##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period  to
 Commission File Number 1-8403
 ENERGY CONVERSION DEVICES, INC.
  Delaware
    
    38-1749884(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)2956 Waterview Drive,
Rochester Hills, Michigan
    
    48309(Address of principal executive offices)
    
    (Zip Code)
 (248) 293-0440
 
  
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer  o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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TABLE OF CONTENTS
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
FORM 10-Q
QUARTER ENDED DECEMBER 31, 2009
 PART I  FINANCIAL INFORMATIONItem 1: Financial Statements
    
    
    2Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4: Controls and Procedures
    
    
    40PART II  OTHER INFORMATIONItem 1: Legal Proceedings
    
    
    41Item 1A: Risk Factors
    
    
    41Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3: Defaults Upon Senior Securities
    
    
    41Item 4: Submission of Matters to a Vote of Security Holders
    
    
    42Item 5: Other Information
    
    
    42Item 6: Exhibits
    
    
    42SIGNATURES
    
    
    43
  1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 : Financial Statements
 ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2009
    
    

2008 (1)
    
    
    2009
    
    

2008 (1)RevenuesProduct and project sales
    
    $
    47,195
    
    
    $
    97,987
    
    
    $
    83,905
    
    
    $
    188,788Royalties
    
    
    2,254
    
    
    
    1,543
    
    
    
    4,213
    
    
    
    2,888Revenues from product development agreements
    
    
    3,007
    
    
    
    3,077
    
    
    
    6,998
    
    
    
    6,348License and other revenues
    
    
    456
    
    
    
    500
    
    
    
    740
    
    
    
    848Total Revenues
    
    
    52,912
    
    
    
    103,107
    
    
    
    95,856
    
    
    
    198,872ExpensesCost of product and project sales
    
    
    58,381
    
    
    
    63,649
    
    
    
    86,214
    
    
    
    124,628Cost of revenues from product development agreements
    
    
    2,394
    
    
    
    2,342
    
    
    
    5,675
    
    
    
    4,523Product development and research
    
    
    3,130
    
    
    
    1,954
    
    
    
    5,375
    
    
    
    4,144Preproduction costs
    
    
    
    
    
    
    1,831
    
    
    
    10
    
    
    
    3,808Selling, general and administrative
    
    
    17,220
    
    
    
    17,277
    
    
    
    33,422
    
    
    
    31,428Net loss (gain) on disposal of property, plant and
equipment
    
    
    291
    
    
    
    (38
    )
    
    
    1,265
    
    
    
    246Impairment loss
    
    
    1,253
    
    
    
    
    
    
    
    1,253
    
    
    
    Restructuring charges
    
    
    2,445
    
    
    
    191
    
    
    
    3,122
    
    
    
    435Total Expenses
    
    
    85,114
    
    
    
    87,206
    
    
    
    136,336
    
    
    
    169,212Operating (Loss) Income
    
    
    (32,202
    )
    
    
    15,901
    
    
    
    (40,480
    )
    
    
    29,660Other Income (Expense)Interest income
    
    
    264
    
    
    
    1,467
    
    
    
    556
    
    
    
    4,071Interest expense
    
    
    (6,837
    )
    
    
    (4,030
    )
    
    
    (13,800
    )
    
    
    (7,594
    )Distribution from joint venture
    
    
    
    
    
    
    
    
    
    
    1,309
    
    
    
    Other nonoperating expense, net
    
    
    (981
    )
    
    
    (77
    )
    
    
    (76
    )
    
    
    (1,002
    )Total Other Income (Expense)
    
    
    (7,554
    )
    
    
    (2,640
    )
    
    
    (12,011
    )
    
    
    (4,525
    )(Loss) Income before Income Taxes and Equity Loss
    
    
    (39,756
    )
    
    
    13,261
    
    
    
    (52,491
    )
    
    
    25,135Income tax (benefit) expense
    
    
    (985
    )
    
    
    216
    
    
    
    (1,900
    )
    
    
    273(Loss) Income before Equity Loss
    
    
    (38,771
    )
    
    
    13,045
    
    
    
    (50,591
    )
    
    
    24,862Equity loss
    
    
    (313
    )
    
    
    
    
    
    
    (333
    )
    
    
    Net (Loss) Income
    
    
    (39,084
    )
    
    
    13,045
    
    
    
    (50,924
    )
    
    
    24,862Net Loss Attributable to Noncontrolling Interest
    
    
    (79
    )
    
    
    
    
    
    
    (153
    )
    
    
    Net (Loss) Income Attributable to ECD Shareholders
    
    $
    (39,005
    )
    
    $
    13,045
    
    
    $
    (50,771
    )
    
    $
    24,862(Loss)
Earnings Per Share, Attributable to ECD Shareholders
    
    $
    (0.92
    )
    
    $
    0.31
    
    
    $
    (1.20
    )
    
    $
    0.59Diluted
(Loss) Earnings Per Share, Attributable to ECD Shareholders
    
    $
    (0.92
    )
    
    $
    0.31
    
    
    $
    (1.20
    )
    
    $
    0.58
 
 (1)
    
    As adjusted due to the implementation of FASB ASC 470-20 (See Note 1).  2




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
 December
31,
    
    
    June 30,2009
    
    

2009 (1)(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    90,656
    
    
    $
    56,379Short-term investments
    
    
    114,388
    
    
    
    245,182Accounts receivable, net
    
    
    59,823
    
    
    
    69,382Inventories, net
    
    
    120,824
    
    
    
    74,266Other current assets
    
    
    8,367
    
    
    
    4,897Total Current Assets
    
    
    394,058
    
    
    
    450,106Property, Plant and Equipment, net
    
    
    613,310
    
    
    
    614,330Other Assets:Restricted cash
    
    
    1,738
    
    
    
    Goodwill
    
    
    35,371
    
    
    
    Intangible assets, net
    
    
    2,176
    
    
    
    Lease receivable, net
    
    
    11,438
    
    
    
    Other assets
    
    
    12,234
    
    
    
    11,661Total Other Assets
    
    
    62,957
    
    
    
    11,661Total Assets
    
    $
    1,070,325
    
    
    $
    1,076,097LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable and accrued expenses
    
    $
    34,348
    
    
    $
    50,238Current portion of warranty liability
    
    
    12,070
    
    
    
    5,917Other current liabilities
    
    
    6,621
    
    
    
    3,506Total Current Liabilities
    
    
    53,039
    
    
    
    59,661Long-Term Liabilities:Convertible senior notes
    
    
    255,172
    
    
    
    247,974Capital lease obligations
    
    
    20,878
    
    
    
    21,412Warranty liability
    
    
    31,072
    
    
    
    Other liabilities
    
    
    21,913
    
    
    
    9,701Total Long-Term Liabilities
    
    
    329,035
    
    
    
    279,087Commitments and Contingencies (Note 10)Stockholders EquityCommon stock, $0.01 par value, 100 million shares authorized,
45,755,412 and
45,754,652 issued at
December 31, 2009
and June 30,2009,
respectively
    
    
    458
    
    
    
    458Additional paid-in capital
    
    
    1,057,971
    
    
    
    1,055,705Treasury stock
    
    
    (700
    )
    
    
    (700
    )Accumulated deficit
    
    
    (367,389
    )
    
    
    (316,618
    )Accumulated other comprehensive loss, net
    
    
    (1,936
    )
    
    
    (1,496
    )Total ECD stockholders equity
    
    
    688,404
    
    
    
    737,349Accumulated deficit  noncontrolling interest
    
    
    (153
    )
    
    
    Total Stockholders Equity
    
    
    688,251
    
    
    
    737,349Total Liabilities and Stockholders Equity
    
    $
    1,070,325
    
    
    $
    1,076,097
 
 (1)
    
    As adjusted due to the implementation of FASB ASC 470-20 (See Note 1).  3




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
 Six Months Ended December 31,2009
    
    
    2008 (1)Cash flows from operating activities:Net (loss) income
    
    $
    (50,924
    )
    
    $
    24,862Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:Depreciation and amortization
    
    
    18,300
    
    
    
    15,035Amortization of debt discount and deferred financing fees
    
    
    7,815
    
    
    
    7,244Share-based compensation
    
    
    2,266
    
    
    
    3,475Other-than-temporary impairment of investment
    
    
    
    
    
    
    1,002Net loss on disposal of property, plant and equipment
    
    
    1,265
    
    
    
    420Impairment loss
    
    
    1,253
    
    
    
    Equity loss
    
    
    333
    
    
    
    Other
    
    
    
    
    
    
    4,212Changes in operating assets and liabilities, net of foreign exchange:Accounts receivable
    
    
    4,632
    
    
    
    (18,928
    )Inventories
    
    
    (22,430
    )
    
    
    (12,798
    )Other assets
    
    
    (1,773
    )
    
    
    (2,176
    )Accounts payable and accrued expenses
    
    
    (21,348
    )
    
    
    15,161Other liabilities
    
    
    502
    
    
    
    (337
    )Net cash (used in) provided by operating activities
    
    
    (60,109
    )
    
    
    37,172Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (18,759
    )
    
    
    (103,247
    )Acquisition of business, net of cash acquired
    
    
    (2,088
    )
    
    
    Proceeds from maturities of investments
    
    
    120,119
    
    
    
    2,700Proceeds from sale of investments
    
    
    9,921
    
    
    
    Net cash provided by (used in) investing activities
    
    
    109,193
    
    
    
    (100,547
    )Cash flows from financing activities:Principal payments under capitalized lease obligations and other debt
    
    
    (734
    )
    
    
    (517
    )Repayment of revolving credit facility
    
    
    (5,705
    )
    
    
    Repayment of convertible notes
    
    
    (8,000
    )
    
    
    Proceeds from sale of stock and share-based compensation, net of
expenses
    
    
    
    
    
    
    1,640Net cash (used in) provided by financing activities
    
    
    (14,439
    )
    
    
    1,123Effect of exchange rate changes on cash and cash equivalents
    
    
    (368
    )
    
    
    324Net increase (decrease) in cash and cash equivalents
    
    
    34,277
    
    
    
    (61,928
    )Cash and cash equivalents at beginning of period
    
    
    56,379
    
    
    
    484,492Cash and cash equivalents at end of period
    
    $
    90,656
    
    
    $
    422,564
 
 (1)
    
    As adjusted due to the implementation of FASB ASC 470-20 (See Note 1).  4




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Nature of Operations, Basis of Presentation and Summary of Significant Accounting
Policies
 Nature of Operations
   Basis of Presentation
    Summary of Significant Accounting Policies
 Use of Estimates
  5




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Capitalized Interest
  General
   Revenue Recognition  Installed Solar Systems and Traditional Roofing
   Restricted Cash
  Warranty Reserve  Installed Solar Systems
  6




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Recent Accounting Pronouncements Not Yet Adopted
 Consolidations
 Accounting for
Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
 Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements  a Consensus of the FASB Emerging Issues Task Force
 7




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Recently Adopted Accounting Pronouncements
 Fair Value
Measurements and Disclosures (Topic 820)  Measuring Liabilities at Fair Value
 Investments  Equity
Method and Joint Ventures
 Contracts in
Entitys Own Equity Derivatives
and Hedging.
 Earnings Per Share
 Business Combinations
 8




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Collaborative
Arrangements
 Consolidation,
 Debt with
Conversion and Other Options
 9




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Statement of Operations for theThree Months Ended
    
    Six Months EndedDecember 31, 2008
    
    December 31, 2008As
    
    
    
    
    
    
    
    
    
    AsPreviously
    
    ASC
    
    As
    
    Previously
    
    ASC
    
    AsReported
    
    470-20
    
    Reported
    
    Reported
    
    470-20
    
    Reported(in thousands)Cost of product and project sales
    
    $
    63,624
    
    
    $
    25
    
    
    $
    63,649
    
    
    $
    124,591
    
    
    $
    37
    
    
    $
    124,628Total expenses
    
    
    87,181
    
    
    
    25
    
    
    
    87,206
    
    
    
    169,175
    
    
    
    37
    
    
    
    169,212Operating income
    
    
    15,926
    
    
    
    (25
    )
    
    
    15,901
    
    
    
    29,697
    
    
    
    (37
    )
    
    
    29,660Interest expense
    
    
    (2,860
    )
    
    
    (1,170
    )
    
    
    (4,030
    )
    
    
    (5,592
    )
    
    
    (2,002
    )
    
    
    (7,594
    )Total other expense
    
    
    (1,470
    )
    
    
    (1,170
    )
    
    
    (2,640
    )
    
    
    (2,523
    )
    
    
    (2,002
    )
    
    
    (4,525
    )Net income before income taxes
    
    
    14,456
    
    
    
    (1,195
    )
    
    
    13,261
    
    
    
    27,174
    
    
    
    (2,039
    )
    
    
    25,135Net income
    
    
    14,240
    
    
    
    (1,195
    )
    
    
    13,045
    
    
    
    26,901
    
    
    
    (2,039
    )
    
    
    24,862Earnings per share
    
    
    0.34
    
    
    
    (0.03
    )
    
    
    0.31
    
    
    
    0.64
    
    
    
    (0.05
    )
    
    
    0.59Diluted earnings per share
    
    
    0.33
    
    
    
    (0.02
    )
    
    
    0.31
    
    
    
    0.63
    
    
    
    (0.05
    )
    
    
    0.58
 Consolidated Balance Sheets as of June 30, 2009As PreviouslyReported(1)
    
    
    ASC 470-20
    
    
    As Reported(in thousands)Property, plant and equipment, net
    
    $
    605,742
    
    
    $
    8,588
    
    
    $
    614,330Other assets
    
    
    13,330
    
    
    
    (1,669
    )
    
    
    11,661Total assets
    
    
    1,069,178
    
    
    
    6,919
    
    
    
    1,076,097Accounts payable and accrued expenses
    
    
    50,264
    
    
    
    (26
    )
    
    
    50,238Total current liabilities
    
    
    59,687
    
    
    
    (26
    )
    
    
    59,661Convertible senior notes
    
    
    316,250
    
    
    
    (68,276
    )
    
    
    247,974Total long-term liabilities
    
    
    347,363
    
    
    
    (68,276
    )
    
    
    279,087Additional paid-in capital
    
    
    976,575
    
    
    
    79,130
    
    
    
    1,055,705Accumulated deficit
    
    
    (312,709
    )
    
    
    (3,909
    )
    
    
    (316,618
    )Total stockholders equity
    
    
    662,128
    
    
    
    75,221
    
    
    
    737,349Total liabilities and stockholders equity
    
    
    1,069,178
    
    
    
    6,919
    
    
    
    1,076,097
 
 (1)
    
    The balance as previously reported for Accounts payable and accrued expenses
above also includes (in thousands) Salaries, wages and amounts withheld from employees of
$3,243, Amounts due under incentive plans of $694 and excludes Warranty liability of
$5,917. 10




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Consolidated Statement of Cash Flows for theSix Months Ended December 31, 2008AsPreviouslyReported
    
    ASC 470-20
    
    As Reported(in thousands)Net income
    
    $
    26,901
    
    
    $
    (2,039
    )
    
    $
    24,862Depreciation and amortization
    
    
    14,998
    
    
    
    37
    
    
    
    15,035Amortization of debt
discount and deferred
financing fees
    
    
    
    
    
    
    7,244
    
    
    
    7,244Other assets
    
    
    3,066
    
    
    
    (5,242
    )
    
    
    (2,176
    )
 Note 2  Earnings (Loss) Per Share
  Three Months Ended December 31,2009
    
    
    2008Net Income
    
    
    
    
    
    
    
    
    
    Net Income(Loss)
    
    
    
    
    
    
    
    
    (Loss)Attributable
 to ECD 
Shareholders
    
    
    Shares
    
    
    Per
Share
    
    
    Attributable 
to ECD 
Shareholders
    
    
    Shares
    
    
    Per
Share(Numerator)
    
    
    (Denominator)
    
    
    Amounts
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Amounts(in thousands, except per share amounts)Basic
    
    $
    (39,005
    )
    
    
    42,299
    
    
    $
    (0.92
    )
    
    $
    13,045
    
    
    
    42,274
    
    
    $
    0.31Effect of dilutive securities:Stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    Diluted
    
    $
    (39,005
    )
    
    
    42,299
    
    
    $
    (0.92
    )
    
    $
    13,045
    
    
    
    42,650
    
    
    $
    0.31
 Six Months Ended December 31,2009
    
    
    2008Net Income
    
    
    
    
    
    
    
    
    
    Net Income(Loss)
    
    
    
    
    
    
    
    
    (Loss)Attributable 
to ECD 
Shareholders
    
    
    Shares
    
    
    Per
Share
    
    
    Attributable 
to ECD 
Shareholders
    
    
    Shares
    
    
    Per
Share(Numerator)
    
    
    (Denominator)
    
    
    Amounts
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Amounts(in thousands, except per share amounts)Basic
    
    $
    (50,771
    )
    
    
    42,299
    
    
    $
    (1.20
    )
    
    $
    24,862
    
    
    
    42,248
    
    
    $
    0.59Effect of dilutive
securities:Stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    454
    
    
    
    (0.01
    )Diluted
    
    $
    (50,771
    )
    
    
    42,299
    
    
    $
    (1.20
    )
    
    $
    24,862
    
    
    
    42,915
    
    
    $
    0.58
 11




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2009
    
    2008
    
    2009
    
    2008(in thousands)Share-based payment arrangements
    
    
    1,303
    
    
    
    218
    
    
    
    1,307
    
    
    
    77
 12




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 3  Supplemental Cash Flow Information
  Six Months EndedDecember 31,2009
    
    2008(in thousands)Supplemental disclosures:Cash paid for interest, including capitalized interest
    
    $
    6,058
    
    
    $
    Cash paid for income taxes
    
    
    153
    
    
    
    Decrease in accounts payable for capital expenditures
    
    
    1,676
    
    
    
    7,957Non-cash transactions:Auction rate securities rights
    
    
    30
    
    
    
    5,248
 Note 4 - Acquisition
   13




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Purchase Price Allocation
  (in thousands)Cash
    
    $
    9,180Accounts receivable
    
    
    9,962Inventory
    
    
    24,031Other current assets
    
    
    2,372Long-term receivables
    
    
    11,769Property, plant and equipment
    
    
    1,951Other long term assets
    
    
    2,010Identifiable intangible assets
    
    
    2,780Goodwill
    
    
    35,378Warranty liability
    
    
    (38,548
    )Current liabilities
    
    
    (27,293
    )Long-term liabilities
    
    
    (21,913
    )Total net assets acquired
    
    $
    11,679
   14




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Actual AmountsRevenues
    
    $
    11,817
    
    
    
    N/A
    
    
    $
    15,568
    
    
    
    N/ANet loss attributable to ECD shareholders
    
    
    (11,055
    )
    
    
    N/A
    
    
    
    (14,269
    )
    
    
    N/APro Forma InformationRevenues
    
    $
    52,912
    
    
    $
    128,078
    
    
    $
    100,750
    
    
    $
    232,828Net (loss) income attributable to ECD
shareholders
    
    
    (39,005
    )
    
    
    9,263
    
    
    
    (54,438
    )
    
    
    13,044(Loss) earnings per share
    
    
    (0.92
    )
    
    
    0.22
    
    
    
    (1.29
    )
    
    
    0.31Diluted (loss) earnings per share
    
    
    (0.92
    )
    
    
    0.22
    
    
    
    (1.29
    )
    
    
    0.30
  Goodwill
  (in thousands)Balance at September 30, 2009
    
    $
    30,523SIT acquisition adjustment
    
    
    4,855Foreign currency impact
    
    
    (7
    )Balance at December 31, 2009
    
    $
    35,371
 Intangible Assets
  15




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31, 2009AccumulatedGross Value
    
    
    Amortization
    
    
    Net Value
    
    
    Useful life(in thousands)Customer contracts
    
    $
    874
    
    
    $
    (214
    )
    
    $
    660
    
    
    1.5 yearsProprietary processes
    
    
    190
    
    
    
    (8
    )
    
    
    182
    
    
    2 - 9 yearsOrder backlog
    
    
    292
    
    
    
    (78
    )
    
    
    214
    
    
    1.4 yearsTotal
    
    $
    1,356
    
    
    $
    (300
    )
    
    $
    1,056
  Fiscal Year
    
    (in thousands)2010
    
    $
    4042011
    
    
    4962012
    
    
    212013
    
    
    212014
    
    
    21
 Note 5  Investments
 Short-Term Investments
  Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)December 31, 2009Corporate bonds
    
    $
    1,100
    
    
    $
    
    
    
    $
    (1,002
    )
    
    $
    98U.S. Government securities
    
    
    80,364
    
    
    
    63
    
    
    
    
    
    
    
    80,427Auction rate certificates
    
    
    33,950
    
    
    
    
    
    
    
    (4,055
    )
    
    
    29,895Auction rate securities rights
    
    
    
    
    
    
    3,968
    
    
    
    
    
    
    
    3,968$
    115,414
    
    
    $
    4,031
    
    
    $
    (5,057
    )
    
    $
    114,388June 30, 2009Corporate bonds
    
    $
    23,047
    
    
    $
    
    
    
    $
    (1,037
    )
    
    $
    22,010U.S. Government securities
    
    
    188,902
    
    
    
    148
    
    
    
    (10
    )
    
    
    189,040Auction rate certificates
    
    
    34,250
    
    
    
    
    
    
    
    (4,056
    )
    
    
    30,194Auction rate securities rights
    
    
    
    
    
    
    3,938
    
    
    
    
    
    
    
    3,938$
    246,199
    
    
    $
    4,086
    
    
    $
    (5,103
    )
    
    $
    245,182
 16




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31, 2009
    
    
    June 30, 2009Amortized
    
    
    Market
    
    
    Amortized
    
    
    MarketCost
    
    
    value
    
    
    Cost
    
    
    Value(in thousands)Due in less than one year
    
    $
    81,464
    
    
    $
    84,493
    
    
    $
    211,949
    
    
    $
    211,050Due after one year
through five years
    
    
    33,950
    
    
    
    29,895
    
    
    
    34,250
    
    
    
    34,132$
    115,414
    
    
    $
    114,388
    
    
    $
    246,199
    
    
    $
    245,182
       17




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 6 - Sales-Type Lease Receivables
   December 31, 2009(in thousands)Total minimum lease payments receivable
    
    $
    18,480Less: Unearned income
    
    
    (6,086
    )Net investment in sales-type leases
    
    $
    12,394
  Fiscal Year
    
    (in thousands)2010
    
    $
    4952011
    
    
    9942012
    
    
    1,0132013
    
    
    1,0342014
    
    
    1,054Thereafter
    
    
    13,890$
    18,480
 18




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 7 - Inventories
  December 31,
    
    
    June 30,2009
    
    
    2009(in thousands)Finished products
    
    $
    86,393
    
    
    $
    41,167Work in process
    
    
    18,635
    
    
    
    19,247Raw materials
    
    
    15,796
    
    
    
    13,852$
    120,824
    
    
    $
    74,266
  Note 8 - Liabilities
 Warranty Liability
  (in thousands)Liability at June 30, 2009
    
    $
    5,917Liability assumed in SIT acquisition
    
    
    38,548Warranty expense
    
    
    1,236Warranty claims
    
    
    (2,449
    )Foreign currency impact
    
    
    (110
    )Liability at December 31, 2009
    
    $
    43,142
 19




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Other Long-Term Liabilities
  December 31,
    
    
    June 30,2009
    
    
    2009(in thousands)Structured financing
    
    $
    13,258
    
    
    $
    Long-term retirement
    
    
    1,783
    
    
    
    1,894Customer deposits
    
    
    1,030
    
    
    
    1,940Deferred patent license fees
    
    
    3,810
    
    
    
    4,286Deferred revenue and royalties
    
    
    321
    
    
    
    321Rent payable
    
    
    1,014
    
    
    
    884Other
    
    
    697
    
    
    
    376$
    21,913
    
    
    $
    9,701
 Note 9 - Long-Term Debt
 Convertible Senior Notes
    20




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31, 2009
    
    
    June 30, 2009(in thousands)Outstanding principal
    
    $
    316,250
    
    
    $
    316,250Less: unamortized discount
    
    
    61,078
    
    
    
    68,276Net carrying amount
    
    $
    255,172
    
    
    $
    247,974
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Contractual interest
    
    $
    2,372
    
    
    $
    2,371
    
    
    $
    4,744
    
    
    $
    4,717Amortization of discount
    
    
    3,598
    
    
    
    3,388
    
    
    
    7,197
    
    
    
    6,777Amortization of debt
issue costs
    
    
    309
    
    
    
    254
    
    
    
    618
    
    
    
    466Gross interest expense
recognized
    
    $
    6,279
    
    
    $
    6,013
    
    
    $
    12,559
    
    
    $
    11,960
 Structured Financing
  Convertible Notes
  Note 10  Commitments and Contingencies
  21




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 11  Restructuring Charges
   Employee-Related Expenses(in thousands)Balance June 30, 2009
    
    $
    840Liability assumed in SIT
acquisition
    
    
    122Charges
    
    
    2,914Utilization or payment
    
    
    (916
    )Balance December 31, 2009
    
    $
    2,960
 Note 12  Share-Based Compensation
  Stock Options
   22




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Estimated fair value
    
    $
    10.02AssumptionsDividend Yield
    
    
    0
    %Volatility %
    
    
    73.53
    %Risk-Free Interest Rate
    
    
    3.14
    %Expected Life
    
    7.33 years
  AggregateWeighted-Average
    
    
    Intrinsic Value(1)Shares
    
    
    Exercise Price
    
    
    (in thousands)Outstanding at June 30, 2009
    
    
    894,504
    
    
    $
    26.33
    
    
    $
    387Granted
    
    
    16,500
    
    
    
    14.05Exercised
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (16,720
    )
    
    
    40.03Forfeited
    
    
    (397
    )
    
    
    76.74Outstanding at December 31,
2009
    
    
    893,887
    
    
    
    25.83
    
    
    
    16
 
 (1)
    
    The intrinsic value of a stock option is the amount by which the current
market value of the underlying stock exceeds the exercise price of the option.  Weighted-
    
    
    
    
    
    
    Weighted-AverageAverage
    
    
    Aggregate Intrinsic
    
    
    Contractual LifeExercise
    
    
    Value(1)
    
    
    RemainingShares
    
    
    Price
    
    
    (in thousands)
    
    
    in YearsExercisable at December 31,
2009
    
    
    740,850
    
    
    $
    22.81
    
    
    $
    16
    
    
    
    3.25Exercisable at June 30, 2009
    
    
    709,074
    
    
    
    21.85
    
    
    
    376
    
    
    
    3.58
 
 (1)
    
    The intrinsic value of a stock option is the amount by which the current
market value of the underlying stock exceeds the exercise price of the option.  23




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Restricted Stock Awards
   Weighted AverageNumber of Shares
    
    
    Grant Date Fair ValueNonvested at June 30, 2009
    
    
    97,418
    
    
    
    34.10Awarded
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Released from restriction
    
    
    (2,500
    )
    
    
    33.37Nonvested at December 31, 2009
    
    
    94,918
    
    
    
    34.12
  Restricted Stock Units RSUs
  Weighted-AverageGrant DateNumber of Shares
    
    
    Fair ValueNonvested at June 30, 2009
    
    
    204,468
    
    
    $
    52.63Awarded
    
    
    283,794
    
    
    
    10.95Vested
    
    
    
    
    
    
    Forfeited
    
    
    (5,213
    )
    
    
    44.24Exchanged
    
    
    (95,234
    )
    
    
    52.36Released from restriction
    
    
    (3,804
    )
    
    
    10.57Nonvested at December 31, 2009
    
    
    384,011
    
    
    
    22.49
 24




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 13  Fair Value Measurements
   
    
    Level 1  Quoted prices in active markets for identical assets or liabilities
    
    Level 2  Valuations based on quoted prices in markets that are not active, quoted
prices for similar assets or liabilities or all other inputs that are observable
    
    Level 3  Unobservable inputs for which there is little or no market data which
require the Company to develop its own assumptions
    25




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)Auction rate certificates
    
    
    
    
    
    
    
    
    
    $
    29,895
    
    
    $
    29,895Auction rate securities rights
    
    
    
    
    
    
    
    
    
    
    3,968
    
    
    
    3,968Investments in corporate bonds
    
    $
    98
    
    
    
    
    
    
    
    
    
    
    
    98Investments in U.S. government securities
    
    
    80,427
    
    
    
    
    
    
    
    
    
    
    
    80,427Investments in money market funds
    
    
    66,372
    
    
    
    
    
    
    
    
    
    
    
    66,372
  Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)Auction rate certificates
    
    
    
    
    
    
    
    
    
    $
    30,194
    
    
    $
    30,194Auction rate securities rights
    
    
    
    
    
    
    
    
    
    
    3,938
    
    
    
    3,938Investments in corporate bonds
    
    $
    22,010
    
    
    
    
    
    
    
    
    
    
    
    22,010Investments in U.S. government securities
    
    
    189,040
    
    
    
    
    
    
    
    
    
    
    
    189,040Investments in money market funds
    
    
    45,411
    
    
    
    
    
    
    
    
    
    
    
    45,411
  Auction Rate
    
    
    Auction RateCertificates
    
    
    Securities Rights(in thousands)Balance at June 30, 2009
    
    $
    30,194
    
    
    $
    3,938Redeemed by UBS
    
    
    (300
    )
    
    
    Net gain included in investment
    
    
    1
    
    
    
    30Balance at December 31, 2009
    
    $
    29,895
    
    
    $
    3,968
 26




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 14   Income Taxes
     Note 15  Tax Benefits Preservation Plan
   27




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 16   Business Segments
   UnitedSolar
    
    
    Ovonic
    
    
    CorporateOvonic
    
    
    Materials
    
    
    and Other
    
    
    Total(in thousands)Three Months Ended December 31,
2009Revenues
    
    $
    48,979
    
    
    $
    3,878
    
    
    $
    55
    
    
    $
    52,912Operating (loss) income
    
    
    (28,329
    )
    
    
    1,620
    
    
    
    (5,493
    )
    
    
    (32,202
    )Three Months Ended December 31,
2008Revenues
    
    
    99,643
    
    
    
    3,431
    
    
    
    33
    
    
    
    103,107Operating income (loss)
    
    
    22,235
    
    
    
    1,225
    
    
    
    (7,559
    )
    
    
    15,901Six Months Ended December 31, 2009Revenues
    
    
    88,499
    
    
    
    7,283
    
    
    
    74
    
    
    
    95,856Operating (loss) income
    
    
    (30,043
    )
    
    
    3,225
    
    
    
    (13,662
    )
    
    
    (40,480
    )Six Months Ended December 31, 2008Revenues
    
    
    191,454
    
    
    
    7,310
    
    
    
    108
    
    
    
    198,872Operating income (loss)
    
    
    43,009
    
    
    
    1,479
    
    
    
    (14,828
    )
    
    
    29,660
 Note 17   Litigation
  28




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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   29




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Item 2 : Managements Discussion and Analysis of Financial Condition and
Results of Operations
  Overview
    .
 30




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##### Table of Contents



Key Indicators of Financial Condition and Operating Performance
  Results of Operations
 Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008
 United Solar Ovonic Segment
 Three Months EndedDecember 31,2009
    
    
    2008(in thousands)REVENUESProduct and project sales
    
    $
    46,274
    
    
    $
    97,316Revenues from product development agreements
    
    
    2,573
    
    
    
    2,327License and other revenues
    
    
    132
    
    
    
    TOTAL REVENUES
    
    
    48,979
    
    
    
    99,643EXPENSESCost of product and project sales
    
    
    57,584
    
    
    
    63,101Cost of revenues from product development agreements
    
    
    2,086
    
    
    
    1,887Product development and research
    
    
    2,292
    
    
    
    1,139Preproduction costs
    
    
    
    
    
    
    1,831Selling, general and administrative
    
    
    11,412
    
    
    
    9,488Loss (gain) on disposal of property, plant and equipment
    
    
    293
    
    
    
    (38
    )Impairment loss
    
    
    1,253
    
    
    
    Restructuring charges
    
    
    2,388
    
    
    
    TOTAL EXPENSES
    
    
    77,308
    
    
    
    77,408OPERATING (LOSS) INCOME
    
    $
    (28,329
    )
    
    $
    22,235
   31




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32




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Ovonic Materials Segment
 Three Months EndedDecember 31,2009
    
    
    2008(in thousands)REVENUESProduct sales
    
    $
    921
    
    
    $
    671Royalties
    
    
    2,254
    
    
    
    1,543Revenues from product development agreements
    
    
    434
    
    
    
    750License and other revenues
    
    
    269
    
    
    
    467TOTAL REVENUES
    
    
    3,878
    
    
    
    3,431EXPENSESCost of product sales
    
    
    797
    
    
    
    609Cost of revenues from product development agreements
    
    
    308
    
    
    
    455Product development and research
    
    
    838
    
    
    
    815Selling, general and administrative expenses
    
    
    315
    
    
    
    327TOTAL EXPENSES
    
    
    2,258
    
    
    
    2,206OPERATING INCOME
    
    $
    1,620
    
    
    $
    1,225
    Corporate and Other
  Other Income (Expense)
  33




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Income Taxes
  Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008
 United Solar Ovonic Segment
 Six Months EndedDecember 31,2009
    
    
    2008(in thousands)REVENUESProduct and project sales
    
    $
    82,377
    
    
    $
    186,766Revenues from product development agreements
    
    
    5,990
    
    
    
    4,688License and other revenues
    
    
    132
    
    
    
    TOTAL REVENUES
    
    
    88,499
    
    
    
    191,454EXPENSESCost of product and project sales
    
    
    84,905
    
    
    
    122,702Cost of revenues from product development agreements
    
    
    4,966
    
    
    
    3,442Product development and research
    
    
    3,818
    
    
    
    2,122Preproduction costs
    
    
    10
    
    
    
    3,808Selling, general and administrative
    
    
    19,274
    
    
    
    16,125Loss on disposal of property, plant and equipment
    
    
    1,267
    
    
    
    246Impairment loss
    
    
    1,253
    
    
    
    Restructuring charges
    
    
    3,049
    
    
    
    TOTAL EXPENSES
    
    
    118,542
    
    
    
    148,445OPERATING (LOSS) INCOME
    
    $
    (30,043
    )
    
    $
    43,009
   34




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35




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Ovonic Materials Segment
 Six Months EndedDecember 31,2009
    
    
    2008(in thousands)REVENUESProduct sales
    
    $
    1,528
    
    
    $
    2,022Royalties
    
    
    4,213
    
    
    
    2,888Revenues from product development agreements
    
    
    1,008
    
    
    
    1,660License and other revenues
    
    
    534
    
    
    
    740TOTAL REVENUES
    
    
    7,283
    
    
    
    7,310EXPENSESCost of product sales
    
    
    1,309
    
    
    
    2,046Cost of revenues from product development agreements
    
    
    708
    
    
    
    1,082Product development and research
    
    
    1,558
    
    
    
    2,021Selling, general and administrative expenses
    
    
    483
    
    
    
    682TOTAL EXPENSES
    
    
    4,058
    
    
    
    5,831OPERATING INCOME
    
    $
    3,225
    
    
    $
    1,479
     Corporate and Other
  36




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Other Income (Expense)
  Income Taxes
  Liquidity and Capital Resources
    Cash Flows
  37




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Short-term Borrowings
  Convertible Senior Notes
  Forward-Looking Statements
  38




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Item 3 : Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Risk
    39




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Foreign Exchange Risk
    
 Item 4 : Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  40




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PART II  OTHER INFORMATION
 
 Item 1:
    
    Legal Proceedings
  
 Item 1A:
    
    Risk Factors
  We have recorded a significant amount of goodwill and other identifiable intangible assets, which
may become impaired in the future.
  
 Item 2:
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3:
    
    Defaults Upon Senior Securities
  41




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##### Table of Contents



Item 4:
    
    Submission of Matters to a Vote of Security Holders
   Shares
    
    SharesVoted For
    
    WithheldJoseph A. Avila
    
    
    31,260,234
    
    
    
    5,676,519Alan E. Barton
    
    
    31,268,377
    
    
    
    5,668,376Christopher P. Belden
    
    
    31,315,724
    
    
    
    5,621,029Robert I. Frey
    
    
    30,955,280
    
    
    
    5,981,473William J. Ketelhut
    
    
    31,232,389
    
    
    
    5,704,364Mark D. Morelli
    
    
    31,206,500
    
    
    
    5,730,253Stephen Rabinowitz
    
    
    30,971,834
    
    
    
    5,964,919George A. Schreiber, Jr.
    
    
    30,961,597
    
    
    
    5,975,156
  SharesShares
    
    Voted
    
    SharesVoted For
    
    Against
    
    Abstained36,023,471
    
    
    542,839
    
    
    
    370,443
 
 Item 5:
    
    Other Information
  
 Item 6:
    
    Exhibits
 31.1
    
    Certificate of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certificate of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 42




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##### Table of Contents



SIGNATURES
  ENERGY CONVERSION DEVICES, INC.Dated: February 9, 2010
    By:
    /S/ Harry W. ZikeHarry W. ZikeVice President and Chief Financial Officer
(Principal Financial and Accounting Officer)Dated: February 9, 2010
    By:
    /S/ Mark D. MorelliMark D. MorelliPresident and Chief Executive Officer 43