) NEPCO = National Electric Power Company, the country of Jordan's regulatory authority for power generation and distribution and a consortium of investors (12) TSSPDCL = Southern Power Distribution Company of Telangana State Ltd Results of Operations The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the periods indicated: 46 -------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 83.0 % 73.0 % 78.0 % 75.7 % Gross profit 17.0 % 27.0 % 22.0 % 24.3 % Research and development 6.0 % 6.0 % 4.8 % 4.8 % Selling, general and administrative 10.6 % 12.7 % 7.8 % 11.0 % Production start-up 0.1 % 0.3 % - % 0.2 % Restructuring and asset impairments - % 0.5 % - % 0.4 % Operating income 0.4 % 7.5 % 9.4 % 7.9 % Foreign currency gain (loss) - % (0.2 )% - % - % Interest income 0.8 % 0.7 % 0.6 % 0.7 % Interest expense, net (0.2 )% (0.2 )% (0.1 )% (0.1 )% Other (expense) income, net (0.6 )% 0.1 % (0.3 )% - % Income tax (benefit) expense (0.4 )% 1.4 % 1.8 % 1.1 % Net income 0.8 % 6.5 % 7.8 % 7.3 % Segment Overview We operate our business in two segments. Our components segment involves the design, manufacture, and sale of solar modules which convert sunlight into electricity. We manufacture CdTe modules and we also expect to begin manufacturing high-efficiency crystalline silicon modules by the end of 2014.

Third-party customers of our components segment include project developers, system integrators, and owners and operators of PV solar power systems.

Our second segment is our fully integrated systems business ("systems segment"), through which we provide complete turn-key PV solar power systems, or solar solutions that draw upon our capabilities, which include (i) project development, (ii) EPC services, (iii) O&M services, and (iv) project finance expertise. We may provide our full EPC services or any combination of individual products and services within our EPC capabilities depending upon the customer and market opportunity. All of our systems segment products and services are for PV solar power systems which primarily use our solar modules, and such products and services are sold directly to investor owned utilities, independent power developers and producers, commercial and industrial companies, and other PV solar power system owners. Additionally, our systems segment reflects our holdings in certain PV solar power systems.

In our operating segment financial disclosures, we include an allocation of net sales value for all solar modules manufactured by our components segment and installed in projects sold or built by our systems segment in the net sales of our components segment. In the gross profit of our operating segment disclosures, we include the corresponding cost of sales value for the solar modules installed in projects sold or built by our systems segment in the components segment. The cost of solar modules is comprised of the manufactured cost incurred by our components segment.

See Note 18. "Segment Reporting," to our condensed consolidated financial statements included with this Quarterly Report on Form 10-Q for more information.

See also Item 2: "Management's Discussion and Analysis of Financial Condition and Results of Operations-Systems Project Pipeline" for a description of the projects in our advanced-stage project pipeline. Due to the distinct size, profitability and terms of the underlying sales arrangements for each project under construction, timing of meeting all revenue recognition criteria may create uneven net sales and gross profit patterns, making year over year comparisons less meaningful.

Product Revenue The following table sets forth the total amounts of solar modules and solar power systems net sales for the three and six months ended June 30, 2014 and 2013. For the purpose of the following table, (a) Solar module revenue is composed of total net sales from the sale of solar modules to third parties, and (b) Solar power system revenue is composed of total net sales from the sale of PV solar power systems and related services and solutions including the solar modules installed in the PV solar power systems we develop and construct along with revenue generated from our PV solar power systems.

47 -------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Solar module revenue $ 65,397 $ 81,304 $ (15,907 ) (20 )% $ 106,398 $ 274,554 $ (168,156 ) (61 )% Solar power system revenue 478,956 438,456 40,500 9 % 1,388,113 1,000,411 387,702 39 % Net sales $ 544,353 $ 519,760 $ 24,593 5 % $ 1,494,511 $ 1,274,965 $ 219,546 17 % Solar module revenue to third parties decreased $15.9 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 primarily due to a 27% reduction in average selling prices per watt, partially offset by a 9% increase in volume of watts sold.

Solar power system revenue increased $40.5 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 primarily due to the number and size of projects under construction between these periods as well as the timing of when all revenue recognition criteria have been met. The increase in systems revenue was primarily attributed to our 50 MW Macho Springs project having been sold to Southern Company subsidiary Southern Power and Turner Renewable Energy during the second quarter of 2014 and having met the criteria for full profit recognition. We also began construction on multiple projects in California and recognized related initial revenue reflecting progress made. In addition, our systems revenue increased due to continued construction and related revenue recognition on our Desert Sunlight, Topaz and AGL Nyngan projects partially offset by lower net sales for our completed projects Imperial Valley Energy Center South, Agua Caliente, and DEWA projects and partially completed AV Solar Ranch One project. See Item 2: "Management's Discussion and Analysis of Financial Condition and Results of Operations-Systems Project Pipeline" for percentage complete and percentage of revenue recognized for these projects.

As a percentage of total net sales, our solar power systems, which include both our EPC revenue and solar modules used in the systems projects, increased from 84% to 88% of total net sales during the three months ended June 30, 2013 and 2014, respectively. The sequential mix shift in net sales was primarily driven by lower module only sales.

Solar module revenue to third parties decreased $168.2 million for the six months ended June 30, 2014 compared to the three months ended June 30, 2013 primarily due to a 51% decrease in volume of watts sold and a 21% decrease in average selling prices per watt.

Solar power system revenue increased $387.7 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to the number and size of projects under construction between these periods as well as the timing of when all revenue recognition criteria have been met. The increase in systems revenue was primarily attributed to our 139 MW Campo Verde and 50 MW Macho Springs projects having met the criteria for full profit recognition. We also commenced construction on 102 MW AGL Nyngan Solar Project in Australia and multiple projects in California and recognized related initial revenue relating to progress made during the six months ended June 30, 2014. In addition, our systems revenue increased due to continued construction and related revenue recognition on our Desert Sunlight project offset by lower revenue from our completed Imperial Valley Energy Center South, Agua Caliente, DEWA and Alpine projects and partially completed AV Solar Ranch One and Topaz projects. See Item 2: "Management's Discussion and Analysis of Financial Condition and Results of Operations-Systems Project Pipeline" for percentage complete and percentage of revenue recognized for these projects.

As a percentage of total net sales, our solar power systems which include both our EPC revenue and solar modules used in the systems projects, increased from 78% to 93% of total net sales during the six months ended June 30, 2013 and 2014, respectively. The sequential mix shift in net sales was primarily driven by lower module-only sales as the prior year six months ended June 30 included 128 MW of module volume used in construction of the largest thin-film PV solar power plant in Europe.

Three and Six Months Ended June 30, 2014 and 2013 Net sales Components Business We generally price and sell our solar modules per watt of name plate power.

During the six months ended June 30, 2014, a significant portion of net sales from the components business was related to modules included in our PV solar power systems described below under "Net Sales-Systems Business." Other than the modules included in our PV solar power systems, we sold 48 --------------------------------------------------------------------------------the majority of our solar modules to PV solar power system project developers and system integrators, and operators who own, operate, or construct solar projects in India, Israel, France, United States and Germany.

From time to time we enter into module sales agreements with customers worldwide for specific projects or volumes of modules. Such agreements are generally not long term in nature. During the three and six months ended June 30, 2014, 70% and 65%, respectively, of our components business net sales, excluding modules included in our PV solar power systems, were denominated in Euros and were subject to fluctuations in the exchange rate between the Euro and U.S. dollar.

During the three and six months ended June 30, 2013, 24% and 44%, respectively, of our components business net sales, excluding modules included in our PV solar power systems, were denominated in Euros and were subject to fluctuations in the exchange rate between the Euro and U.S. dollar.

Under our typical customer sales contracts for solar modules, we transfer title and risk of loss to the customer and recognize revenue upon shipment. Pricing is typically fixed or determinable at the time of shipment, and our customers do not typically have extended payment terms. Customers do not have rights of return under these contracts. Our revenue recognition policies for the components business are described further in Note 2. "Summary of Significant Accounting Policies," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Systems Business Through our fully integrated systems business, we provide a complete turn-key solar power system solution using our solar modules, which may include project development, EPC services, O&M services, and project finance expertise.

Additionally, from time to time we may own and operate PV solar power systems, which will be included with in our systems business. Revenue recognition for our systems projects are in many cases not linear in nature due to the timing of when all revenue recognition criteria have been met, and consequently period over period comparisons of results of operations may not be meaningful. We typically use the percentage-of-completion method using actual costs incurred over total estimated costs to construct a project (including module costs) as our standard accounting policy, but we only apply this method after all revenue recognition criteria have been met. There are also many instances in which we recognize revenue only after a project has been completed, primarily due to a project not being sold prior to completion or because all revenue recognition criteria are not met until the project is completed. Our revenue recognition policies for the systems business are described in further detail in Note 2.

"Summary of Significant Accounting Policies," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

The following table shows net sales by reporting segment for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in Three Month Period thousands) 2014 2013 Change 2014 2013 Six Month Period Change Net Sales Components $ 194,061 $ 192,908 $ 1,153 1 % $ 510,919 $ 549,504 $ (38,585 ) (7 )% Systems 350,292 326,852 23,440 7 % 983,592 725,461 258,131 36 % Total Net sales $ 544,353 $ 519,760 $ 24,593 5 % $ 1,494,511 $ 1,274,965 $ 219,546 17 % The 5% increase in net sales during the three months ended June 30, 2014 compared with the three months ended June 30, 2013 was primarily due to a 7% increase in net sales from our systems segment and a 1% increase in net sales from our components segment.

Net sales from our components segment, which includes solar modules used in our systems projects, increased $1.2 million primarily due to a 19% increase in volume of watts sold and a 15% decrease in average selling prices.

Net sales from our systems segment, which excludes solar modules used in our systems projects, increased by $23.4 million, for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 primarily due to the number and size of projects under construction between these periods as well as the timing of when all revenue recognition criteria have been met. The increase in systems revenue was primarily attributed to our 50 MW Macho Springs project having been sold to Southern Company subsidiary Southern Power and Turner Renewable Energy during the second quarter of 2014 and having met the criteria for full profit recognition. We also began construction on multiple projects in California and recognized related revenue reflecting progress made.

In addition, our systems revenue increased due to continued construction and related revenue recognition on our Desert Sunlight, Topaz and AGL Nyngan projects partially offset by lower net sales for our completed projects Imperial Valley Energy Center South, Agua Caliente, and DEWA projects and partially completed AV Solar Ranch One project. See Item 2: 49 --------------------------------------------------------------------------------"Management's Discussion and Analysis of Financial Condition and Results of Operations-Systems Project Pipeline" for percentage complete and percentage of revenue recognized for these projects.

The 17% increase in net sales during the six months ended June 30, 2014 compared with the six months ended June 30, 2013 was primarily due to a 36% increase in net sales from our systems segment, partially offset by a 7% decrease in net sales from our components segment.

Net sales from our components segment, which includes solar modules used in our systems projects, decreased $38.6 million primarily due to a 13% decrease in average selling prices partially offset by a 6% increase in volume.

Net sales from our systems segment, which excludes solar modules used in our systems projects, increased by $258.1 million for the six months ended June 30, 2014 compared with the six months ended June 30, 2013 was primarily due to the number and size of projects under construction between these periods as well as the timing of when all revenue recognition criteria have been met. The increase in systems revenue was primarily attributed to our 139 MW Campo Verde and 50 MW Macho Springs projects having met the criteria for full profit recognition. We also commenced construction on the 102 MW AGL Nyngan Solar Project in Australia and multiple projects in California and recognized related initial revenue relating to progress made during the six months ended June 30, 2014. In addition, our systems revenue increased due to continued construction and related revenue recognition on our Desert Sunlight and Topaz project offset by lower revenue from our completed Imperial Valley Energy Center South, Agua Caliente, DEWA and Alpine projects and partially completed AV Solar Ranch One and Topaz projects. See Item 2: "Management's Discussion and Analysis of Financial Condition and Results of Operations-Systems Project Pipeline" for percentage complete and percentage of revenue recognized for these projects.

Cost of sales Components Business Our cost of sales includes the cost of raw materials and components for manufacturing solar modules, such as glass, transparent conductive coatings, cadmium telluride and other thin film semiconductors, laminate materials, connector assemblies, edge seal materials, and other materials and components.

Our cost of sales also includes direct labor for the manufacturing of solar modules and manufacturing overhead such as engineering, equipment maintenance, environmental health and safety, quality and production control, and procurement costs. Cost of sales also includes depreciation of manufacturing plant and equipment and facility-related expenses. In addition, we record shipping, warranty and the majority of our obligation for solar module collection and recycling costs within cost of sales.

We include the sale of our solar modules manufactured by our components business and used by our systems business within net sales of our components business.

Therefore, the related cost of sales are also included within our components business at that time.

Systems Business Within our systems business, project-related costs include standard EPC costs (consisting primarily of BoS costs for inverters, electrical and mounting hardware, project management and engineering costs, and engineering and construction labor costs), site specific costs, and development costs (including transmission upgrade costs, interconnection fees, and permitting costs).

The following table shows cost of sales by reporting segment for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Cost of Sales Components $ 193,375 $ 201,101 $ (7,726 ) (4 )% $ 485,145 $ 546,088 $ (60,943 ) (11 )% Systems 258,253 178,561 79,692 45 % 679,930 419,453 260,477 62 % Total Cost of Sales $ 451,628 $ 379,662 $ 71,966 19 % $ 1,165,075 $ 965,541 $ 199,534 21 % % of net sales 83.0 % 73.0 % 78.0 % 75.7 % Our cost of sales increased $72.0 million or 19% and increased 10.0 percentage points as a percentage of net sales for the three months ended June 30, 2014 compared with the three months ended June 30, 2013. The increase in cost of sales was primarily 50 -------------------------------------------------------------------------------- due to a $79.7 million increase in our systems segment cost of sales primarily for BoS components and other construction and development costs related to an increase in the number of solar power systems under construction or the timing of when all revenue recognition criteria have been met between the periods, and an increase in the mix of lower profit margin construction contracts. The increase in systems cost of sales was primarily attributable to our Macho Springs project having been sold and the beginning of construction on multiple projects in California. In addition, our systems segment cost of sales increased due to continued construction and related revenue recognition on our Desert Sunlight, AGL Nyngan and Topaz projects offset by lower cost of sales related to our completed Imperial Valley Energy Center South, Agua Caliente, and DEWA projects and partially completed AV Solar Ranch One project.

The increase in our system segment cost of sales was partially offset by a reduction of cost of sales of $7.7 million in our components segment primarily as a result of the following: • Inventory related write-offs of $3.8 million during the three months ended June 30, 2013; • Underutilization of our manufacturing capacity decreased by 5 percentage points as we ran our factories at approximately 80% of capacity for the three months ended June 30, 2014 as compared to 75% of capacity utilization during the three months ended June 30, 2013, causing a $4.7 million reduction in cost of sales; • Expenses associated with inventory write-downs to lower of cost or market increased by $2.1 million; and • Increase expense associated with an increase in volume of solar modules sold, partially offset by a reduction in cost of sales from module efficiency improvements, manufacturing process and raw material cost reductions and throughput enhancements, variable cost declines related lower estimated future recycling obligations, causing a $2.2 million increase to cost of sales.

Our cost of sales increased $199.5 million or 21% and increased 2.3 percentage points as a percentage of net sales for the six months ended June 30, 2014 compared with the six months ended June 30, 2013. The increase in cost of sales was primarily due to a $260.5 million increase in our systems segment cost of sales primarily for BoS components and other construction and development costs related to an increase in the number of solar power systems under construction of the timing of when all revenue recognition criteria have been met between the periods, and an increase in the mix of lower profit margin construction contracts. The increase in systems segment cost of sales was primarily attributable to our Campo Verde project having met the criteria for full profit recognition as well as our Macho Springs project being sold and the beginning of construction on multiple projects in California during the six months ended June 30, 2014. In addition, our systems segment cost of sales increased due to continued construction and related revenue recognition on our Desert Sunlight and AGL Nyngan projects offset by lower cost of sales related to our completed Imperial Valley Energy Center South, Agua Caliente, and DEWA projects and partially completed AV Solar Ranch One, Topaz and Alpine projects.

The increase in our system segment cost of sales was partially offset by a reduction of cost of sales of $60.9 million in our components segment primarily as a result of the following: • Module efficiency improvements, manufacturing process and raw material costs reductions and throughput enhancements, variable cost declines related to lower estimated future recycling obligations combined with increases in volume of solar modules resulted in a reduction to cost of sales of $46.6 million; • Underutilization of our manufacturing capacity decreased by 6 percentage points as we ran our factories at approximately 81% of capacity utilization for the six months ended June 30, 2014 as compared to 75% for the six months ended June 30, 2013, causing a $9.6 million reduction in cost of sales: • Inventory related write-offs of $3.8 million during the six months ended June 30, 2013; and • Expenses associated with inventory write-downs to lower of cost or market and other adjustments declined $2.5 million.

Gross profit Gross profit is affected by numerous factors, including our module and system average selling prices, our manufacturing costs, BoS costs, project development costs, the effective utilization of our production capacity and facilities, and foreign exchange rates. Gross profit is also affected by the mix of net sales generated by our components and systems businesses. Gross profit for our systems business excludes the sales and cost of sales for solar modules, used in our systems projects which we include in the gross profit of our components business. As we move to a higher mix of third party EPC only contracts the gross profit on those contracts could be lower than gross profit on our self developed contracts.

The following table shows gross profit for the three and six months ended June 30, 2014 and 2013: 51 -------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, (Dollars in Six Month Period thousands) 2014 2013 Three Month Period Change 2014 2013 Change Grossprofit $ 92,725 $ 140,098 $ (47,373 ) (34 )% $ 329,436 $ 309,424 $ 20,012 6 % % of net sales 17.0 % 27.0 % 22.0 % 24.3 % Gross profit decreased 10.0 percentage points to 17.0% during the three months ended June 30, 2014 from 27.0% during the three months ended June 30, 2013, primarily due to a mix of lower gross profit projects sold and under construction during the period and lower average selling prices of our modules, partially offset by favorable capacity utilization, throughput improvements and lower manufacturing and raw material costs.

Gross profit decreased 2.3 percentage points to 22.0% during the six months ended June 30, 2014 from 24.3% during the six months ended June 30, 2013, primarily due to a mix of lower gross profit projects sold and under construction during the period and lower average selling prices of our modules, partially offset by favorable capacity utilization, throughput improvements and lower manufacturing and raw material costs.

Research and development Research and development expense consists primarily of salaries and personnel-related costs, the cost of products, materials, and outside services used in our process and product research and development activities for both the components and systems businesses and depreciation and amortization expense associated with research and development specific facilities and intangible assets. We acquire equipment for general use in our process and product development and record the depreciation of this equipment as research and development expense. Currently, the substantial majority of our research and development expenses are attributable to our components segment. We maintain a number of programs and activities to improve our technology and processes in order to enhance the performance and reduce the costs of our solar modules and PV solar power systems using our modules.

The following table shows research and development expense for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in Three Month Period Six Month Period thousands) 2014 2013 Change 2014 2013 Change Research and development $ 32,659 $ 30,964 $ 1,695 5 % $ 71,432 $ 60,895 $ 10,537 17 % % of net sales 6.0 % 6.0 % 4.8 % 4.8 % The increase in research and development expense of $1.7 million for the three months ended June 30, 2014 compared with the three months ended June 30, 2013 was primarily due to costs related to (i) development of next-generation CdTe solar module; (ii) GE joint collaboration agreement used to further advance our CdTe solar technology; and (iii) incremental labor, facility and depreciation expenses as well.

During the three months ended June 30, 2014, we continued the development of solar modules with increased efficiencies at converting sunlight into electricity and increased the average conversion efficiency of our solar modules from 13.0% for the three months ended June 30, 2013 to 14.0% for the three months ended June 30, 2014.

The increase in research and development expense of $10.5 million for the six months ended June 30, 2014 compared with the six months ended June 30, 2013 was primarily due to: (i) the GE joint collaboration agreement used to further advance our CdTe solar technology; (ii) write-offs and loss on sale of certain research equipment which was deemed to have no future use; (iii) the development of our next-generation CdTe solar module; and (iv) incremental labor, facility and depreciation expenses as well as additional costs relating to testing of the TetraSun cell manufacturing technology.

During the six months ended June 30, 2014, we continued the development of solar modules with increased efficiencies at converting sunlight into electricity and increased the average conversion efficiency of our solar modules from 12.9% for the six months ended June 30, 2013 to 13.8% for the six months ended June 30, 2014.

Selling, general and administrative Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expenses, and other business development and selling expenses. Our systems business has certain of its 52 -------------------------------------------------------------------------------- own dedicated administrative key functions, such as accounting, legal, finance, project finance, human resources, procurement, and marketing. Costs for these functions are recorded and included within selling, general and administrative costs for our systems segment. Our corporate key functions consist primarily of company-wide corporate tax, corporate treasury, corporate accounting/finance, corporate legal, investor relations, corporate communications and government relations, and executive management functions. These corporate functions and the assets supporting such functions benefit both the components and systems segments. We allocate corporate costs to the components and systems segments as part of selling, general and administrative costs, based upon the estimated benefits provided to each segment from these corporate functions. We determine the estimated benefits provided to each segment for these corporate costs based upon a combination of the estimated time spent by corporate employees supporting each segment and the average relative selling, general and administrative costs incurred by each segment before such corporate allocations.

The following table shows selling, general and administrative expense for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Selling, general and administrative $ 57,667 $ 66,265 $ (8,598 ) (13 )% $ 116,331 $ 140,730 $(24,399) (17)% % of net sales 10.6 % 12.7 % 7.8 % 11.0 % Our selling, general and administrative expenses decreased by $8.6 million, or 13%, and were 10.6% and 12.7% as a percentage of net sales, when comparing the three months ended June 30, 2014 and 2013, respectively. The most significant items affecting our selling, general and administrative costs during the three months ended June 30, 2014 and 2013 are summarized as follows: • Depreciation and amortization expense declined $5.0 million primarily due to accelerated depreciation for certain leasehold improvements and sale of our Mesa facility in 2013; • Legal and professional services fees decreased by $4.2 million primarily due to lower legal fees incurred during the period; and • Salary and benefit expense increased $1.3 million, primarily due to increased stock based compensation as the result of a benefit from termination during the three months ended June 30, 2013.

Our selling, general and administrative expenses decreased by $24.4 million, or 17%, and were 7.8% and 11.0% as a percentage of net sales, when comparing the six months ended June 30, 2014 and 2013, respectively. The most significant items affecting our selling, general and administrative costs during the six months ended June 30, 2014 and 2013 are summarized as follows: • Salary and benefit expense decreased by $7.6 million, primarily in connection with a decrease in salaries of $5.9 million due headcount reductions and lower incentive compensation, combined with a decrease of $1.7 million in share based compensation expense; • Depreciation and amortization expense declined $9.6 million primarily due to accelerated depreciation for certain leasehold improvements and sale of our Mesa facility in 2013; and • Legal and professional services fees decreased by $6.9 million primarily due to lower legal fees incurred during the period.

Production start-up Production start-up expense consists primarily of salaries and personnel-related costs and the cost of operating a production line before it has been qualified for full production, including the cost of raw materials for solar modules run through the production line during the qualification phase. It also includes all expenses related to the selection of a new site and the related legal and regulatory costs, and the costs to maintain our plant replication program, to the extent we cannot capitalize these expenditures. In general, we expect production start-up expense per production line to be higher when we build an entirely new manufacturing facility compared with the addition of new production lines at an existing manufacturing facility or implementing changes to our manufacturing process at such existing facilities, primarily due to the additional infrastructure investment required when building an entirely new facility. On a going forward basis, we expect that the only costs included in production start-up expense will be related to the start-up of our TetraSun operations. Production start-up expense is attributable to our components segment.

The following table shows production start-up expense for the three and six months ended June 30, 2014 and 2013: 53 -------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Production start-up $ 491 $ 1,392 $ (901 ) (65 )% $ 491 $ 2,768 $ (2,277 ) (82 )% % of net sales 0.1 % 0.3 % - % 0.2 % During the three months ended June 30, 2014 and 2013, we incurred $0.5 million and $1.4 million, respectively, of production start-up expenses. During the six months ended June 30, 2014 and 2013, we incurred $0.5 million and $2.8 million, respectively, of production start-up expenses. Expenses were primarily for our global manufacturing personnel dedicated to plant expansion, new equipment installation, equipment upgrades and process improvements for both new and existing plants for the three and six months ended June 30, 2013. Expenses for the three and six months ended June 30, 2014 relate to the start-up of the operations associated with our TetraSun acquisition.

Restructuring and asset impairments Restructuring expenses include those expenses incurred related to material restructuring initiatives and include severance and employee termination costs, that are directly related to our restructuring initiatives, costs associated with contract terminations and other restructuring related costs. These restructuring initiatives are intended to align the organization with the current business conditions (including expected sustainable market opportunities) and reduce costs.

The following table shows restructuring and asset impairments expense for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Restructuring and asset impairments $ - $ 2,381 $ (2,381 ) (100 )% $ - $ 4,728 $ (4,728 ) (100 )% % of net sales - % 0.5 % - % 0.4 % During the three months ended June 30, 2014 and 2013, we incurred zero and $2.4 million, respectively, of restructuring and asset impairment charges. The charges for the three months ended June 30, 2013 related to the April 2012 European restructuring initiatives, which included charges associated with the closure of our German manufacturing plants.

During the six months ended June 30, 2014 and 2013, we incurred zero and $4.7 million, respectively, of restructuring and asset impairment charges. The charges for the six months ended June 30, 2013 related to the April 2012 European restructuring initiatives, which included charges associated with the closure of our German manufacturing plants.

Foreign currency gain (loss) Foreign currency gain (loss) consists of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries' functional currencies.

The following table shows foreign currency (loss) gain for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Foreign currency gain (loss) $ 21 $ (1,068 ) $ 1,089 (102 )% $ (558 ) $ 550 $ (1,108 ) (201 )% Foreign currency gain (loss) increased during the three months ended June 30, 2014 compared to the three months ended June 30, 2013, primarily due to differences between our economic hedge positions and the underlying exposure, and changes in the associated exchange rates.

Foreign currency gain (loss) decreased during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, primarily due to differences between our economic hedge positions and the underlying exposure, and changes in the associated exchange rates.

54 --------------------------------------------------------------------------------Interest income Interest income is earned on our cash, cash equivalents, marketable securities, and restricted cash and investments. Interest income also includes interest received from notes receivable and any interest collected for late customer payments.

The following table shows interest income for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in Three Month Period thousands) 2014 2013 Change 2014 2013 Six Month Period Change Interest income $ 4,533 $ 3,405 $ 1,128 33 % $ 8,854 $ 8,352 $ 502 6 % Interest income increased $1.1 million during the three months ended June 30, 2014 compared with the three months ended June 30, 2013 primarily due to increased interest received from marketable securities due to increase in balances of marketable securities during the periods.

Interest income increased $0.5 million during the six months ended June 30, 2014 compared with the six months ended June 30, 2013 primarily due to increased interest received from marketable securities, partially offset by recognition of $2.1 million of interest received on note receivable, affiliate during the first six months of 2013.

Interest expense, net Interest expense is incurred on various debt financings. We capitalize interest expense into our property, plant and equipment or project assets when such costs qualify for interest capitalization, reducing the amount of interest expense reported in any given period.

The following table shows interest expense, net for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Interest expense, net $ (930 ) $ (875 ) $ (55 ) 6 % $ (1,340 ) $ (1,625 ) $ 285 (18 )% Interest expense, net of amounts capitalized, remained relatively flat during the three months ended June 30, 2014 compared with the three months ended June 30, 2013.

Interest expense, net of amounts capitalized, remained relatively flat during the six months ended June 30, 2014 compared with the six months ended June 30, 2013.

Other (expense) income, net Other income (expense), net is primarily comprised of other miscellaneous items, amounts excluded from hedge effectiveness, and realized gains/losses on the sale of marketable securities.

The following table shows other income (expense), net for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Other (expense) income, net $ (3,170 ) $ 504 $ (3,674 ) (729 )% $ (4,916 ) $ (329 ) $ (4,587 ) 1,394 % Other expense, net, increased during the three months ended June 30, 2014 compared with the three months ended June 30, 2013, primarily as a result of a write off of an equity investment, combined with amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges and other miscellaneous items.

Other expense, net, increased during the six months ended June 30, 2014 compared with the six months ended June 30, 2013, primarily as a result of a write off of an equity investment, combined with amounts excluded from effectiveness testing for our foreign exchange forward contracts designated as cash flow hedges and other miscellaneous items.

55 --------------------------------------------------------------------------------Income (Loss) Before Income Taxes Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2014 2013 Three Month Period Change 2014 2013 Six Month Period Change Income (loss) before income taxes Components $ (44,559 ) $ (67,348 ) $ 22,789 (34 )% $ (73,985 ) $ (116,886 ) $ 42,901 (37 )% Systems 46,921 108,410 (61,489 ) (57 )% 217,207 224,137 (6,930 ) (3 )% Total income (loss) before income taxes $ 2,362 $ 41,062 $ (38,700 ) (94 )% $ 143,222 $ 107,251 $ 35,971 34 % Components segment loss before income taxes decreased by $22.8 million, during the three months ended June 30, 2014 compared with the three months ended June 30, 2013, primarily due to (i) decreases in cost of sales attributed to module efficiency improvements, manufacturing processes and raw materials cost reductions and throughput enhancements, and decreased recycling obligations on current period sales; (ii) lower restructuring charges; (iii) decreases in underutilization during the periods, and (iv) partially offset by decreases in average selling prices and increases in volume of solar modules sold.

Systems segment income before income taxes decreased $61.5 million, during the three months ended June 30, 2014 compared with the three months ended June 30, 2013, primarily due to an increase in the number and size of projects under construction for which revenue was recognized.

Components segment loss before income taxes decreased by $42.9 million, during the six months ended June 30, 2014 compared with the six months ended June 30, 2013, primarily due to (i) decreases in cost of sales attributed to module efficiency improvements, manufacturing processes and raw materials cost reductions and throughput enhancements, and decreased recycling obligations on current period sales; (ii) lower restructuring charges; (iii) decreases in underutilization during the periods, and (iv) partially offset by decreases in average selling prices and increases in volume of solar modules sold.

Systems segment income before income taxes decreased $6.9 million, during the six months ended June 30, 2014 compared with the six months ended June 30, 2013, primarily due to an increase in the number and size of projects under construction for which revenue was recognized.

Income tax expense Income taxes are imposed on our taxable income by taxing authorities in the various jurisdictions in which we operate, principally the United States, Germany, and Malaysia. The statutory federal corporate income tax rate in the United States is 35.0%, while the tax rates in Germany and Malaysia are approximately 30.7% and 25.0%, respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027, pursuant to which substantially all of our income earned in Malaysia is exempt from income tax.

The following table shows consolidated income tax expense for the three and six months ended June 30, 2014 and 2013: Three Months Ended June 30, Six Months Ended June 30, (Dollars in Six Month Period thousands) 2014 2013 Three Month Period Change 2014 2013 Change Income tax (benefit) expense $ (2,166 ) $ 7,464 $ (9,630 ) (129 )% $ 26,687 $ 14,511 $ 12,176 84 % Effective tax rate (91.7 )% 18.2 % 18.6 % 13.5 % Income tax (benefit) expense decreased by $9.6 million during the three months ended June 30, 2014 compared with the three months ended June 30, 2013 primarily due to the decrease in pre-tax book income in the relative period.

Income tax expense increased by $12.2 million during the six months ended June 30, 2014 compared with the six months ended June 30, 2013 primarily due to an increase in pre-tax book income. See Note 14. "Income Taxes," to our condensed consolidated financial statements included with this Quarterly Report on Form 10-Q for additional information.

Critical Accounting Policies and Estimates 56 -------------------------------------------------------------------------------- In preparing our financial statements in conformity with U.S. GAAP, we make estimates and assumptions about future events that affect the amounts of reported assets, liabilities, net sales, and expenses, as well as the disclosure of contingent liabilities in our condensed consolidated financial statements and the related notes thereto. Some of our accounting policies require the application of significant judgment by management in the selection of the appropriate assumptions for making these estimates. We base our judgments and estimates on our historical experience, our forecasts, available market information and other available information as appropriate. We believe that the assumptions, judgments, and estimates involved in the accounting for percentage-of-completion revenue recognition, accrued solar module collection and recycling liability, product warranties and manufacturing excursions, accounting for income taxes, reportable segment allocations, long-lived asset impairments, and goodwill have the greatest potential impact on our condensed consolidated financial statements. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

For a complete description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission. There have been no material changes in any of our critical accounting policies during the six months ended June 30, 2014.

Recent Accounting Pronouncements See Note 3. "Recent Accounting Pronouncements," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a summary of recent accounting pronouncements.

Liquidity and Capital Resources As of June 30, 2014, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities including the contracted portion of our advanced-stage project pipeline, availability under our Revolving Credit Facility considering minimum liquidity covenant requirements, and access to the capital markets will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. We intend to continue to carefully manage credit and market risk.

Cash generated from operations, including the contracted portion of our advanced-stage project pipeline, is our primary source of operating liquidity and we believe that internally generated cash flows combined with our existing cash and cash equivalents, marketable securities, and availability under our Revolving Credit Facility considering minimum liquidity covenant requirements, are sufficient to support day-to-day business operations. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally. In July 2013, we entered into an amendment to our Revolving Credit Facility, which extended $450.0 million in availability through July 2018. Additionally, we have an active shelf registration statement filed with the SEC for issuance of debt or equity securities if needed.

We intend to maintain appropriate debt levels based upon cash flow expectations, the overall cost of capital and expected cash requirements for operations, capital expenditures, and discretionary strategic spending. In the future, we may also engage in one or more debt or equity financings, potentially including project specific non-recourse debt financings. We believe that when necessary, we will have adequate access to the capital markets, although our ability to raise capital on terms commercially acceptable to us could be constrained if there is insufficient lender or investor interest due to industry-wide or company-specific concerns. Such financings could result in increased debt service expenses or dilution to our existing stockholders.

As of June 30, 2014, we had $1,348.9 million in cash, cash equivalents, and marketable securities compared with $1,764.2 million as of December 31, 2013.

Cash, cash equivalents, and marketable securities as of June 30, 2014 decreased primarily as the result of cash used in operating activities, the repayment of long-term debt, and the purchase of property, plant and equipment. As of June 30, 2014 and December 31, 2013, $1,136.0 million and $1,172.6 million, respectively, of our cash, cash equivalents, and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar and Euro denominated holdings. We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

Our expanding systems business requires liquidity and is expected to continue to have significant liquidity requirements in the future. The net amount of our project assets, deferred project costs, billings in excess of costs and estimated earnings and payments and billings for deferred project costs, which approximates our net capital investment in under development, under construction and completed PV solar power systems as of June 30, 2014 was $761.6 million.

Solar power project development and construction cycles, which span the time between the identification of a site location to the commercial operation of a PV solar power system, vary substantially and can take many years to mature. As a result of these long project cycles, we may need to make significant up-front investments of resources in advance of the receipt of any cash from the sale of such PV solar power 57 -------------------------------------------------------------------------------- systems. These amounts include payment of interconnection and other deposits (some of which are non-refundable), posting of letters of credit, and incurring engineering, permitting, legal, and other expenses. Additionally, we may choose to use, and from time to time have used, our working capital, the availability under our Revolving Credit Facility, debt or equity financings, or non-recourse or limited recourse project financing to finance the construction of our systems projects, if such projects cannot be sold before construction begins. Depending upon the size and number of projects that we are developing and self-financing the construction of, the systems business has and is expected in the future to require significant liquidity. For example, we may have to substantially complete the construction of a systems or limited-recourse project before such project is sold. Delays in construction progress or in completing the sale of our systems projects which we are self-financing may also impact our liquidity.

We have historically financed these up-front investments for project development and when necessary, construction, primarily using working capital.

Additionally, our evolving flexible business model allows us to retain ownership of one or more of our systems projects for a period of time after they become operational up to the useful life of the PV solar power system if we determined it would be of economic and strategic benefit to do so. If, for example, we cannot sell a systems project at economics that are attractive to us or potential customers are unwilling to assume the risks and rewards typical of PV solar power system ownership, we may instead elect to own and operate such systems project, generally until such time that we can sell a project on economically attractive terms. As with traditional electricity generating assets, the selling price of a solar power plant could be higher post-completion to reflect the elimination of construction and performance risk and other uncertainties. The decision to own and operate a PV solar power system impacts liquidity depending upon the size and cost of the project. We may elect to enter into temporary or long-term non-recourse or limited-recourse project financing to reduce the impact on our liquidity and working capital. We may also consider entering into "YieldCo" or similar arrangements with respect to ownership interests in certain of our projects, which could cause the economics of such arrangements to be recognized over the project's life. We define YieldCo as an entity that owns cash-generating infrastructure assets including solar power plants and, similar to REITs or MLPs, spins out ownership to the public markets.

The following considerations have impacted or are expected to impact our liquidity in 2014 and beyond: • The amount of accounts receivable, unbilled and retainage as of June 30, 2014 was $564.9 million. Included in accounts receivable, unbilled and retainage as of June 30, 2014 was $51.4 million of accounts receivable, unbilled. Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer under the terms of the underlying construction contracts. Such construction costs have been funded with working capital and the unbilled amounts are expected to be billed and collected from customers during the next twelve months. Once we meet the billing criteria under a construction contract, we bill our customers accordingly and reclassify the accounts receivable, unbilled and retainage to accounts receivable trade, net. Included in accounts receivable, unbilled and retainage as of June 30, 2014 was $513.4 million of current accounts receivable, retainage. Accounts receivable, retainage represents the portion of a systems project contract price earned by us for work performed, but held for payment by our customer as a form of security until we reach certain construction milestones. Such retainage amounts relate to construction costs incurred and construction work already performed.

• The amount of finished goods inventory ("solar module inventory") and BoS parts as of June 30, 2014 was $390.3 million. As we continue with the construction of our advanced-stage project pipeline we must produce solar modules and procure BoS parts in the required volumes to support our planned construction schedules. As part of the normal construction cycle, we typically must manufacture modules or acquire the necessary BoS parts for construction activities in advance of receiving payment for such materials. Once solar modules and BoS parts are installed in a project, such installed amounts are classified as either project assets, deferred project costs, or cost of sales depending upon whether the project is subject to a definitive sales contract and whether all revenue recognition criteria have been met. Accordingly, as of any balance sheet date, our solar module inventory represents solar modules that will be installed in our advanced-stage project pipeline or that we expect to sell to third parties.

• There may be a delay in when our solar module inventory and BoS parts can be converted into cash compared to a typical third-party module sale. Such timing differences temporarily reduce our liquidity to the extent that we have already paid for our BoS parts or the underlying costs to produce our solar module inventory. As previously announced, we have adjusted, and will in the future adjust, as necessary, our manufacturing capacity and planned solar module production levels, to match expected market demand.

Any decrease in planned production reduces our risk and the impact on liquidity of having excess solar module inventories that we must sell to third parties and respond to market pricing uncertainties for solar modules. Our solar module inventory as of June 30, 2014, is expected to primarily support our systems business, including our advanced-stage project pipeline, with the remaining amounts being used to support expected near term demand for third-party module sales. As of June 30, 2014, approximately $130 million or 39% of our solar module inventory was either on-site or in-transit to our systems projects. All BoS parts are for our systems business projects.

58--------------------------------------------------------------------------------• We expect to commit working capital during 2014 and beyond to acquire solar power projects in various stages of development including advanced-stage projects with PPAs and to continue developing those projects as necessary. Depending upon the size and stage of development, costs to acquire such solar power projects could be significant. When evaluating project acquisition opportunities, we consider both the strategic and financial benefits of any such acquisitions.

• We expect joint ventures or other business arrangements with strategic partners to be a key part of our strategy. We have begun initiatives in several markets to expedite our penetration of those markets and establish relationships with potential strategic partners, customers, and policymakers. Many of these business arrangements are expected to involve a significant cash investment or other allocation of working capital that could reduce our liquidity or require us to pursue additional sources of financing, assuming such sources are available to us. Additionally, we have elected, and may in the future elect or be required to temporarily retain a minority or non-controlling ownership interest in the underlying systems projects we develop, supply modules to, or construct. Any such retained ownership interest is expected to impact our liquidity to the extent we do not obtain new sources of capital to fund such investments.

• Our restructuring initiatives are expected to result in total remaining cash payments of up to $6 million. Such cash payments are related to payments for other long-term tax liabilities, severance costs for reductions in workforce as a result of such restructuring initiatives and a land remediation accrual. There is the potential for additional future restructuring actions as we continue to align our manufacturing capacity with market demand, evaluate our cost structure and identify potential cost savings opportunities, and focus on developing target markets. We could in the future incur additional restructuring costs (including potentially the repayment of debt facilities and other amounts, the payment of severance to terminated employees, and other restructuring related costs) that could reduce our liquidity position to the point where we need to pursue additional sources of financing, assuming such sources are available to us. See Note 4. "Restructuring and Asset Impairments," to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

• During the remainder of 2014, we expect to spend $185 million to $235 million for capital expenditures, including expenditures for upgrades to existing machinery and equipment, which we believe will increase our solar module efficiencies. A majority of our capital expenditures for 2014 are expected to be in foreign currencies and are therefore subject to fluctuations in currency exchange rates.

• Under the sales agreement for a solar power project, we may be required to repurchase such project if certain events occur, such as not achieving commercial operation of the project within a certain time frame. Although we consider the possibility that we would be required to repurchase any of our solar power projects to be remote, our current working capital and other available sources of liquidity may not be sufficient to make any required repurchase. If we are required to repurchase a solar power project we would have the ability to market and sell such project at then current market pricing, which could be at a lower than expected price to the extent the event requiring a repurchase impacts the project's marketability. Our liquidity may also be impacted as the time between the repurchase of a project and the potential sale of such repurchased project could take several months.

The unprecedented disruption in the credit markets that began in 2008 had a significant adverse impact on a number of financial institutions. Global sovereign debt problems and its impact on the balance sheets and lending practices of global banks in particular could negatively impact our access to, and cost of, capital, and therefore could have an adverse effect on our business, results of operations, financial condition and competitive position.

It could also similarly affect our customers and therefore limit the demand for our systems projects or solar modules. As of June 30, 2014 our liquidity and marketable securities and restricted investments have not been materially adversely impacted by the current credit environment, and we believe that they will not be materially adversely impacted in the near future. We will continue to closely monitor our liquidity and the credit markets. However, we cannot predict with any certainty the impact to us of any further disruption in the current credit environment.

Cash Flows Descriptions The following table summarizes the key cash flow metrics for the six months ended June 30, 2014 and 2013 (in thousands): 59 -------------------------------------------------------------------------------- Six Months Ended June 30, 2014 2013 Net cash (used in) provided by operating activities $ (199,796 ) $ 288,828 Net cash used in investing activities (249,844 ) (437,620 ) Net cash (used in) provided by financing activities (26,654 ) 177,221 Effect of exchange rate changes on cash and cash equivalents 2,568 (1,066 ) Net (decrease) increase in cash and cash equivalents $ (473,726 ) $ 27,363 Operating Activities Cash used in operating activities was $199.8 million during the six months ended June 30, 2014 compared with cash provided by operating activities of $288.8 million during the six months ended June 30, 2013. The decrease in operating cash flows was primarily due to lower cash received from customers during the first six months of 2014 as compared to the first six months of 2013. This decrease in operating cash flows was partially offset by lower net cash paid to suppliers on year-over-year basis. The excess tax benefit related to share based compensation arrangements was $16.2 million for the six months ended June 30, 2014, as compared to $55.7 million for the six months ended June 30, 2013.

Changes in net assets and liabilities decreased our cash flow from operations by $435.7 million during the six months ended June 30, 2014 versus an increase of $125.1 million during the six months ended June 30, 2013, a decrease of $560.8 million, primarily as a result of the following: • Our accounts receivable trade, unbilled and retainage, increased $145.5 million during the six months ended June 30, 2014 as compared to a $341.4 million decrease during the six months ended June 30, 2013. Fluctuations in our accounts receivable trade, unbilled and retainage are primarily due to the number and size of utility-scale projects under construction, timing of billings and collections as well as timing of revenue recognition. We bill our customers once the billing criteria under a construction contract are met, generally around completion of certain project construction milestones. Increases in our accounts receivable trade, unbilled and retainage during the six months ended June 30, 2014 were driven primarily by billings on our Desert Sunlight, Topaz, various California projects, EDF Renewable Energy and Silver State South projects, partially offset by cash collections on our AV Solar Ranch One and Agua Caliente projects.

• Our project assets and deferred project costs, exclusive of net of effects from business combinations, increased $92.8 million during the six months ended June 30, 2014 as compared to a $670.5 million increase during the six months ended June 30, 2013. The development and construction of solar power plants requires long periods of time and substantial initial investments, including costs associated with transmission deposits, land acquisition, permitting, legal and other costs and the actual costs of constructing a project. The increase in our project assets and deferred project costs during the six months ended June 30, 2014 was driven by an increase in project assets of $258.1 million primarily as a result of continued development and construction of our SolarGen2, Moapa and Barilla projects, partially offset by decreases in project assets from our Maryland Solar and Macho Springs projects. These project assets increases were partially offset by decreases in deferred project costs of $230.3 million primarily due to the sale of our Campo Verde project during the first quarter of 2014 partially offset by increases in deferred project costs from our Desert Sunlight project.

• Our accrued expenses and other liabilities, exclusive of net effects from business combinations, decreased $272.0 million during the six months ended June 30, 2014 as compared to a $350.2 million increase during the six months ended June 30, 2013. Accrued expenses and other liabilities include billings in excess of costs and estimated earnings, which represents billings made or payments received in excess of revenue recognized on contracts accounted for under the percentage-of-completion method. Typically, billings are made on the completion of certain milestones as provided for in the sales arrangement and the timing of revenue recognition may be different from when we can bill the customer.

Accrued expenses and other liabilities also includes payments and billings for deferred project costs, which represents customer payments received or customer billings made under the terms of solar power project related sales arrangements for which all revenue recognition criteria for real estate transactions have not yet been met. The decrease in our accrued expenses and other liabilities during the six months ended June 30, 2014 was primarily attributable to attaining revenue recognition criteria under the full accrual method associated with our Campo Verde project, partially offset by billings for our Desert Sunlight and Silver State South projects in excess of revenue recognized.

Investing Activities 60-------------------------------------------------------------------------------- We used $249.8 million for investing activities during the six month period ended June 30, 2014, compared with $437.6 million during the six month period ended June 30, 2013. We used $113.2 million during the first six months of 2014 for capital expenditures compared with $156.9 million in the first six months of 2013, a decrease of $43.7 million. The decrease can generally be attributed to increased focus on capital spending management and the impact of timing differences associated with cash payments for property, plant and equipment.

During the six months ended June 30, 2014, $61.8 million of our debt securities matured causing a decrease in our net investment in marketable securities as compared with an increase in our net investment in marketable securities of $255.5 million during the comparable 2013 period. We had an outflow for restricted cash of $72.4 million for the six months ended June 30, 2014 compared to an inflow of $5.1 million in the six months ended June 30, 2013. Our investments in unconsolidated entities increased $0.9 million in the first six months of 2014 compared with $14.9 million in the first six months of 2013.

Acquisitions, net of cash acquired, resulted in payments of $30.7 million in the six months ended June 30, 2013. Payments for acquisitions during the first six months of 2013 related primarily to our acquisitions of TetraSun, Inc., a development stage company that is in the advanced stages of developing high efficiency crystalline technology, Solar Chile S.A., a Chilean-based solar project development company and Ray Tracker, Inc. ("Ray Tracker"), a tracking technology and PV BoS company we acquired in 2011. We had no acquisitions during the six months ended June 30, 2014. Also, during the six months ended June 30, 2013, we collected $17.1 million on our note receivable, affiliate. The remaining change in cash used in investing activities during the six months ended June 30, 2014 and 2013, respectively, was primarily driven by other investing activities.

Financing Activities Cash provided by financing activities was $26.7 million during the six months ended June 30, 2014 versus $177.2 million during the comparable prior year period. Cash provided by financing activities during the six months ended June 30, 2014 resulted primarily from the excess tax benefit from share-based compensation arrangements of $16.2 million, partially offset by the repayment of long-term debt of $30.8 million and contingent consideration and other financing activities payments of $12.1 million.

Cash provided by financing activities during the six months ended June 30, 2013 resulted primarily from the proceeds from the equity offering of $430.4 million and an excess tax benefit from share-based compensation arrangements of $55.7 million, partially offset by net repayments under long-term debt of $301.1 million and the repayment of economic development funding of $8.3 million.

Contractual Obligations Our contractual obligations have not materially changed since the end of 2013 other than in the ordinary course of business. See also our Annual Report on Form 10-K for the year ended December 31, 2013 for additional information regarding our contractual obligations.

Off-Balance Sheet Arrangements As of June 30, 2014, we have no off-balance sheet debt or similar obligations, other than financial assurance instruments and operating leases, that are not classified as debt. We do not guarantee any third-party debt. See Note 12.

"Commitments and Contingencies," for further information about our financial assurance instruments.

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