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July 13, 2015

Dear Partner:

The Greenlight Capital funds (the Partnerships) returned (1.5)%,1 net of fees and
expenses, in the second quarter of 2015, bringing the year-to-date net return to (3.3)%.
During the second quarter, the S&P 500 index returned 0.3%, bringing the index year-todate return to 1.2%.
On April 15 after the close, Netflix (NFLX) announced its results for the first quarter and
conducted a conference call. NFLX shares had already risen 39% in 2015 and were trading
at more than 100x 2016 estimates with analysts expecting adjusted earnings for the quarter
of $0.63. NFLX achieved just $0.36. Prior to the call, the June quarter consensus stood at
$0.86; by the next morning consensus was $0.30. All told, analysts slashed estimates for
the next three years. Further, we had just finished watching season three of NFLXs
leading original content show, House of Cards, which appeared to be scripted to compete
with Ambien.
If youd told us the news in advance, wed have guessed it was going to be a bad day for
NFLX holders, but apparently Red Ink is the New Black. The shares opened the next
morning 12% higher and never looked back. By the end of the quarter, the shares had
almost doubled for the year, making NFLX the best performing stock in the S&P 500 by
far.
Why did the stock react that way? Cynically: if it soared on bad news, imagine what it
would do with good news. Practically: NFLX changed its story and pushed its promises
into the distant future, with grand hopes for the decade starting in 2020. It transitioned
from being a company judged by how much it earns into a company judged by how much
it spends. Whether the spending proves successful wont be known during the investment
horizon of most NFLX shareholders. In todays market, the best performing stocks are
companies with exciting stories where accountability is in the distant future.
Most companies are still held accountable to current performance. Micron Technology
(MU), which fell from $27.13 to $18.84 during the quarter, was our biggest loser. Its a
cyclical business and, regrettably, we missed the turn of the cycle. Long production lead
times make it difficult to match supply with demand, and when demand falls short (as it
has recently), shortages can turn into surpluses. Prices (and profits) fell, and MU
disappointed. MU also had manufacturing problems that will impact earnings for the next
couple of quarters.
1

Source: Greenlight Capital. Please refer to information contained in the disclosures at the end of the letter.

2 G rand Cen tr a l Tower 140 East 45 t h S tr e e t, 2 4 t h Floor N ew Yo rk, NY 10017


Phon e: 212-973-1900 Fax 212-973-9219 www.g reen ligh tcap ital. com

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With only three remaining players, the industry is behaving more rationally. Manufacturers
are redirecting capacity away from computer DRAM to other segments, and we believe
that the excess computer DRAM inventory created earlier this year is now being absorbed.
Our assessment is that MU shares have fallen too far. Peak quarterly earnings last year
were $1.04 and we expect the cyclical trough to be around $0.40 in the August quarter. At
$18.84, the company trades at less than 12x annualized trough earnings and less than 5x
prior peak earnings. We expect future cycles will have higher peaks and higher troughs, as
the technology story for both DRAM and NAND (including 3D memory) is bright for the
next several years.
Our long-term outlook is that sometime in the next few years, MU (currently valued at $20
billion with $3.7 billion of trailing net income) will be worth more than NFLX (currently
valued at $40 billion with $240 million of trailing net income). Its a contrarian view, but
we dont think the movie is over.
Our other significant loser in the quarter was CONSOL Energy (CNX), which fell from
$27.89 to $21.74. While natural gas prices were stable during the quarter, coal prices fell
about 10%. Near-term this is not a significant concern, as CNX prices are locked in under
long-term contracts for almost all of 2015 and about half of 2016-2018 production.
Assuming unhedged forward pricing for coal and natural gas, our long-term resource runoff model values CNX at about $35 per share. This is based on depressed commodity
prices and does not give credit for the companys implementation of zero-based budgeting,
which should further improve its position as the low-cost supplier.
From a strategic perspective, the company recently completed an IPO of a master limited
partnership for its coal business. Because investor appetite for coal is exceptionally small
at the moment, the offering was met with tepid demand. We were able to purchase shares
at a 25% discount to the proposed range. The new entity, CNX Coal Resources (CNXC),
has an initial dividend yield of over 13.5% and a free cash flow yield of over 17%. At that
value, distress is priced in, though it is far from evident that distress actually exists.
On the sunnier side, SunEdison (SUNE) was our only significant winner, as the shares
advanced from $24.00 to $29.91. SUNE recently filed for TerraForm Global (GLBL) to go
public. GLBL is a renewable energy yieldco located in emerging markets including Brazil,
China, India and South Africa. GLBL will provide a new stream of cash flow to SUNE in
the form of dividends and incentive distributions, similar to the structure of the existing
yieldco TerraForm Power (TERP). Further, earlier this year SUNE acquired First Wind,
the largest wind power development company in the United States. GLBL and First Wind
add $10-$11 to our sum of the parts valuation.
Greece has been anything but sun-kissed. We continue to hold a small position in Greek
bank stocks and warrants. The best we can say is that from the outset we recognized this to
be a high-risk, high-reward proposition and sized the position accordingly. Neither our
losses nor remaining downside exposure are significant.

GREENLIGHT

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Last year, it appeared that Greece had finally turned the corner after years of suffering
through imposed austerity and the resultant 25% collapse in GDP. Much like the
Seahawks ill-fated decision to pass the ball at the end of Superbowl XLIX, instead of
giving it to monster running back Marshawn Lynch, Greece snatched defeat from the jaws
of victory by electing the populist anti-austerity, pro-debt-writedown, Syriza coalition.
Puerto Ricos governor recently said of its own debt, This is not about politics; its about
math. The math for Greece is easy: austerity hasnt improved the economy and its debts
are unsustainable. Knowing this, Syriza no longer wanted to play the extend
and pretend game. Further, Greeces recently resigned finance minister Yanis Varoufakis
believed they wouldnt have to. Mr. Varoufakis, who kept reminding everyone that he is a
professor of game theory, believed that the European leaders would prefer to make
concessions now rather than manage the disruption of a Greek default. He must not be
familiar with the Tyler Durden school of negotiation: the first rule of using game theory is
you do not talk about using game theory. Whats more obvious is that Syriza didnt
understand what the game is.
This is not about math; its about politics. Consider that the main difference between
Greece and France is that France is a big fan of extend and pretend. And as long as France
says it will pay, its bonds might yield just a bit more than Germanys. Though Greece has a
superficially unmanageable ratio of debt to GDP, the debt had been restructured so that
there is little debt service burden for the next several years. Politically, European leaders
prefer to leave the future problems in the future. Syrizas refusal to play along is a problem
not just for bondholders but also for those holding seats of power. The European
leaders fear that if Syriza can claim even a moral victory, it will inspire other European
countries to oust their current leaders in favor of populist governments who campaign on
the promise of debt repudiation.
Though Mario Draghi promised he would do whatever it takes to save the euro, that
doesnt include lifting a finger to assist Greece financially or in any way signal that the
ECB has Greeces back. Just days prior to the January elections, Mr. Draghi announced
that the ECB would exclude Greece from quantitative easing for at least six months. Doing
whatever it takes is proving to be a conditional promise, as denying Greece access to the
capital markets is a key tenet of the European strategy to pressure Syriza.
For anyone still missing the joke, Bank of Japan Governor Haruhiko Kuroda summarized
the view of the global central planners when he said, I trust that many of you are familiar
with the story of Peter Pan, in which it says, the moment you doubt whether you can fly,
you cease forever to be able to do it. Yes, what we need is a positive attitude and
conviction. Perception supplants reality. The moment leaders (or markets) start making it
about the math, gravity comes into play.
The result is that Europe is unwilling to allow Syriza a face-saving compromise, even if
that means Greece collapses and the rest of Europe suffers. At this writing, Syriza has
capitulated by proposing a deal which leaves Greece with even more austerity than when
negotiations began and no actual debt forgiveness. This might not be enough, as the grand

GREENLIGHT

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goal of the European negotiators appears to be to discourage other countries from electing
populists.
The short and macro portfolios had minimal impact on our quarterly result. We presented
our new short thesis on oil frackers at the Sohn Investment Conference in May
(https://www.greenlightcapital.com/926698.pdf). The response was encouraging as many
market participants engaged in the substance of the analysis. However, one sell-side
analyst came up with a novel discounted cash flow (DCF) analysis that shows Pioneer
Natural Resources (PXD) to be worth $300 per share. Notably, the projections he used to
create the DCF are dramatically higher than the projections he used in his earnings model.
Talk about keeping two sets of books.
As we were putting this letter to bed, another bulge bracket investment bank upgraded
PXD, again with discrepancies between the DCF analysis and the earnings forecast
contained in the same report. Perhaps the analysis is colored by this key sentence in the
upgrade: Unless commodity prices rebound sharply we believe PXD will need help from
the capital markets to bridge [the] near-term funding gap.
It was a challenging quarter for finding new long ideas. We managed to find a couple of
small long investments in Applied Materials (AMAT) and Bank of New York Mellon
(BK).
AMAT manufactures semiconductor capital equipment. AMAT shares fell when it
canceled plans to merge with Tokyo Electron over anti-trust concerns. We find standalone
AMAT attractive because its core segments of etch and deposition will grow faster than the
semiconductor capital equipment market due to the increased use of multi-patterning to
produce chips at geometries below 20 nanometers. This means semiconductor material
must be deposited and etched multiple times to make the devices work, requiring more
tools from AMAT and its competitor, Lam Research, in each fab. We expect results to
improve, as management turns its attention from the proposed merger to growth and cost
savings opportunities. We purchased shares at an average of $20.31, representing less than
12x our fiscal 2016 earnings estimate.
BK is a trust bank with substantial investment services and investment management
operations generating stable fee-based earnings. The trust sector has consolidated, leaving
BK as one of four global players across most investment services verticals. Following a
couple years of poor performance, we believe BK will begin to deliver organic revenue
growth and cut expenses significantly. Moreover, a 0.5% increase in short-term rates
would substantially increase earnings that currently reflect depressed net interest margins
and money market fund fee waivers. In the interim, we expect BK to continue to allocate
100% of its net income to shareholder return with a heavy weighting toward stock
buybacks. We bought our position at an average price of $40.61, less than 10x forward
earnings (excluding non-cash intangible amortization), assuming the Federal Reserve
begins to normalize short-term interest rates.

GREENLIGHT

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We have several portfolio exits to report:


We sold the last of our successful long investment in Altice, a European telecom company.
Altice did what we expected (acquired SFR, cut costs significantly) and much more
(acquired Portugal Telecom for an attractive price, expanded into the U.S.). The market
rewarded the over-achievement generously and we were rewarded with a triple digit return
in a shorter time frame than we expected.
We sold our long position in Conns at a small loss. We entered believing a few bad loans
would wash out of the business and leave a healthy, growing retailer. The loan book was
harder for the company to control than we anticipated, and for a period the shares declined
significantly. The stock recovered when the company announced its intention to sell its
loan book. We sold because we werent convinced that the company could execute a true
exit from the finance business.
We exited our long position in EMC Corp. with a small profit given the reduced odds of
any favorable change to the corporate structure and increasing concerns about a lack of
growth in the storage business.
We covered our short position in Intuitive Surgical with a small gain. Given its lofty
valuation, we were surprised that the market shrugged off repeated earnings misses and
weak gross margins. Though we are skeptical of the utility and cost effectiveness of
robotics in key surgical procedures where the company expects to deliver growth, nearterm expectations have been reduced to achievable levels and we decided to watch from
the sidelines.
We sold our long position in Marvell Technology Group. The stock performed well this
spring as investors finally began to credit the company for a likely successful outcome in
its legal battle with Carnegie Mellon and for a potential monetization of its wireless
handset chip business. Given declining demand in the PC market, we didnt see as much
earnings power in the core storage and networking business and decided to sell. By adding
to the position in late 2012, when the stock practically collapsed in response to the initial
Carnegie Mellon verdict, we achieved a 15% compounded return over several years even
though the company repeatedly fell short of expectations.
We acquired our Nokia shares in 2014 after the company sold its handset business to
Microsoft. The stock appreciated nicely during 2014 in response to better earnings in its
network business and increased optimism around the companys IP position. When the
company announced a confusing merger with Alcatel-Lucent in April this year and the
stock rose, we used the opportunity to exit with a healthy gain.
We exited a long-held position in Playtech with a 23% compounded return. The
companys core business in online gaming software remains strong, but a recent
acquisition made us question its capital allocation discipline and ability to grow going
forward. It seemed better to move on satisfied rather than try to achieve a higher score.

GREENLIGHT

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When we shorted Vale in early 2013, it was based on extensive research, but we could
have saved ourselves the work by just translating its name from Portuguese into English:
Valley. Indeed, both iron ore and Vale have tumbled off their peaks and we covered with
the stock down almost 50%.
One of our analysts, Jeremy Weisstub, left the firm during the quarter. He and his wife are
moving back to their hometown of Toronto where he will pursue other interests. We thank
him for his contributions and wish him success in his future endeavors.
At quarter-end, the largest disclosed long positions in the Partnerships were Apple,
CONSOL Energy, General Motors, gold, Micron Technology and SunEdison. The
Partnerships had an average exposure of 103% long and 86% short.

A diamond is a piece of coal that stuck to the job.


Thomas Edison

Best Regards,

Greenlight Capital, Inc.

GREENLIGHT

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The information contained herein reflects the opinions and projections of Greenlight Capital, Inc. and its
affiliates (collectively Greenlight) as of the date of publication, which are subject to change without notice
at any time subsequent to the date of issue. Greenlight does not represent that any opinion or projection will
be realized. All information provided is for informational purposes only and should not be deemed as
investment advice or a recommendation to purchase or sell any specific security. Greenlight has an economic
interest in the price movement of the securities discussed in this presentation, but Greenlights economic
interest is subject to change without notice. While the information presented herein is believed to be reliable,
no representation or warranty is made concerning the accuracy of any data presented.
GREENLIGHT and GREENLIGHT CAPITAL, INC. with the star logo are registered trademarks of
Greenlight Capital, Inc. or affiliated companies in the United States, European Union and other countries
worldwide. All other trade names, trademarks, and service marks herein are the property of their respective
owners who retain all proprietary rights over their use. This communication is confidential and may not be
reproduced without prior written permission from Greenlight.
Unless otherwise noted, performance returns reflect the dollar-weighted average total returns, net of fees and
expenses, for an IPO eligible partner for Greenlight Capital, L.P., Greenlight Capital Qualified, L.P.,
Greenlight Capital Offshore, Ltd., Greenlight Capital Offshore Qualified, Ltd., and the dollar interest returns
of Greenlight Capital (Gold), L.P. and Greenlight Capital Offshore (Gold), Ltd. (collectively, the
Partnerships). Each Partnerships returns are net of the standard 20% incentive allocation.
Performance returns are estimated pending the year-end audit. Past performance is not indicative of future
results. Actual returns may differ from the returns presented. Each partner will receive individual returns
from the Partnerships administrator. Reference to an index does not imply that the funds will achieve
returns, volatility or other results similar to the index. The total returns for the index do not reflect the
deduction of any fees or expenses which would reduce returns.
All exposure information is calculated on a delta adjusted basis and excludes credit default swaps, interest
rate swaps, sovereign debt, currencies, commodities, and derivatives on any of these instruments.
Weightings, exposure, attribution and performance contribution information reflects estimates of the
weighted average of Greenlight Capital, L.P., Greenlight Capital Qualified, L.P., Greenlight Capital
Offshore, Ltd., Greenlight Capital Offshore Qualified, Ltd., Greenlight Capital (Gold), L.P., and Greenlight
Capital Offshore (Gold), Ltd. and are the result of classifications and assumptions made in the sole judgment
of Greenlight.
Positions reflected in this letter do not represent all the positions held, purchased, or sold, and in the
aggregate, the information may represent a small percentage of activity. The information presented is
intended to provide insight into the noteworthy events, in the sole opinion of Greenlight, affecting the
Partnerships.
THIS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY INTERESTS IN ANY FUND MANAGED BY GREENLIGHT OR ANY OF ITS
AFFILIATES. SUCH AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY INTERESTS
MAY ONLY BE MADE PURSUANT TO DEFINITIVE SUBSCRIPTION DOCUMENTS BETWEEN A
FUND AND AN INVESTOR.

GREENLIGHT

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