UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 _____________________________________
FORM 10-Q
 ______________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-36460
 ______________________________________
SunEdison Semiconductor Limited
(Exact name of registrant as specified in its charter)

 ______________________________________
Singapore
 
N/A
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
11 Lorong 3 Toa Payoh, Singapore
 
319579
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(65) 6681-9300
 ______________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
o
 
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
x (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o     No  x
The number of shares of the registrant’s ordinary shares outstanding at May 4, 2015 was 41,559,899.
 



Table of Contents




PART I--FINANCIAL INFORMATION

Item 1. Financial Statements.

SunEdison Semiconductor Limited and Subsidiaries
Condensed Consolidated Statements of Operations
 
For the Three Months Ended March 31,
 
2015

2014
 
(Unaudited)
In millions, except per share data



Net sales to non-affiliates
$
199.0


$
205.8

Net sales to affiliates
0.4


0.3

Cost of goods sold
182.2


197.8

Gross profit
17.2


8.3

Operating expenses (income):



Marketing and administration
20.5


21.8

Research and development
8.1


8.0

Restructuring charges (reversals)
1.2


(4.6
)
Long-lived asset impairment charges
0.1

 
—

Operating loss
(12.7
)

(16.9
)
Non-operating expenses (income):
 
 
 
Interest expense
3.5

 
0.2

Interest income
(0.1
)
 
(0.1
)
Interest, net - affiliates
—

 
(0.1
)
Other, net
(10.4
)
 
(5.3
)
Total non-operating income
(7.0
)
 
(5.3
)
Loss before income tax expense
(5.7
)
 
(11.6
)
Income tax expense
3.3


3.6

Loss before equity in loss of equity method investments
(9.0
)
 
(15.2
)
Equity in loss of equity method investments, net of tax
(0.3
)
 
—

Net loss
(9.3
)

(15.2
)
Net loss attributable to noncontrolling interests
—

 
0.6

Net loss attributable to SunEdison Semiconductor Limited shareholders
$
(9.3
)
 
$
(14.6
)
Basic loss per share (see Note 7)
$
(0.22
)
 
$
(0.35
)
Diluted loss per share (see Note 7)
$
(0.22
)
 
$
(0.35
)
See accompanying notes to the condensed consolidated financial statements.



3


SunEdison Semiconductor Limited and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(Unaudited)
In millions
 
 
 
Net loss
$
(9.3
)
 
$
(15.2
)
Other comprehensive (loss) income, net of tax:
 
 
 
Net translation adjustment
(21.9
)
 
9.3

Amortization of net actuarial loss (gain) and prior service cost (credit)
0.1

 
(0.1
)
Other comprehensive (loss) income, net of tax
(21.8
)
 
9.2

Total comprehensive loss
(31.1
)
 
(6.0
)
Net loss attributable to noncontrolling interests
—

 
0.6

Net translation adjustment attributable to noncontrolling interests
—

 
0.3

Comprehensive loss attributable to SunEdison Semiconductor Limited shareholders
$
(31.1
)
 
$
(5.1
)
See accompanying notes to the condensed consolidated financial statements.



4


SunEdison Semiconductor Limited and Subsidiaries
Condensed Consolidated Balance Sheets
 
As of March 31,
 
As of December 31,
 
2015
 
2014
 
(Unaudited)
 
 
In millions
 
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
90.6

 
$
88.2

Accounts receivable, less allowance for doubtful accounts of $2.6 and $3.1, respectively
100.2

 
98.6

Accounts receivable, affiliate
9.4

 
4.3

Inventories
112.9

 
122.1

Deferred tax asset
27.3

 
27.3

Prepaid and other current assets
28.3

 
28.3

Total current assets
368.7

 
368.8

Property, plant, and equipment, net of accumulated depreciation of $799.7 and $788.3, respectively
585.3

 
598.8

Investments
129.4

 
130.3

Other assets
78.3

 
86.3

Total assets
$
1,161.7

 
$
1,184.2


 
 
 
Liabilities and Shareholders' Equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
2.1

 
$
2.1

Short-term borrowings
7.6

 
—

Accounts payable
94.7

 
94.6

Accounts payable, affiliate
22.9

 
9.4

Accrued liabilities
48.6

 
57.6

Accrued wages and salaries
27.1

 
23.6

Restructuring liabilities
12.5

 
14.0

Total current liabilities
215.5

 
201.3

Long-term debt, less current portion
204.6

 
205.0

Pension and post-employment liabilities
54.5

 
54.7

Restructuring liabilities
3.5

 
3.9

Other liabilities
19.6

 
27.8

Total liabilities
497.7

 
492.7


 
 
 
Shareholders' equity:
 
 
 
Ordinary shares, no par value, 41.5 issued and outstanding in 2015 and 2014, respectively
946.7

 
943.1

Accumulated deficit
(88.0
)
 
(78.7
)
Accumulated other comprehensive loss
(195.9
)
 
(174.1
)
Total SunEdison Semiconductor Limited shareholders' equity
662.8

 
690.3

Noncontrolling interests
1.2

 
1.2

Total shareholders' equity
664.0

 
691.5

Total liabilities and shareholders' equity
$
1,161.7

 
$
1,184.2

See accompanying notes to the condensed consolidated financial statements.

5


SunEdison Semiconductor Limited and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 
For the Three Months Ended March 31,
2015
 
2014
 
(Unaudited)
In millions
 
 
 
Cash flows from operating activities:
 
 
 
Net loss
$
(9.3
)
 
$
(15.2
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation and amortization
29.7

 
28.3

Long lived asset impairment charges
0.1

 
—

Stock-based compensation
3.6

 
2.3

Provision (benefit) for deferred taxes
3.5

 
(2.2
)
Other
(0.2
)
 
(0.4
)
Changes in assets and liabilities:


 


Accounts receivable
(3.9
)
 
(0.5
)
Inventories
5.7

 
4.9

Amounts due from affiliates
(11.1
)
 
(5.0
)
Amounts due to affiliates
11.9

 
16.1

Prepaid and other current assets
(0.4
)
 
3.6

Accounts payable and accrued liabilities
7.8

 
18.7

Income taxes payable
3.1

 
5.4

Pension and post-employment liabilities
(0.1
)
 
(1.5
)
Restructuring liabilities
(0.6
)
 
(5.0
)
Other
(5.2
)
 
(5.2
)
Net cash provided by operating activities
34.6

 
44.3

Cash flows from investing activities:
 
 
 
Capital expenditures
(28.8
)
 
(19.6
)
Notes receivable from affiliates
—

 
3.0

Disbursements made for notes receivable
(9.1
)
 
—

Net cash used in investing activities
(37.9
)
 
(16.6
)
Cash flows from financing activities:
 
 
 
Principal payments on long-term debt
(0.5
)
 
—

Proceeds from short-term debt borrowings
7.6

 
—

Net parent investment
—

 
(30.7
)
Other
0.1

 
—

Net cash provided by (used in) financing activities
7.2

 
(30.7
)
Effect of exchange rate changes on cash and cash equivalents
(1.5
)
 
(0.1
)
Net increase (decrease) in cash and cash equivalents
2.4

 
(3.1
)
Cash and cash equivalents at beginning of period
88.2

 
40.8

Cash and cash equivalents at end of period
$
90.6

 
$
37.7

Supplemental disclosures of cash flow information:
 
 
 
Interest paid, net of amount capitalized
$
2.7

 
$
—

Income taxes paid, net
$
3.9

 
$
2.1

Supplemental schedule of non-cash investing and financing activities:
 
 
 
Accounts payable relieved for acquisition of fixed assets
$
(5.0
)
 
$
(3.5
)
See accompanying notes to the condensed consolidated financial statements.

6


SunEdison Semiconductor Limited and Subsidiaries
Condensed Consolidated Statement of Equity

 
 
Ordinary Shares
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total SunEdison Semiconductor Limited
Equity
 
Noncontrolling
Interests
 
Total
Equity
Shares
 
Amount
In millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
 
41.5
 
$
943.1

 
$
(78.7
)
 
$
(174.1
)
 
$
690.3

 
$
1.2

 
$
691.5

Net loss
 
—

 
—

 
(9.3
)
 
—

 
(9.3
)
 
—

 
(9.3
)
Stock plans, net
 
—

 
3.6

 
—

 
—

 
3.6

 
—

 
3.6

Other comprehensive loss
 
—

 
—

 
—

 
(21.8
)
 
(21.8
)
 
—

 
(21.8
)
Balance at March 31, 2015 (Unaudited)
 
41.5

 
$
946.7

 
$
(88.0
)
 
$
(195.9
)
 
$
662.8

 
$
1.2

 
$
664.0

See accompanying notes to the condensed consolidated financial statements.

7


SunEdison Semiconductor Limited and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of SunEdison Semiconductor Limited and subsidiaries (“SunEdison Semiconductor”, "SSL", the "Company”, “we”, “us”, and “our”) have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP") and, in the opinion of management, include all adjustments (consisting of normal, recurring items) necessary for the fair presentation of our financial position and results of operations and cash flows for the periods presented. We have presented our unaudited financial statements in accordance with the rules and regulations of the United States ("US") Securities and Exchange Commission ("SEC") applicable to interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to SEC rules and regulations. Results of operations for the three months ended March 31, 2015 are not necessarily indicative of results to be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014, which contains SunEdison Semiconductor's audited financial statements for such year.

Use of Estimates
We use estimates and assumptions in preparing our condensed consolidated financial statements that may affect reported amounts and disclosures. Estimates are used when accounting for depreciation, amortization, impairments, leases, inventory valuation, accrued liabilities, restructuring, warranties, employee benefits, derivatives, stock-based compensation, income taxes, and asset recoverability, including allowances, and certain other items. These estimates and assumptions are based on current facts, historical experience, and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue, costs, and other expenses that are not readily apparent from other sources. Our future results of operations would be affected to the extent there are material differences between these estimates and actual results.

Reclassifications
Certain amounts in prior periods have been reclassified to conform with the presentation adopted in the current period.

Accounting Standards Updates
The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, on May 28, 2014, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in US GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We have not determined which transition method we will adopt, but do not anticipate a material impact to our consolidated financial statements and related disclosures upon adoption of ASU 2014-09.
The FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), on April 7, 2015, which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The new standard is effective for us on January 1, 2016. Early application is permitted. We have evaluated the impact of this standard and do not anticipate a material impact on our consolidated financial statements and related disclosures upon adoption.

2. RESTRUCTURING CHARGES

2014 Consolidation of Crystal and Other Activities
We announced a plan to consolidate our crystal operations during the first quarter of 2014. The consolidation will include transitioning small diameter crystal activities from our St. Peters, Missouri facility to other crystal facilities in Korea, Taiwan, and Italy. The consolidation of crystal activities will affect approximately 120 employees in St. Peters and is currently being implemented. It is expected to be completed by the second half of 2015. Net restructuring reversals of $0.2 million and charges of $4.0 million were recorded for the three months ended March 31, 2015 and 2014, respectively, and are included within restructuring charges (reversals) in the condensed consolidated statements of operations.

8


On December 18, 2014, we initiated the termination of certain employees as part of a workforce restructuring plan. The plan is designed to realign our workforce, improve profitability, and support new growth market opportunities. The plan is expected to result in a total reduction of approximately 120 positions, with a majority of the affected employees outside of the United States. It is expected to be completed by the second half of 2015. We recorded restructuring charges of $1.4 million for the three months ended March 31, 2015 in connection with this workforce restructuring.

2011 Global Plan
The semiconductor industry experienced a downturn during the second half of 2011. In response, we committed to a series of actions in December 2011 to reduce our global workforce, right size production capacity, and accelerate operating cost reductions in 2012 and beyond (the "2011 Global Plan") in order to better align our business to then-current and expected market conditions in the semiconductor market, as well as to improve our overall cost competitiveness and cash flows.
Details of the 2015 expenses, cash payments, and expected costs incurred related to the 2011 Global Plan are set out in the following table:
 
 
 
 
 
 
 
 
 
 
 
 
As of March 31, 2015
In millions
 
Accrued
December 31, 2014
 
Year-to-date Restructuring Reversals
 
Cash Payments
 
Currency
 
Accrued
March 31, 2015
 
Cumulative Costs Incurred
 
Total Costs Expected to be Incurred
2011 Global Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance and employee benefits
 
$
0.7

 
$
—

 
$
—

 
$
(0.1
)
 
$
0.6

 
$
22.3

 
$
22.3

Other
 
11.5

 
—

 
(0.7
)
 
(1.2
)
 
9.6

 
37.6

 
37.6

Total
 
$
12.2

 
$
—

 
$
(0.7
)
 
$
(1.3
)
 
$
10.2

 
$
59.9

 
$
59.9

We recorded net restructuring reversals for the three months ended March 31, 2014 due to a $7.2 million favorable settlement of a polysilicon supply agreement executed in 2013 with a subsidiary of SunEdison, Inc. and $1.4 million of other net favorable revisions to our estimated restructuring liabilities based on actual results differing from our previous estimates. We made approximately $9.0 million in cash payments related to the 2011 Global Plan for the three months ended March 31, 2014.

3. INVENTORIES

Inventories consist of the following:
 
As of March 31, 2015
 
As of December 31, 2014
In millions
 
 
 
Raw materials and supplies
$
28.2

 
$
29.9

Goods in process
48.4

 
49.7

Finished goods
36.3

 
42.5

Total inventories
$
112.9

 
$
122.1


4. EQUITY METHOD INVESTMENT

We have a 35% interest in SMP, Ltd. ("SMP") that is accounted for as an equity method investment. SMP owns a polysilicon manufacturing facility in South Korea which is currently in the initial stages of production. The initial outputs of polysilicon are in-line with expectations.
The SMP polysilicon manufacturing facility has experienced delays in ramping the facility to reach full commercial capabilities. This has placed pressures on SMP's short-term working capital needs to overcome the construction delays. The existing equity holders of SMP may be requested to make additional capital investments to assist with financing their short-term working capital needs. If we do not participate in making the additional capital investment, this may reduce our equity ownership percentage in SMP.

5. DEBT


9


Debt outstanding consists of the following: 
 
As of March 31, 2015
 
As of December 31, 2014
 
Total Principal
Current and Short-Term
Long-Term
 
Total Principal
Current and Short-Term
Long-Term
In millions
 
 
 
 
 
 
 
Long-term debt
$
206.7

$
2.1

$
204.6

 
$
207.1

$
2.1

$
205.0


Senior Secured Credit Facility
The Company and its direct subsidiary, SunEdison Semiconductor B.V. (the “Borrower”), entered into a credit agreement on May 27, 2014 with Goldman Sachs Bank USA, as administrative agent, sole lead arranger, and sole syndication agent, and, together with Macquarie Capital (USA) Inc., as joint bookrunners, Citibank, N.A., as letter of credit issuer, and the lender parties thereto (the “Credit Facility”). The Credit Facility provides for: (i) a senior secured term loan facility in an aggregate principal amount up to $210.0 million (the “Term Facility”); and (ii) a senior secured revolving credit facility in an aggregate principal amount up to $50.0 million (the “Revolving Facility”). The Borrower may obtain, under the Revolving Facility, (i) letters of credit and bankers’ acceptances in an aggregate stated amount up to $15.0 million; and (ii) swing line loans in an aggregate principal amount up to $15.0 million. The Term Facility has a five-year term, ending May 27, 2019, and the Revolving Facility has a three-year term, ending May 27, 2017. The full amount of the Term Facility was drawn on May 27, 2014. No amounts were outstanding under the Revolving Facility as of March 31, 2015, but $3.2 million of third party letters of credit were outstanding which reduced the available borrowing capacity. The principal amount of the Term Facility must be repaid in quarterly installments of $525,000 beginning September 30, 2014 with the remaining balance paid at maturity.
The Term Facility was issued at a discount of 1.00%, or $2.1 million, which will be amortized as an increase in interest expense over the term of the Term Facility. We incurred an additional $10.1 million of financing fees related to the Credit Facility that have been capitalized and will be amortized over the term of the respective Term Facility and Revolving Facility.
The Borrower’s obligations under the Credit Facility are guaranteed by the Company and certain of its direct and indirect subsidiaries. The Borrower’s obligations and the guaranty obligations of the Company and its subsidiaries are secured by first-priority liens on, and security interests in, certain present and future assets of the Company, the Borrower, and the subsidiary guarantors, including pledges of the capital stock of certain of the Company’s subsidiaries.
Borrowings under the Credit Facility bear interest (i) at a base rate plus 4.50% per annum or (ii) at a reserve-adjusted eurocurrency rate plus 5.50% per annum. The minimum eurocurrency base rate for the Term Facility shall at no time be less than 1.00% per annum. Interest will be paid quarterly in arrears, and at the maturity date of each facility for loans bearing interest with reference to the base rate. Interest will be paid on the last day of selected interest periods (which will be one, three, and six months), and at the maturity date of each facility for loans bearing interest with reference to the reserve-adjusted eurocurrency rate (and at the end of every three months, in the case of any interest period longer than three months). A fee equal to 5.50% per annum will be payable by the Borrower, quarterly in arrears, in respect of the daily amount available to be drawn under outstanding letters of credit and bankers’ acceptances.
The Credit Facility contains customary representations, covenants, and events of default typical for credit arrangements of comparable size, including our maintenance of a consolidated leverage ratio of not greater than: (i) 3.0 to 1.0 for the quarters ended March 31, 2015 and ending June 30, 2015; and (ii) 2.5 to 1.0 for the quarters ending on and after September 30, 2015. The Credit Facility also contains customary material adverse effects and cross-default clauses. The cross-default clause is applicable to defaults on other indebtedness in excess of $30.0 million. We were in compliance with all covenants of the Credit Facility as of March 31, 2015.

Other Financing Arrangements
We have short-term committed financing arrangements of $26.2 million at March 31, 2015, of which there was $7.6 million outstanding as of March 31, 2015. Of the remaining not outstanding amount, $10.3 million is unavailable because it relates to the issuance of third party letters of credit and bank guarantees. Interest rates are negotiated at the time of the borrowings.
The estimated fair value of our debt was $205.4 million and $200.6 million as of March 31, 2015 and December 31, 2014, respectively. Fair value of this debt is calculated using a discounted cash flow model (Level 2 assumptions) with consideration for our non-performance risk (Level 3 assumptions).

6. STOCKHOLDERS' EQUITY

Ordinary Shares

10


On January 20, 2015, a secondary public offering of 17,250,000 of our ordinary shares by SunEdison, Inc. ("SunEdison"), Samsung Fine Chemicals Co., Ltd., and Samsung Electronics Co., Ltd. was closed. We did not receive any of the proceeds from the sale of our ordinary shares in this offering. As a result of this offering, our former parent company, SunEdison, ceased to own more than 50% of our outstanding ordinary shares. There continued to be 41,506,175 ordinary shares outstanding upon completion of this offering.
The Company and SunEdison agreed, effective concurrently with the secondary public offering discussed above, to replace 25% of the equity-based compensation awards relating to SunEdison stock that were unvested and held by our employees (including our non-U.S. employees, subject to applicable local laws) with adjusted stock options and RSUs, as applicable, for the Company’s ordinary shares, each of which generally preserves the value of the original awards and the balance of the awards will be maintained by SunEdison. The Company issued options to purchase an aggregate of 442,790 ordinary shares with a weighted-average exercise price of $5.19 per share and an aggregate of 170,115 RSUs, in each case based on applicable SunEdison equity awards outstanding, and the Company’s and SunEdison’s share prices, as of market close on January 20, 2015. Each of the foregoing replacement awards was issued pursuant to the SunEdison Semiconductor Limited 2014 Long-Term Incentive Plan. The remaining 75% of the unvested SunEdison options and RSUs, as well as all vested options, remain as options and RSUs continuing to vest in accordance with their terms, with employment by us to be deemed employment by SunEdison. We have included the stock-based compensation expense related to these awards granted to our employees in our condensed consolidated financial statements.

Stock-Based Compensation
We have equity incentive plans that provide for the award of non-qualified stock options, performance shares, and restricted stock units ("RSUs") to employees and non-employee directors. There were 7.1 million shares remaining available for future grant under these plans as of March 31, 2015.
The following table presents information regarding outstanding stock options as of March 31, 2015, and related changes during the three months ended March 31, 2015:
 
Shares
 
Weighted-
Average
Exercise Price
 
Aggregate
Intrinsic
Value 
(in millions)
 
Weighted-Average
Remaining
Contractual
Life (years)
Outstanding at December 31, 2014
1,726,354

 
$
15.77

 
 
 
 
Granted
442,790

 
5.19

 
 
 
 
Exercised
—

 
—

 
 
 
 
Forfeited
(11,124
)
 
14.85

 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding at March 31, 2015
2,158,020

 
$
13.60

 
$
26.4

 
8.8
Options exercisable at March 31, 2015
211,931

 
$
5.68

 
$
4.3

 
7.9
The weighted-average grant-date fair value per share of options granted was $4.52 for the three month period ended March 31, 2015.
The following table presents information regarding outstanding RSUs as of March 31, 2015, and related changes during the three months ended March 31, 2015:
 
Restricted Stock
Units
 
Aggregate Intrinsic
Value (in millions)
 
Weighted-Average Remaining
Contractual Life (years)
Outstanding at December 31, 2014
1,561,412

 
 
 
 
Granted
192,615

 
 
 
 
Converted
(2,395
)
 
 
 
 
Forfeited
(9,363
)
 
 
 
 
Outstanding at March 31, 2015
1,742,269

 
$
45.0

 
1.8
The weighted-average fair value of restricted stock units on the date of grant was $10.70 for the three months ended March 31, 2015.

11


Stock-based compensation expense for the three months ended March 31, 2015 and 2014 was $3.6 million and $2.3 million, respectively. Stock-based compensation expense for the three months ended March 31, 2015 and 2014 was allocated as follows:
 
For the Three Months Ended March 31,
 
2015
 
2014
In millions
 
 
 
Cost of goods sold
$
1.1

 
$
0.8

Marketing and administration
1.9

 
0.9

Research and development
0.6

 
0.6

Stock-based employee compensation
$
3.6

 
$
2.3

The amount of stock-based compensation cost capitalized into inventory and fixed assets was not material for the three months ended March 31, 2015 and 2014. Further, the recognition of excess tax benefits from share-based payment arrangements was not material for the three months ended March 31, 2015 and 2014.

7. LOSS PER SHARE

Basic income (loss) per share is computed by dividing net income (loss) by the number of weighted-average ordinary shares outstanding during the period. Diluted income (loss) per share is computed using the weighted-average ordinary shares outstanding and, if dilutive, potential ordinary shares outstanding during the period. Potential ordinary shares represent the incremental ordinary shares issuable for RSUs and stock option exercises. The Company calculates the dilutive effect of outstanding RSUs and stock options on income (loss) per share by application of the treasury stock method.
The computations of basic and diluted income (loss) per share assumes that the number of ordinary shares outstanding for all periods prior to the closing of our initial public offering on May 28, 2014 (the "IPO") was equal to the number of ordinary shares of SunEdison Semiconductor Limited outstanding on May 28, 2014.
Basic and diluted loss per share ("EPS") for the three month periods ended March 31, 2015 and 2014 were calculated as follows:
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
In millions, except per share amounts
Basic
 
Diluted
 
Basic
 
Diluted
EPS Numerator:
 
 
 
 
 
 
 
Net loss attributable to SunEdison Semiconductor Limited shareholders
$
(9.3
)
 
$
(9.3
)
 
$
(14.6
)
 
$
(14.6
)
 
 
 
 
 
 
 
 
EPS Denominator:
 
 
 
 
 
 
 
Weighted-average shares outstanding
41.5

 
41.5

 
41.5

 
41.5

Loss per share
$
(0.22
)

$
(0.22
)

$
(0.35
)

$
(0.35
)
The computations for diluted loss per share for the three months ended March 31, 2015 excludes options to purchase SunEdison Semiconductor of approximately 2.2 million shares and 1.7 million RSUs because the effect would have been anti-dilutive. No SunEdison Semiconductor options or RSUs were outstanding during the three month period ended March 31, 2014.

8. ACCUMULATED OTHER COMPREHENSIVE LOSS

Comprehensive income (loss) represents a measure of all changes in equity that result from recognized transactions and economic events other than transactions with owners in their capacity as owners. Other comprehensive income (loss) includes adjustments related to foreign currency translation and pension and post-retirement related liabilities.

12


The following table presents the changes in each component of accumulated other comprehensive loss, net of tax:
 
Three Months Ended March 31,
In millions
2015
 
2014
Foreign Currency Items (1)
 
 
 
Beginning balance
$
(116.5
)
 
$
(76.3
)
Other comprehensive (loss) income before reclassifications
(21.9
)
 
9.6

Amounts reclassified from accumulated other comprehensive loss
—

 
—

Net other comprehensive (loss) income
(21.9
)
 
9.6

Balance at March 31
$
(138.4
)
 
$
(66.7
)
 
 
 
 
Pension and Post-Retirement Benefit Plans
 
 
 
Beginning balance
$
(57.6
)
 
$
(33.9
)
Other comprehensive loss before reclassifications
(0.3
)
 
—

Amounts reclassified from accumulated other comprehensive loss
0.4

 
(0.1
)
Net other comprehensive income (loss)
0.1

 
(0.1
)
Balance at March 31
$
(57.5
)
 
$
(34.0
)
 
 
 
 
Accumulated other comprehensive loss at March 31
$
(195.9
)
 
$
(100.7
)
(1) Excludes foreign currency adjustments related to noncontrolling interests. See the condensed consolidated statements of comprehensive loss.

The following table presents reclassifications from accumulated other comprehensive loss and the affected line in the condensed consolidated statement of operations:
 
 
Three Months Ended March 31,
 
Condensed Consolidated Statement of Operations
In millions
 
2015
 
2014
 
Amortization of net actuarial (loss) gain and prior service (cost) credit
 
$
(0.4
)
 
$
0.1

 
Marketing and administration expense

9. DERIVATIVES AND HEDGING INSTRUMENTS

SunEdison Semiconductor's derivatives and hedging activities consist of:
 
 
 
 
Assets (Liabilities) at Fair Value
In millions
 
Balance Sheet Classification
 
As of March 31, 2015
 
As of December 31, 2014
Derivatives not designated as hedging:
 
 
 
 
 
 
Currency forward contracts (1)
 
Prepaid and other current assets
 
$
1.1

 
$
0.2

Currency forward contracts (1)
 
Accrued liabilities
 
$
(0.3
)
 
$
(0.9
)
(1) Currency forward contracts are recorded on the condensed consolidated balance sheet at fair value using Level 1 inputs.
 
 
 
 
 
 
 
 
 
 
 
Gains
 
 
 
 
Three Months Ended March 31,
In millions
 
Statement of Operations Classification
 
2015
 
2014
Derivatives not designated as hedging:
 
 
 
 
 
 
Currency forward contracts
 
Other, net
 
$
1.8

 
$
2.2


13


We utilize currency forward contracts to mitigate the financial market risks of fluctuations in foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes. Gains and losses on these foreign currency exposures are generally offset by corresponding losses and gains on the related hedging instruments, reducing the net exposure to SunEdison Semiconductor. A substantial portion of our revenue and capital spending is transacted in the U.S. dollar. However, we do enter into transactions in other currencies, primarily the Japanese yen, new Taiwan dollar, euro, and South Korean won. We have established transaction-based hedging programs to protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. We may have outstanding contracts with several major financial institutions for these hedging transactions at any point in time. Our maximum credit risk loss with these institutions is limited to any gain on our outstanding contracts. These currency forward contracts had net notional amounts of $102.0 million and $65.1 million as of March 31, 2015 and December 31, 2014, respectively, and are accounted for as economic hedges, for which hedge accounting is not applied.

10. CONTINGENCIES

Legal Proceedings
We are involved in various legal proceedings, claims, investigations, and other legal matters which arise in the ordinary course of business. Although it is not possible to predict the outcome of these matters, we believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows, or results of operations.

11. INCOME TAXES

We record income tax expense (benefit) each quarter based on our best estimate of the full year effective tax rate. This estimated tax expense (benefit) is reported based on a pro-ration of the actual income earned in the period divided by the full year forecasted income (loss). There are certain items, however, which are given discrete period treatment, and the tax effects of those items are reported in the quarter that such events arise. Items that give rise to discrete recognition include (but are not limited to) finalizing tax authority examinations, changes in statutory tax rates, and the expiration of statutes of limitations.
Deferred income taxes arise primarily because of differences in the bases of assets or liabilities between financial accounting and tax accounting which are known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items for which we receive a tax deduction, but have not yet been recorded in the consolidated statement of operations). We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses), and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified. Our total deferred tax assets, net of valuation allowance, as of March 31, 2015 and December 31, 2014, were $37.1 million and $43.0 million, respectively. We believe that it is more likely than not, based on our projections of future taxable income in certain jurisdictions, that we will generate sufficient taxable income to realize the benefits of the net deferred tax assets that have not been offset by a valuation allowance at March 31, 2015.
We believe our tax positions are in compliance with applicable tax laws and regulations. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. Uncertain tax benefits, including accrued interest and penalties, are included as a component of other long-term liabilities because we do not anticipate that settlement of the liabilities will require payment of cash within the next 12 months. The accrual of interest begins in the first reporting period that interest would begin to accrue under the applicable tax law. Penalties, when applicable, are accrued in the financial reporting period in which the uncertain tax position is taken on a tax return. We recognize interest and penalties related to uncertain tax positions in income tax expense, which is consistent with our historical policy. We believe that our accrued income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income (loss), and cash flows. We review our accrued tax liabilities quarterly, and we may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices between our subsidiaries, the resolution of entire audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed. The income tax expense for the three month period ended March 31, 2015

14


was impacted by a discrete reduction of the reserve for uncertain tax positions of $3.6 million related to the closure of a foreign tax examination and new information on positions previously taken. The accrual for uncertain tax positions as of March 31, 2015 and December 31, 2014 was $5.4 million and $8.9 million, respectively.
We are domiciled in Singapore. Management has reviewed its repatriation policy during 2015 with respect to our planned legal structure. Recognition of Singapore or local withholding taxes on undistributed non-Singapore earnings would be triggered by a management decision to repatriate those earnings, although there is no current intention to do so. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our worldwide subsidiaries and operations, and after concluding that such remittances can be done in a tax-efficient manner. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable. Of our cash and cash equivalents as of March 31, 2015, $61.7 million was held by our foreign subsidiaries, a portion of which may be subject to repatriation tax effects.

12. RELATED PARTY TRANSACTIONS

Transactions with Affiliates
We sell intermediate products such as polysilicon, trichlorosilane gas, ingots, scrap wafers, and other inventory items to SunEdison's subsidiaries in the United States, Europe, and Asia for use in their operations. We also provide limited services to SunEdison following the IPO as outlined in a transition services agreement. Any receivables related to these sales and services to SunEdison are recognized as accounts receivable, affiliate in the condensed consolidated balance sheet and shipment of products is recognized as net sales to affiliates in the condensed consolidated statement of operations. Net sales to affiliates were $0.4 million and $0.3 million for the three month periods ended March 31, 2015 and 2014, respectively. We had $9.4 million and $4.3 million of accounts receivable, affiliate as of March 31, 2015 and December 31, 2014, respectively.
We purchase products, primarily polysilicon, from SunEdison and its subsidiaries. SunEdison had in the past also performed financing, cash management, treasury, and other services for us on a centralized basis, and continues to provide limited services to us following the IPO as outlined in a transition services agreement. Accounts payable, affiliate were $22.9 million and $9.4 million as of March 31, 2015 and December 31, 2014, respectively.

15


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our accompanying unaudited condensed consolidated financial statements of SunEdison Semiconductor Limited and the notes thereto. The unaudited financial statements included herein should be read in conjunction with our 2014 Annual Report on Form 10-K. The results shown herein are not necessarily indicative of the results to be expected in any future periods.

EXECUTIVE OVERVIEW

We are a global leader in the development, manufacture, and sale of silicon wafers to the semiconductor industry.
We continued to execute on our strategic plan to improve our performance and meet the competitive demands of the semiconductor industry during the first quarter of 2015. Our business strategy targets the most significant opportunities and challenges we face, including:
•
Operating cash flow management,
•
Manufacturing cost reductions,
•
Optimization of factory utilization, and
•
Continued sales growth in higher margin products, such as silicon-on-insulator ("SOI") wafers.
We continued to experience downward pricing pressures arising from softness in the semiconductor industry during the first quarter of 2015, which negatively impacted our net sales. However, as a result of lower input costs and improved cost management, we were able to improve our gross profit this quarter, compared to the first quarter of 2014.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2015, Compared to the Three Months Ended March 31, 2014

Net Sales
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 

 

Net sales to non-affiliates
 
$
199.0

 
$
205.8

 
$
(6.8
)
 
(3.3
)%
Net sales to affiliates
 
0.4

 
0.3

 
0.1

 
33.3
 %
Net sales
 
$
199.4

 
$
206.1

 
$
(6.7
)
 
(3.3
)%
Net sales to non-affiliates decreased for the three months ended March 31, 2015, compared to the same period in 2014, primarily due to semiconductor wafer price decreases, offset in part by volume increases. The price decreases were the result of competitive pressures arising from softness in the semiconductor industry, only partially offset by a more favorable product mix with higher sales of the more advanced SOI wafers. Average selling price decreases occurred primarily in 300mm semiconductor wafers.

Gross Profit
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 

 

Cost of goods sold
 
$
182.2

 
$
197.8

 
$
(15.6
)
 
(7.9
)%
Gross profit
 
$
17.2

 
$
8.3

 
$
8.9

 
107.2
 %
Gross margin (profit as a percentage of net sales)
 
8.6
%
 
4.0
%
 
 
 


Gross profit increased for the three months ended March 31, 2015, compared to the same period in 2014. The increase was primarily the result of more favorable polysilicon costs and continued manufacturing cost reductions, which more than offset lower average selling prices for our wafers.


16


Marketing and Administration
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 
 
 
 
Marketing and administration
 
$
20.5

 
$
21.8

 
$
(1.3
)
 
(6.0
)%
As a percentage of net sales
 
10.3
%
 
10.6
%
 
 
 
 
Marketing and administration expenses decreased for the three months ended March 31, 2015, compared to the same period in 2014, primarily as a result of our decision to consolidate the semiconductor crystal operations announced in February 2014 and our global workforce restructuring plan initiated in December 2014.

Research and Development
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 
 
 
 
Research and development
 
$
8.1

 
$
8.0

 
$
0.1

 
1.3
%
As a percentage of net sales
 
4.1
%
 
3.9
%
 
 
 
 
Research and development ("R&D") for the three months ended March 31, 2015 was relatively flat, compared to the same period in 2014. We incurred R&D expenditures to enhance our capabilities in advanced substrates and to broaden our product offerings.

Restructuring Charges (Reversals)
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 
 
 
 
Restructuring charges (reversals)
 
$
1.2

 
$
(4.6
)
 
$
5.8

 
(126.1
)%
We recorded net restructuring expenses for the three months ended March 31, 2015 due to $1.2 million of additional restructuring liabilities accrued in the current period associated with our 2014 restructuring activities, primarily related to severance.
We recorded net restructuring reversals for the three months ended March 31, 2014 due to a $7.2 million favorable settlement of a polysilicon supply agreement executed in 2013 with a subsidiary of SunEdison and $1.4 million of other net favorable revisions to our estimated restructuring liabilities based on actual results differing from our previous estimates related to the restructuring actions associated with our 2011 Global Plan. These favorable revisions more than offset approximately $4.0 million of restructuring expenses related to our plan to consolidate our semiconductor crystal operations that was announced on February 7, 2014.

Long-lived asset impairment charges
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 
 
 
 
Long-lived asset impairment charges
 
$
0.1

 
$
—

 
$
0.1

 
n/m
We recorded $0.1 million in long-lived asset impairments for the three months ended March 31, 2014, as the carrying value of certain assets exceeded their estimated fair value.

17


Non-Operating Expense (Income)
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 
 
 
 
Interest expense
 
$
3.5

 
$
0.2

 
$
3.3

 
1,650.0
 %
Interest income
 
(0.1
)
 
(0.1
)
 
—

 
—
 %
Interest, net - affiliates
 
—

 
(0.1
)
 
0.1

 
(100.0
)%
Other, net
 
(10.4
)
 
(5.3
)
 
(5.1
)
 
96.2
 %
Total non-operating expense (income)
 
$
(7.0
)
 
$
(5.3
)
 
$
(1.7
)
 
32.1
 %
Non-operating income increased for the three months ended March 31, 2015, compared to the same period of 2014, primarily related to foreign exchange gains associated with the re-measurement of intra-company balances and derivative foreign currency forward contracts, which are recorded in other, net. The increase in non-operating income related to foreign currency transactions was partially offset by additional interest expense on our $210.0 million senior secured term facility and $50.0 million senior secured revolving facility executed on May 27, 2014.

Income Taxes
 
 
For the Three Months Ended March 31,
 
Change
 
 
2015
 
2014
 
Dollars
 
Percent
(dollars in millions)
 
 
 
 
 
 
 
 
Income tax expense
 
$
3.3

 
$
3.6

 
$
(0.3
)
 
(8.3
)%
Effective income tax rate
 
57.9
%
 
31.0
%
 
 
 
 
Income tax expense decreased for the three months ended March 31, 2015, compared to the same period of the prior year primarily due to the decrease to the reserve for uncertain tax positions related to taxable income adjustments attributable to foreign operations. This increase is mostly offset by higher taxable income in certain tax jurisdictions as a result of changes in the geographical mix of earnings from operations.

18


LIQUIDITY AND CAPITAL RESOURCES

We expect our primary sources of liquidity in the future to be cash generated from operations and borrowings available under our senior secured revolving facility. Our principal uses of liquidity will be to fund our working capital needs, capital expenditures, and service our outstanding indebtedness. We believe our liquidity will be sufficient to fund our operations for at least the next twelve months. Our ability to continue to fund these items may be affected by general economic, competitive, and other factors, many of which are outside of our control. If our future cash flows from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our capital expenditures, sell assets, obtain additional debt or equity capital, or refinance all or a portion of our debt.
Cash and cash equivalents as of March 31, 2015 totaled $90.6 million, compared to $88.2 million as of December 31, 2014. Of our cash and cash equivalents as of March 31, 2015, $61.7 million was held by our foreign subsidiaries, a portion of which may be subject to repatriation tax effects. We believe that any repatriation tax effects would have minimal impacts on future cash flows.
The table below sets forth our summary cash flow information for the three months ended March 31, 2015 and 2014:
 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(in millions)
 
 
 
 
Net cash provided by (used in):
 
 
 
 
Operating activities
 
$
34.6

 
$
44.3

Investing activities
 
$
(37.9
)
 
$
(16.6
)
Financing activities
 
$
7.2

 
$
(30.7
)

Net Cash Provided by Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2015 was $34.6 million, which was attributable in part to our net loss of $9.3 million, adjusted for non-cash items including $29.7 million of depreciation and amortization, $3.6 million of stock compensation expense, and a $3.5 million provision from deferred taxes. Uses of cash included a $11.1 million increase in accounts receivable, affiliate driven by the timing of collections from SunEdison and a $3.9 million increase in accounts receivable. We generated cash from a $11.9 million increase in accounts payable, affiliate resulting from the timing of payments to SunEdison, a $7.8 million increase in accounts payable and accrued liabilities, a $5.7 million decrease in inventory due to improved inventory management for the three months ended March 31, 2015, and a $3.1 million increase in income taxes payable due to the timing of payments for taxes.
Net cash provided by operating activities for the three months ended March 31, 2014 was $44.3 million, which was attributable in part to our net loss of $15.2 million adjusted for non-cash items, including $28.3 million of depreciation and amortization and $2.3 million of stock compensation expense. Uses of cash included a $5.0 million decrease in restructuring liabilities driven primarily by cash payments to settle supply contract obligations and a $5.0 million increase in accounts receivable, affiliate driven by timing of intercompany collections from SunEdison. We generated cash from a $18.7 million increase in accounts payable and accrued liabilities, a $16.1 million increase in accounts payable, affiliate attributable to timing of intercompany payments to SunEdison determined by our operational needs, a $5.4 million increase in income taxes payable, and a $4.9 million decrease in inventory due to improved inventory management for the three months ended March 31, 2014.

Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2015 consisted of $28.8 million of capital expenditures. Cash used for investing activities also included $9.1 million in payments on notes payable related to the sale of the Merano, Italy polysilicon and chlorosilanes facilities that were sold in December 2014. Net cash used in investing activities for the three months ended March 31, 2014 consisted primarily of $19.6 million of capital expenditures, partially offset by a $3.0 million decrease in notes receivable, affiliate.

Net Cash Provided by (used in) Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2015 consisted primarily of $7.6 million of proceeds from short-term debt borrowings, offset by $0.5 million in principal payments on long-term debt. Net cash used in financing activities for the three months ended March 31, 2014 consisted of $30.7 million net parent investment contributions from us to SunEdison.


19


Senior Secured Credit Facility
The Company and its direct subsidiary, SunEdison Semiconductor B.V. (the “Borrower”), entered into a credit agreement on May 27, 2014, with Goldman Sachs Bank USA, as administrative agent, sole lead arranger, and sole syndication agent, and, together with Macquarie Capital (USA) Inc., as joint bookrunners, Citibank, N.A., as letter of credit issuer, and the lender parties thereto (the “Credit Facility”). The Credit Facility provides for: (i) a senior secured term loan facility in an aggregate principal amount up to $210.0 million (the “Term Facility”); and (ii) a senior secured revolving credit facility in an aggregate principal amount up to $50.0 million (the “Revolving Facility”). The Borrower may obtain under the Revolving Facility, (i) letters of credit and bankers’ acceptances in an aggregate stated amount up to $15.0 million; and (ii) swing line loans in an aggregate principal amount up to $15.0 million. The Term Facility has a five-year term, ending May 27, 2019, and the Revolving Facility has a three-year term, ending May 27, 2017. The full amount of the Term Facility was drawn on May 27, 2014. No amounts were outstanding under the Revolving Facility as of March 31, 2015, but $3.2 million of third party letters of credit were outstanding which reduced the available borrowing capacity. The principal amount of the Term Facility must be repaid in quarterly installments of $525,000 beginning September 30, 2014 with the remaining balance paid at maturity.
The Borrower’s obligations under the Credit Facility are guaranteed by the Company and certain of its direct and indirect subsidiaries. The Borrower’s obligations and the guaranty obligations of the Company and its subsidiaries are secured by first-priority liens on, and security interests in, certain present and future assets of the Company, the Borrower, and the subsidiary guarantors, including pledges of the capital stock of certain of the Company’s subsidiaries.
Borrowings under the Credit Facility bear interest (i) at a base rate plus 4.50% per annum or (ii) at a reserve-adjusted eurocurrency rate plus 5.50% per annum. The minimum eurocurrency base rate for the Term Facility shall at no time be less than 1.00% per annum. Interest will be paid quarterly in arrears, and at the maturity date of each facility for loans bearing interest with reference to the base rate. Interest will be paid on the last day of selected interest periods (which will be one, three and six months), and at the maturity date of each facility for loans bearing interest with reference to the reserve-adjusted eurocurrency rate (and at the end of every three months, in the case of any interest period longer than three months). A fee equal to 5.50% per annum will be payable by the Borrower, quarterly in arrears, in respect of the daily amount available to be drawn under outstanding letters of credit and bankers’ acceptances.
The Credit Facility contains customary representations, covenants, and events of default typical for credit arrangements of comparable size, including our maintenance of a consolidated leverage ratio of not greater than: (i) 3.0 to 1.0 for the quarters ended March 31, 2015 and ending June 30, 2015; and (ii) 2.5 to 1.0 for the quarters ending on and after September 30, 2015. The Credit Facility also contains customary material adverse effects and cross-default clauses. The cross-default clause is applicable to defaults on other indebtedness in excess of $30.0 million. We were in compliance with all covenants of the Credit Facility as of March 31, 2015.

Other Financing Arrangements
We have short-term committed financing arrangements of $26.2 million at March 31, 2015, of which there were $7.6 million outstanding as of March 31, 2015. Of the remaining not outstanding amount, $10.3 million is unavailable because it relates to the issuance of third party letters of credit and bank guarantees. Interest rates are negotiated at the time of the borrowings.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles in the United States ("US GAAP") requires us to make estimates and assumptions in certain circumstances that affect amounts reported in our condensed consolidated financial statements and related footnotes. We have made our best estimates of certain amounts included in the condensed consolidated financial statements. Application of accounting policies and estimates, however, involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Factors we consider in arriving at our critical accounting estimates include how accurate the estimate or assumptions have been in the past, how much the estimate or assumptions have changed, and how reasonably likely such change may have a material impact. Our significant accounting policies and estimates are more fully described in Item 7 and Note 2 of Notes to Consolidated Financial Statements, included in Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2014. There have been no significant changes to our critical accounting policies and estimates since December 31, 2014.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 1 to the condensed consolidated financial statements.


20


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements, other than purely historical information, including estimates, projections, statements related to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based are forward-looking statements within the meaning of the federal securities laws including, without limitation, our expectation that our liquidity will be sufficient to fund our operations for the next twelve months, our expectation that the ultimate outcome of our legal proceedings, individually and in the aggregate, will not have a material adverse effect on us, our belief that any repatriation tax effects will have minimal impact on our cash flows and our belief that it is more likely than not that we will generate sufficient taxable income to realize the benefits of our net deferred tax assets. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will" and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions, or expectations. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.
Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are discussed in Part I Item 1A, "Risk Factors", and Part II Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", in our Form 10-K for the year ended December 31, 2014.
The forward-looking statements included herein are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law.

21


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change to SunEdison Semiconductor's market risks since December 31, 2014. Please refer to “Market Risk” included in Part II Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", in our Annual Report on Form 10-K for the year ended December 31, 2014. Also see Note 9 to our unaudited condensed consolidated financial statements included herein.

22


Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of March 31, 2015, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, due to the material weakness in our accounting for income taxes noted below,
our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were ineffective as of March 31, 2015.

Changes in Internal Control Over Financial Reporting
As previously disclosed in Part II Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2014, management concluded that there was a material weakness in our internal control over financial reporting related to accounting for income taxes. Remedial actions have been identified to address these controls, including improving processes and communications around non-routine or complex significant transactions and evaluating their effects on deferred tax assets and liabilities, supplementing our tax accounting staff with additional internal and external resources, and improving the documentation and review of our income tax accounting, presentation, and related disclosures. These new procedures are in the process of being implemented but have not been in place long enough to provide sufficient assurances to support the conclusion that the above identified material weakness has been fully remediated as of March 31, 2015.
Other than the above, there have been no changes in SunEdison Semiconductor's internal control over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, SunEdison Semiconductor's internal control over financial reporting.

23


PART II--OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Dividend Restrictions
The Credit Facility restricts the Company's declaration or payment of any dividend or any distribution on account of equity interests. The Credit Facility also restricts the usage of our working capital in certain situations.

Initial Public Offering Use of Proceeds
On May 28, 2014, we closed on an initial public offering of 7,200,000 ordinary shares, pursuant to our registration statement on Form S-1 (File No. 333-191052), at a price to the public of $13.00 per ordinary share. The Company received gross proceeds of $107.6 million and net proceeds of $99.0 million, after deducting underwriting discounts, commissions, structuring fees, and offering expenses.
There has been no material change in the planned use of proceeds from the offering as described in the Rule 424(b)(4) prospectus filed with the SEC on May 23, 2014. We used net proceeds for working capital and general corporate purposes during the quarter ended March 31, 2015.

24


Item 6. Exhibits.

Exhibit Number
 
Description
3.1
 
Memorandum and Articles of Association of SunEdison Semiconductor Limited (Incorporating all amendments up to 21 May 2014) (Incorporated by reference to Exhibit 3.1 of SunEdison Semiconductor Limited’s Current Report on Form 8-K (File number 001-36460) filed on May 28, 2014)
 
 
 
31.1
 
Certification by the Chief Executive Officer of SunEdison Semiconductor Limited pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
31.2
 
Certification by the Chief Financial Officer of SunEdison Semiconductor Limited pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
32
 
Certification by the Chief Executive Officer and the Chief Financial Officer of SunEdison Semiconductor Limited pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

25


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
SunEdison Semiconductor Limited
 
 
 
 
 
 
 
 
/s/ Jeffrey L. Hall
 
May 7, 2015
 
Name:
Jeffrey L. Hall
 
 
 
Title:
Executive Vice President Finance & Administration and Chief Financial Officer (Principal Financial Officer)

26


EXHIBIT INDEX

The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
Exhibit Number
 
Description
31.1
 
Certification by the Chief Executive Officer of SunEdison Semiconductor Limited pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
31.2
 
Certification by the Chief Financial Officer of SunEdison Semiconductor Limited pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
32
 
Certification by the Chief Executive Officer and the Chief Financial Officer of SunEdison Semiconductor Limited pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


27




Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Shaker Sadasivam, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of SunEdison Semiconductor Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 7, 2015
/s/ Shaker Sadasivam
Shaker Sadasivam
President and Chief Executive Officer







Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeffrey Hall, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of SunEdison Semiconductor Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably like to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 7, 2015
/s/ Jeffrey Hall
Jeffrey Hall
Executive Vice President Finance & Administration and Chief Financial Officer







Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of SunEdison Semiconductor Limited (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shaker Sadasivam, President and Chief Executive Officer of the Company, and I, Jeffrey Hall, Executive Vice President and Chief Financial Officer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Shaker Sadasivam
Shaker Sadasivam
President and Chief Executive Officer
May 7, 2015
/s/ Jeffrey Hall
Jeffrey Hall
Executive Vice President Finance & Administration and Chief Financial Officer
May 7, 2015



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