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 September 30, 1998
or
[ ] 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: 1-13828
MEMC ELECTRONIC MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1505767
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
501 Pearl Drive (City of O'Fallon) St. Peters, Missouri 63376
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 279-5500
--------------
(Registrant's telephone number, including area code)
-----------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock outstanding at October 31, 1998: 40,507,216 shares
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 167,685 $ 260,026 $ 605,081 $ 728,090
Cost of goods sold 195,780 223,856 613,220 633,019
-------- ------- -------- -------
Gross margin (28,095) 36,170 (8,139) 95,071
Operating expenses:
Marketing and administration 16,295 17,113 53,665 51,972
Research and development 20,563 17,241 58,330 46,417
Restructuring costs - - 139,454 -
--------- -------- -------- --------
Operating profit (loss) (64,953) 1,816 (259,588) (3,318)
--------- -------- -------- --------
Nonoperating (income) expense:
Interest expense 11,931 5,265 29,195 6,521
Interest income (293) (265) (1,172) (1,048)
Royalty income (1,188) (2,233) (3,712) (6,525)
Other, net 136 (755) 3,336 (7,296)
--------- -------- -------- --------
Total nonoperating (income) expense 10,586 2,012 27,647 (8,348)
--------- -------- -------- --------
Earnings (loss) before income taxes, equity
in loss of joint ventures and
minority interests (75,539) (196) (287,235) 5,030
Income taxes (17,642) (85) (65,136) 2,163
-------- -------- -------- --------
Earnings (loss) before equity in loss of joint
ventures and minority interests (57,897) (111) (222,099) 2,867
Equity in loss of joint ventures (11,454) (6,033) (26,845) (9,477)
Minority interests 5,807 1,883 9,007 3,325
-------- -------- -------- --------
Net loss $ (63,544) $ (4,261) $ (239,937) $ (3,285)
======== ======== ======== ========
Basic loss per share $ (1.57) $ (0.10) $ (5.90) $ (0.08)
Diluted loss per share $ (1.57) $ (0.10) $ (5.90) $ (0.08)
===== ===== ===== =====
Weighted average shares used in computing basic
loss per share 40,507,810 41,360,861 40,637,643 41,403,629
Weighted average shares used in computing diluted
loss per share 40,507,810 41,360,861 40,637,643 41,403,629
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,529 $ 30,053
Accounts receivable, less allowance for doubtful accounts of
$2,367 and $3,473 in 1998 and 1997, respectively 115,957 154,702
Income taxes receivable 18,255 14,382
Inventories 123,183 141,447
Deferred tax assets, net 22,210 13,206
Prepaid and other current assets 27,479 23,185
----------- -----------
Total current assets 340,613 376,975
Property, plant and equipment, net of accumulated depreciation of
$531,642 and $465,384 in 1998 and 1997, respectively 1,162,021 1,200,827
Investment in joint ventures 80,315 95,307
Excess of cost over net assets acquired, net of accumulated amortization
of $4,784 and $3,752 in 1998 and 1997, respectively 48,740 49,772
Other assets 115,319 54,277
----------- -----------
Total assets $ 1,747,008 $ 1,777,158
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 102,486 $ 122,476
Accounts payable 99,840 146,172
Provision for restructuring costs 41,886 -
Accrued liabilities 57,191 48,611
Accrued wages and salaries 21,113 21,267
----------- -----------
Total current liabilities 322,516 338,526
Long-term debt, less current portion 718,428 510,038
Pension and similar liabilities 91,078 76,837
Customer deposits 62,260 67,141
Other liabilities 43,993 26,901
----------- -----------
Total liabilities 1,238,275 1,019,443
----------- -----------
Minority interests 50,220 59,227
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized, none
issued or outstanding in 1998 or 1997 - -
Common stock, $.01 par value, 200,000,000 shares authorized,
41,436,421 and 41,440,369 issued and outstanding in 1998 and 1997 414 414
Additional paid-in capital 574,317 574,317
Retained earnings (accumulated deficit) (75,541) 164,396
Accumulated other comprehensive loss (23,392) (38,887)
Unearned restricted stock awards (265) (424)
Treasury stock, at cost: 929,205 and 36,205 shares in 1998 and 1997,
respectively (17,020) (1,328)
----------- -----------
Total stockholders' equity 458,513 698,488
----------- -----------
Total liabilities and stockholders' equity $ 1,747,008 $ 1,777,158
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (239,937) $ (3,285)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 120,229 90,543
Restructuring costs 114,800 -
Minority interests (9,007) (3,325)
Equity in loss of joint ventures 26,845 9,477
Loss (gain) on sale of property, plant and equipment 82 (5,956)
Working capital and other (31,759) (93,911)
---------- --------
Net cash used in operating activities (18,746) (6,457)
---------- --------
Cash flows from investing activities:
Capital expenditures (148,354) (273,347)
Proceeds from sale of property, plant and equipment 5,242 16,497
Equity infusions in joint ventures (11,747) (4,000)
Dividend received from unconsolidated joint venture - 11,263
Other 351 791
---------- --------
Net cash used in investing activities (154,508) (248,796)
---------- --------
Cash flows from financing activities:
Net short-term borrowings (13,753) 57,651
Proceeds from issuance of long-term debt 217,560 188,781
Principal payments on long-term debt (11,668) (10,096)
Stock options exercised - 334
Repurchase of common stock (15,692) -
---------- --------
Net cash provided by financing activities 176,447 236,670
---------- --------
Effect of exchange rate changes on cash and cash equivalents 283 (439)
---------- --------
Net increase (decrease) in cash and cash equivalents 3,476 (19,022)
Cash and cash equivalents at beginning of period 30,053 35,096
---------- --------
Cash and cash equivalents at end of period $ 33,529 $ 16,074
========== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of MEMC
Electronic Materials, Inc. and Subsidiaries (the Company), in the opinion
of management, include all adjustments (consisting of normal, recurring
items) necessary to present fairly the Company's financial position and
results of operations and cash flows for the periods presented. The
consolidated financial statements are presented in accordance with the
requirements of Regulation S-X and consequently do not include all
disclosures required by generally accepted accounting principles. Operating
results for the three and nine-month periods ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
(2) Earnings (loss) per share
The numerator for basic and diluted loss per share calculations is net loss
for all periods presented. The denominator for the basic and diluted loss
per share calculations for the three and nine-month periods ended September
30, 1998 and 1997 is the same (the weighted average shares outstanding for
each respective period) due to the net loss incurred during each period.
The following options to purchase the Company's common stock were
outstanding as of September 30, 1998 but were not included in the
computation of diluted loss per share for the three and nine-month periods
ended September 30, 1998:
Range of Number Outstanding
Exercise Prices at September 30, 1998
--------------- ---------------------
$ 5.38-15.25 863,500
22.50-29.00 799,952
32.63-49.50 123,400
-------
1,786,852
=========
(3) Inventories
Inventories consist of the following:
September 30, December 31,
1998 1997
---- ----
Raw materials and supplies $ 63,352 $ 65,369
Goods in process 30,493 37,996
Finished goods 29,338 38,082
-------- --------
$ 123,183 $ 141,447
======= =======
(4) Debt Restructuring with VEBA AG and its Affiliates
During September 1998, the Company received a three-year $100,000 revolving
credit facility from VEBA AG, the parent of the Company's majority
stockholder. This is in addition to a $50,000 credit facility from VEBA AG
that was made available to the Company on June 30, 1998. VEBA AG and its
affiliates agreed to extend until 2001 all of the Company's outstanding
debt maturing prior to January 1, 2001(but only in the event the Company
has used its best efforts to obtain replacement financing on equivalent
terms).
As part of this agreement, the Company agreed to increase the interest
rates payable on the Company's outstanding debt with VEBA AG and its
affiliates to reflect interest rate spreads applicable to an average
industrial borrower at a specified credit rating. These higher rates, which
are in part attributable to extended terms, will result in an increase in
interest expense of approximately $15,000 per year based upon $679,640 of
debt outstanding with VEBA AG and its affiliates as of September 30, 1998.
Prior to this debt restructuring, interest rates on the U.S. dollar and
Japanese yen based loans outstanding with VEBA AG and its affiliates ranged
from 2.1% to 7.6%. As a result of this debt restructuring, these loans will
now have interest rates ranging from 3.4% to 9.8%. Additionally, all
outstanding debt with VEBA AG and its affiliates maturing prior to January
1, 2001 which is extended at maturity will be repriced based upon
then-current interest rates applicable to an average industrial borrower at
a specified credit rating.
The Company also agreed to increase the annual commitment fee payable on
the undrawn portion of these loans from 1/8 of one percent to 1/4 of one
percent. Additionally, the Company agreed that it will not allow any
encumbrances, such as mortgages and security interests, to be placed on its
properties.
The term loan agreements with VEBA AG and its affiliates provide that if
VEBA AG and its affiliates own less than a majority of the outstanding MEMC
common stock on or after January 1, 2001, then the interest rate the
Company pays on its loans from VEBA AG and its affiliates will be the
higher of: (1) the interest rate currently set forth in each such loan
agreement; or (2) an interest rate determined as of the later of January 1,
2001 or the change of control date for an average industrial borrower at a
specified credit rating based on the remaining term of each such loan
agreement.
In addition, in such an event the Company will become subject to certain
affirmative covenants set forth in these loan agreements. These affirmative
covenants include requirements that the Company maintain a minimum net
worth and a minimum amount of working capital. The Company would also need
to meet certain financial ratios, including a minimum fixed charge coverage
ratio and minimum working capital ratio.
If the Company had been subject to these covenants as of September 30,
1998, the Company would not have been in compliance with all of these
covenants. If VEBA AG and its affiliates own less than a majority of MEMC's
outstanding common stock at any time on or after January 1, 2001 and the
Company is then not in compliance with all of these affirmative covenants,
then the Company would be in default under these loan agreements.
(5) Restructuring Costs
During the second quarter of 1998, the Company decided to close its small
diameter wafer facility in Spartanburg, South Carolina and to withdraw from
the Company's joint venture in a small diameter wafer operation in China.
These actions were taken because (1) a number of semiconductor
manufacturers have been running their larger diameter manufacturing lines
in preference to their small diameter lines in order to gain production
efficiencies; (2) a number of semiconductor manufacturers recently have
undertaken restructuring initiatives focused on permanently eliminating
small diameter lines; and (3) management believes that small diameter wafer
capacity will exceed demand even after the semiconductor industry begins to
recover. The Company also decided to forego construction of a new
eight-inch wafer facility at its joint venture in Malaysia. This decision
was based upon current and anticipated excess capacity for eight-inch
wafers and the significant price erosion that the Company has experienced
for these wafers.
The Company recorded a charge to operations of $114,800 (of which $78,100
is non-cash) related to the above actions. Restructuring activity since the
provision for restructuring costs was recorded is as follows:
<TABLE>
<CAPTION>
Asset
Impairment/ Dismantling Personnel
Write-off Costs Costs Total
<S> <C> <C> <C> <C>
Provision $ 78,100 $ 24,500 $ 12,200 $ 114,800
Amount utilized (66,335) (6,045) (534) (72,914)
-------- -------- -------- ---------
Balance at September 30, 1998 $ 11,765 $ 18,455 $ 11,666 $ 41,886
======== ======== ======== =========
</TABLE>
The assets for which an impairment loss has been recorded or which have or
will be written-off are primarily property, plant and equipment that cannot
be sold or used at other Company facilities. Accordingly, these assets have
been written down to net realizable value. Additionally, the Company
wrote-off architectural design and site preparation fees and costs incurred
to develop a computer integrated manufacturing system for the Malaysian
joint venture that do not have applicability elsewhere within the Company.
The remaining asset impairment/write-off reserve at September 30, 1998
primarily relates to certain assets which will be written-off in
conjunction with the withdrawal from the Company's joint venture in China
and the winding down of the joint venture in Malaysia which are expected to
be completed in the fourth quarter of 1998. Operating expenses are being
treated as period costs.
The provision for dismantling costs primarily relates to the Spartanburg
facility and includes estimates for the dismantling of the facility,
collection and disposal of process chemicals, decontamination of
manufacturing equipment, modification of the wastewater treatment facility,
freight and scrapping charges.
Personnel costs represent the expected cost of involuntary terminations for
approximately 900 hourly and salaried employees whom the Company does not
expect to relocate elsewhere within the organization.
In addition to the restructuring activities discussed above, the Company
recorded a $24,600 charge for a voluntary separation program for
approximately 600 hourly and salaried U.S. employees. Substantially all
this amount was paid to employees as of June 30, 1998.
These restructuring activities are expected to be completed by June 30,
1999. During this time the Company will transfer the small diameter
production activities of the Spartanburg facility to other existing Company
facilities. Estimated pre-tax savings as a result of these restructuring
activities and the voluntary separation program are $60,000 on an
annualized basis. Approximately one-half of the estimated savings began to
be realized in the third quarter of 1998 through reduced personnel costs as
a result of the voluntary separation program. The remainder of the
annualized savings relates to personnel costs and manufacturing costs, such
as depreciation, manufacturing supplies and utilities. The time frame for
achieving these savings will depend upon such factors as the transfer of
Spartanburg-based customer orders to other facilities within the Company
and the willingness of these customers to re-qualify other sites. The
Company anticipates that this will be accomplished by March 31, 1999.
(6) Option on MEMC Pasadena, Inc.
In September 1998, the Company granted Tokuyama Corporation, Marubeni
Corporation and Marubeni America Corporation an option to acquire a
majority interest in MEMC Pasadena, Inc. Tokuyama is a Japanese polysilicon
manufacturer and Marubeni is a Japanese trading company. MEMC Pasadena is
the Company's granular polysilicon subsidiary (polysilicon is a raw
material used in the manufacture of silicon wafers). In exchange for the
option, Tokuyama and Marubeni made an option payment to the Company. The
term of the option is two years, subject to a one-year extension at the
option of Tokuyama and Marubeni. If Tokuyama and Marubeni exercise their
option, the Company will then negotiate the terms and conditions (including
price) of the exercise with them based on the market value of MEMC Pasadena
at that time. The entire option payment will be applied toward the ultimate
purchase price. If Tokuyama and Marubeni do not exercise their option, then
the Company will return one-half of the option payment to them. During the
term of the option, Tokuyama and Marubeni have a right of first refusal
over any transfer of MEMC Pasadena's granular polysilicon business. In
addition, for two years, the Company cannot solicit offers from third
parties for this business. In connection with the option, Tokuyama will
provide technical assistance to MEMC Pasadena for two years (unless the
option is earlier terminated by Tokuyama and Marubeni) to help improve the
quality of MEMC Pasadena's granular polysilicon product.
(7) Comprehensive Earnings (Loss)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires the Company to disclose all non-owner changes included in
equity but not included in net earnings (loss) in a financial statement
that is displayed with the same prominence as other financial statements.
Prior year amounts have been conformed to the current year presentation.
Comprehensive loss for the three and nine-month periods ended September 30,
1998 was $43,062 and $224,442, respectively. For the three and nine-month
periods ended September 30, 1997, the Company had a comprehensive loss of
$11,362 and $21,972, respectively. The Company's comprehensive loss is
impacted only by foreign currency translation adjustments.
(8) Subsequent Event
On October 22, 1998, the Company filed a registration statement with the
Securities and Exchange Commission to raise approximately $94,000 in equity
capital through a rights offering. The Company also entered into a purchase
agreement with VEBA Corporation, the Company's 53.1% stockholder, pursuant
to which VEBA Corporation agreed to purchase approximately $106,000 of
MEMC's common stock in a private placement, subject to certain customary
conditions.
The private placement to VEBA Corporation is expected to close at about the
same time the Securities and Exchange Commission declares effective the
registration statement associated with the rights offering. The per share
price of MEMC's common stock sold to VEBA Corporation is to be set at a
weighted average trading price per share of MEMC's common stock during a
period shortly before the date of the rights offering final prospectus.
Under the rights offering, the Company plans to issue transferable rights
to purchase additional shares of common stock to the Company's stockholders
of record, other than VEBA Corporation. The rights offering would allow the
Company's stockholders an opportunity to restore their proportionate
ownership interest in the Company at the same price per share of common
stock as paid by VEBA Corporation in the private placement. Rights holders
who exercise their rights in full would also have the opportunity to
subscribe for additional shares of common stock which are not purchased by
other eligible rights holders. Pursuant to a standby agreement entered into
by the Company and VEBA Corporation, VEBA Corporation has agreed to
purchase all shares not subscribed for by rights holders in the rights
offering, subject to certain customary conditions.
No assurance can be given that the transactions contemplated by the
purchase agreement and rights offering will be consummated. The
registration statement relating to the rights offering has not yet become
effective, and the rights offering will only be made by means of a
prospectus. The securities may not be sold nor may any offers to buy be
accepted before the registration statement becomes effective. The shares of
common stock to be purchased by VEBA Corporation will not be registered
under federal securities laws and may not be offered or sold without such
registration or an applicable exemption. The Company has granted VEBA
Corporation certain registration rights with respect to such shares.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales. Net sales decreased 35.5% to $167.7 million for the three months
ended September 30, 1998, from $260.0 million for the three months ended
September 30, 1997. Product volume declined 26.2% in the 1998 third quarter
compared to the year ago period due to weakening demand for smaller diameter
wafers, partially offset by a 6.6% increase in eight-inch product volume. On a
geographic basis, product volumes decreased most significantly in the United
States followed by Asia Pacific, Japan and Europe. Asia Pacific experienced the
largest percentage decline in volume.
Net sales for the nine-month period ended September 30, 1998 decreased 16.9% to
$605.1 million from $728.1 million for the comparable period. Product volume
decreased 6.7% for the first nine months of 1998 compared to the year-ago period
due to weakening demand for smaller diameter wafers, partially offset by a 26.1%
increase in eight-inch product volume. On a geographic basis, product volumes
decreased most significantly in the United States followed by Asia Pacific,
while Europe had a slight increase in volume and Japan was essentially flat. As
a percentage of volume, Asia Pacific experienced the largest decline.
Excess capacity in the semiconductor industry continues to be exacerbated by
weak economic conditions in the Asia Pacific and Japanese markets. These
conditions have resulted in sequential quarterly declines in product volume for
the silicon wafer industry. The Company anticipates that this year will be the
first year since 1985 that silicon volume shipments will not increase year over
year for the industry. While the Company believes that product volumes will
continue to decline in the fourth quarter of 1998 in comparison to the 1998
third quarter, the rate of sequential quarterly decline appears to be slowing.
Excess capacity in the semiconductor and silicon wafer industries has caused
average selling prices to decline significantly since the beginning of 1997.
While the rate of price declines appears to be slowing, continued excess
capacity in both of these industries will likely lead to continued price
pressure, at least in the near term.
Gross Margin. Gross margin declined from 13.9% in the third quarter of 1997 to a
negative 16.8% for the third quarter of 1998. The decline in gross margin is
primarily attributable to significant declines in volume and prices, only
partially offset by an improved product mix. For the nine months ended September
30, 1998, gross margin was a negative 1.3%, as compared to a positive 13.1 % for
the year-ago period. The decline in gross margin for the first nine months of
1998 is also attributable to falling prices and declines in product volume,
partially offset by improved product mix.
Advanced large diameter and epitaxial products represented 50% and 40% of
product volume for the three months ended September 30, 1998 and 1997,
respectively, and 46% and 38% of product volume for the respective nine-month
periods. The increase in this ratio is indicative of the Company's customers
utilizing eight-inch facilities in preference to their smaller diameter
facilities in order to obtain the lowest cost per device.
Marketing and Administration. Marketing and administration costs were $16.3
million for the third quarter of 1998, a 4.8% decrease compared to the third
quarter of 1997. This represents the lowest quarterly marketing and
administration expenses in three years. For the nine-month period, marketing and
administration expenses increased $1.7 million, or 3.3%, over the same period in
1997.
Research and Development. Research and development costs rose 19.3% to $20.6
million for the three months ended September 30, 1998, as compared to $17.2
million for the year-ago period. Research and development costs increased 25.7%
to $58.3 million for the nine-month period as compared to $46.4 million for the
year-ago period. The increase is due to continuing investments in the Company's
12-inch wafer development program and depreciation associated with capital
expenditures made in its 12-inch pilot line in St. Peters, MO and 12-inch
integrated development line in Utsunomiya, Japan.
Restructuring Costs. During the second quarter of 1998, the Company decided to
close its small diameter wafer facility in Spartanburg, South Carolina and to
withdraw from the Company's joint venture in a small diameter wafer operation in
China. These actions were taken because (1) a number of semiconductor
manufacturers have been running their larger diameter manufacturing lines in
preference to their small diameter lines in order to gain production
efficiencies; (2) a number of semiconductor manufacturers recently have
undertaken restructuring initiatives focused on permanently eliminating small
diameter lines; and (3) management believes that small diameter wafer capacity
will exceed demand even after the semiconductor industry begins to recover. The
Company also decided to forego construction of a new eight-inch wafer facility
at its joint venture in Malaysia. This decision was based upon current and
anticipated excess capacity for eight-inch wafers and the significant price
erosion that the Company has experienced for these wafers.
These actions resulted in a charge to operations of $114.8 million (of which
$78.1 million is non-cash), comprised of $78.1 million for asset
impairments/write-offs, $24.5 million in dismantling costs and $12.2 million in
personnel related costs. The assets for which an impairment loss has been
recorded or which have or will be written-off are primarily property, plant and
equipment which cannot be sold or used at other Company facilities. In addition,
the Company wrote-off architectural design and site preparation fees as well as
costs incurred to develop a computer integrated manufacturing system for the
Malaysian joint venture. Personnel costs represent the expected cost of
involuntary terminations for approximately 900 hourly and salaried employees
whom the Company does not expect to relocate elsewhere within the organization.
See Note 5 of Notes to Consolidated Financial Statements herein.
The Company also recorded a $24.6 million charge for a voluntary separation
program for approximately 600 hourly and salaried U.S. employees. Substantially
all this amount was paid to employees as of June 30, 1998.
Management expects that these restructuring activities will be completed by June
30, 1999. During this time, the Company will transfer the small diameter
production activities of the Spartanburg facility to other Company facilities.
Estimated pre-tax savings as a result of these restructuring activities and the
voluntary separation program are $60 million on an annualized basis.
Approximately one-half of the estimated savings began to be realized in the
third quarter of 1998 through reduced personnel costs as a result of the
voluntary separation program. The remainder of the annualized savings relates to
personnel costs and manufacturing costs, such as depreciation, manufacturing
supplies and utilities. The time frame for achieving these savings will depend
upon such factors as the transfer of the Spartanburg-based customer orders to
other facilities within the Company and the willingness of these customers to
re-qualify other sites. The Company anticipates that this will be accomplished
by March 31, 1999. The Company's ability to achieve the projected savings is in
part dependent upon the accuracy of certain assumptions, including replacement
of terminated employees and the cost of producing small diameter wafers at other
facilities.
Interest Expense. Interest expense totaled $11.9 million and $29.2 million for
the three and nine-month periods ended September 30, 1998, respectively as
compared to $5.3 million and $6.5 million for the respective three and
nine-month periods of 1997. The increase in interest expense is primarily
attributable to increased borrowings, and to a lesser extent the completion of
projects for which interest expense could no longer be capitalized. The Company
expects interest expense will increase in future periods due to the increase in
interest rates on its loan agreements with its principal lender, as described in
Note 4 of the Notes to the Consolidated Financial Statements herein.
Other, Net. Other, net decreased by $10.6 million for the nine-month period
ended September 30, 1998 as compared to the same period for 1997, primarily due
to the sale of the Company's Santa Clara wafer facility in May 1997 that
resulted in a pre-tax gain of $6.0 million.
Income Taxes. The effective income tax rate was 22.7% for the first nine months
of 1998, as compared to 43.0% for the same period of 1997. This fluctuation is
the result of changes in the composition of worldwide taxable income,
restructuring costs, non-deductible operating expenses at the Company's
Malaysian and Chinese joint ventures, the establishment of valuation allowances
on certain deferred tax assets in Japan and certain foreign tax credit
elections.
Equity in Loss of Joint Ventures. Equity in loss of joint ventures was $11.5
million in the third quarter of 1998, as compared to a loss of $6.0 million in
the year-ago period. The loss in the 1998 third quarter included a foreign
currency loss on Korean won exposure at Posco Huls Co. Ltd. (PHC), the Company's
unconsolidated Korean joint venture, and a small foreign currency gain on New
Taiwanese dollar exposure at Taisil Electronic Materials Corporation (Taisil),
the Company's unconsolidated Taiwanese joint venture, that netted to a loss of
$0.9 million. The loss in the third quarter of 1998 also included the write-off
of $0.8 million of deferred tax assets at Taisil, which are not anticipated to
be realized prior to the initiation of a tax holiday. Excluding the net foreign
currency losses and the write-off, equity in loss of joint ventures would have
been $9.8 million in the third quarter of 1998, reflecting lower volumes and
prices at PHC and at Taisil.
For the nine months ended September 30, 1998, equity in loss of joint ventures
was $26.8 million, a $17.4 million increase over the first nine months of 1997.
Equity in loss of joint ventures includes $3.1 million in net foreign currency
losses for both joint ventures for the first nine months of 1998 as well as a
$6.2 million write-off associated with deferred tax assets. Excluding the impact
of net foreign currency losses and the write-off, equity in loss of joint
ventures would have been $17.5 million for the nine months ended September 30,
1998. This increase as compared to the year-ago period is due to the lower
volumes and prices at PHC and lower prices at Taisil.
Net Loss. The decrease in net sales, caused by lower volumes and prices,
restructuring costs, higher research and development costs and interest expense
and higher equity in loss of joint ventures resulted in a net loss of $239.9
million for the first nine months of 1998 compared to $3.3 million for the same
period in 1997. Due to overcapacity and decreasing prices in the semiconductor
and silicon wafer industries, weak economic conditions in the Asia Pacific
region and Japan, and other factors, the Company does not expect to be
profitable at least through 1999.
Liquidity and Capital Resources
At September 30, 1998, the Company had cash and cash equivalents of $33.5
million compared to $30.1 million at December 31, 1997. The Company's borrowings
against its $1,023.4 million of credit facilities were $820.9 million at
September 30, 1998. Outstanding borrowings increased $188.4 million from
December 31, 1997 to September 30, 1998, the proceeds of which have been used to
finance the Company's capital expenditures and working capital requirements. The
Company's weighted-average borrowing rate was 7.8% at September 30, 1998.
A comparison of the components of the Company's financial condition follows
(dollars in millions):
September 30, December 31,
1998 1997
---- ----
Working capital $ 18.1 $ 38.4
Current ratio 1.1 to 1 1.1 to 1
Stockholders' equity $ 458.5 $ 698.5
Total debt to total capitalization 61.7% 45.5%
===== =====
Cash flows used in operating activities were $18.7 million for the nine months
ended September 30, 1998 compared to $6.5 million of cash flows used for the
comparable 1997 period. Operating cash flow was negatively impacted by the
results of operations for the period, a decrease in accounts payable due to
lower capital expenditures than in the prior period, a non-cash increase in
deferred taxes due to net operating loss carryforwards generated in 1998,
partially offset by a decrease in accounts receivables and inventories and
non-cash items such as the restructuring charges, depreciation and amortization
and equity in loss of joint ventures.
Cash flows used in investing activities for the nine months ended September 30,
1998 included capital expenditures of $148.4 million, which represents a $125.0
million reduction from the first nine months of 1997. The Company had committed
capital expenditures of $56.0 million as of September 30, 1998. Capital
expenditures for the first nine months of 1998 primarily related to equipping
the 12-inch pilot line in St. Peters, Missouri, the 12-inch integrated
development line in Utsunomiya, Japan, the granular polysilicon expansion at
MEMC Pasadena and the installation of epitaxial reactors in Utsunomiya, Japan.
The Company anticipates that capital expenditures will be approximately $200.0
million for fiscal year 1998. In addition, on November 10, 1998, the Company
made a $10.5 million equity infusion in Taisil. The Company anticipates that it
will reduce capital expenditures in 1999 to less than $100.0 million.
Cash flows provided by financing activities decreased $60.2 million as compared
to the 1997 nine-month period due to the repayment of short-term borrowings, and
the repurchase of 893,000 shares of the Company's common stock totaling $15.7
million during the first nine months of 1998. Proceeds from issuance of
long-term debt increased by $28.8 million for the first nine months of 1998
compared to the year ago period.
During September 1998, the Company received a three-year $100.0 million
revolving credit facility from VEBA AG, the parent of the Company's majority
stockholder. This is in addition to a $50.0 million credit facility from VEBA AG
that was made available to the Company on June 30, 1998. VEBA AG and its
affiliates agreed to extend until 2001 all of the Company's outstanding debt
maturing prior to January 1, 2001(but only in the event the Company has used its
best efforts to obtain replacement financing on equivalent terms).
As part of this agreement, the Company agreed to increase the interest rates
payable on the Company's outstanding debt with VEBA AG and its affiliates to
reflect interest rate spreads applicable to an average industrial borrower at a
specified credit rating. These higher rates, which are in part attributable to
extended terms, will result in an increase in interest expense of approximately
$15.0 million per year based upon $679.6 million of debt outstanding with VEBA
AG and its affiliates as of September 30, 1998. Prior to this debt
restructuring, interest rates on the U.S. dollar and Japanese yen based loans
outstanding with VEBA AG and its affiliates ranged from 2.1% to 7.6%. As a
result of this debt restructuring, these loans will now have interest rates
ranging from 3.4% to 9.8%. Additionally, all outstanding debt with VEBA AG and
its affiliates maturing prior to January 1, 2001 which is extended at maturity
will be repriced based upon then-current interest rates applicable to an average
industrial borrower at a specified credit rating.
The Company also agreed to increase the annual commitment fee payable on the
undrawn portion of these loans from 1/8 of one percent to 1/4 of one percent.
Additionally, the Company agreed that it will not allow any encumbrances, such
as mortgages and security interests, to be placed on its properties.
If VEBA AG and its affiliates own less than a majority of MEMC's common stock,
then Taisil Electronic Materials Corporation, the unconsolidated Taiwanese joint
venture, may become obligated to repay up to $70.9 million of debt guaranteed by
the Company.
On October 22, 1998, the Company filed a registration statement with the
Securities and Exchange Commission to raise approximately $94 million in equity
capital through a rights offering. The Company also entered into a purchase
agreement with VEBA Corporation, the Company's 53.1% stockholder, pursuant to
which VEBA Corporation agreed to purchase approximately $106 million of MEMC
common stock in a private placement, subject to certain customary conditions.
The private placement to VEBA Corporation is expected to close at about the same
time the Securities and Exchange Commission declares effective the registration
statement associated with the rights offering. The per share price of MEMC's
common stock sold to VEBA Corporation is to be set at a weighted average trading
price per share of MEMC's common stock during a period shortly before the date
of the rights offering final prospectus.
Under the rights offering, the Company plans to issue transferable rights to
purchase additional shares of common stock to the Company's stockholders of
record, other than VEBA Corporation. The rights offering would allow the
Company's stockholders an opportunity to restore their proportionate ownership
interest in the Company at the same price per share of common stock as paid by
VEBA Corporation in the private placement. Rights holders who exercise their
rights in full would also have the opportunity to subscribe for additional
shares of common stock which are not purchased by other eligible rights holders.
VEBA Corporation has agreed to purchase all shares not subscribed for by rights
holders in the rights offering, subject to certain customary conditions.
No assurance can be given that the transactions contemplated by the purchase
agreement and rights offering will be consummated. The registration statement
relating to the rights offering has not yet become effective, and the rights
offering will only be made by means of a prospectus. The securities may not be
sold nor may any offers to buy be accepted before the registration statement
becomes effective. The shares of common stock to be purchased by VEBA
Corporation will not be registered under federal securities laws and may not be
offered or sold without such registration or an applicable exemption. The
Company has granted VEBA Corporation certain registration rights with respect to
such shares.
Management currently believes that cash generated from operations, together with
the liquidity provided by existing cash balances and credit facilities and the
proceeds from the private placement and rights offering (if such transactions
are consummated) will be sufficient to satisfy commitments for capital
expenditures and other cash requirements into 2000.
The silicon wafer industry is highly capital intensive. The Company will need
substantial amounts of cash to continue to fund capital expenditures, research
and development, and marketing and customer service and support. There can be no
assurance that, even with the proceeds from the private placement to VEBA
Corporation and rights offering (if such transactions are consummated) and cash
from operations, if any, our existing capital resources will be able to fund
future operations. The Company's capital needs depend on numerous factors,
including its profitability and investment in research and development and
capital expenditures.
Historically, the Company has funded its operations primarily through loans from
VEBA AG and its affiliates, internally generated funds, and its initial public
offering. To a lesser extent, the Company has raised funds by borrowing money
from commercial banks. The Company will continue to explore and, as appropriate,
enter into discussions with other parties regarding possible future sources of
capital. Under the loan agreements between the Company and its principal lender,
VEBA AG and its affiliates and one other lender, the Company cannot pledge any
of its assets to secure additional financing. The Company does not believe that
it currently can obtain unsecured financing from third parties on better terms
than those with VEBA AG and its affiliates.
For financial reporting purposes, both VEBA Corporation and VEBA AG include VEBA
Corporation's share of the Company's net earnings or losses in their
consolidated financial statements. The Company's recent losses have adversely
affected VEBA Corporation's and VEBA AG's reported earnings. While the Company
is not one of the core businesses that VEBA AG has identified as the focus of
its future major investments, VEBA AG and its affiliates have recently provided
the Company with substantial additional capital commitments, as described
herein. However, VEBA AG and its affiliates are not otherwise obligated to
provide capital to the Company. There can be no assurance that VEBA AG and its
affiliates will continue to provide capital to the Company in the future.
Year 2000
Many existing software programs, computers and other types of equipment were not
designed to accommodate the Year 2000 and beyond. If not corrected, these
computer applications and equipment could fail or create erroneous results. For
the Company, this could disrupt purchasing, manufacturing, sales, finance and
other support areas and affect the Company's ability to timely deliver silicon
wafers with the exacting specifications required by the Company's customers,
thereby causing potential lost sales and additional expenses.
State of Readiness. The Company has created a Year 2000 Project Team that is
comprised of a Program Office, including a Global Project Manager, Customer and
Vendor Management groups and Year 2000 representatives from all sites around the
world, including the Company's unconsolidated joint ventures. This team is
responsible for planning and monitoring all Year 2000 activities and reporting
to the Company's executive management. The Company's Chief Financial Officer is
the sponsor for the Year 2000 project and reports to the Company's Board of
Directors on a periodic basis.
The Company's Year 2000 project encompasses both information and non-information
systems within the Company as well as the investigation of the readiness of the
Company's strategic suppliers/business partners. The Company's goal is to have
all Year 2000 issues resolved by June 1999, with Year 2000 issues relating to
the most critical business systems (i.e. financial, order processing) resolved
by December 1998. To that end, the Company has inventoried and assessed the Year
2000 readiness of the following:
In-house Applications - Those applications that are developed and supported
in-house or purchased applications that are heavily customized and
supported in-house. This classification also includes end-user-developed
applications deemed critical to the business.
Business Software (Purchased) - Applications purchased from an outside
vendor and used for automating business processes (i.e., financial systems,
order processing systems, purchasing systems).
Manufacturing Software (Purchased) - Applications purchased from an outside
vendor and used for automating manufacturing processes.
Personal Computer Software (Purchased) - All software packages resident on
personal computers. This includes things such as operating systems, word
processing software, communications software, project management software,
and spreadsheet software.
Infrastructure Software (Purchased) - Purchased software used in the
client/server and network environments. IT Hardware - Information
Technology hardware components including midrange machines, personal
computers, printers, network hardware.
Facilities & Utilities - Components in the office and manufacturing
supporting systems environments. Types of components include: copy
machines, fax machines, telephone/communications systems, security systems,
fire alarm/control, electrical, waste treatment, alarms, and air handlers.
Manufacturing Equipment - Shop floor equipment such as clean rooms, crystal
pullers, epitaxial reactors, inspection, lab, lappers, laser markers,
measurement tools, grinders, polishers, slicers, and wet benches.
In-house Applications. The Company is evaluating the extent to which
modifications of the Company's in-house applications will be necessary to
accommodate the Year 2000 and are modifying the Company's in-house applications
to enable continued processing of data into and beyond the Year 2000. This phase
of the Company's Year 2000 project is nearing completion and the Company
anticipates completing remediation and testing of the Company's in-house
applications by the end of the first quarter of fiscal 1999.
Purchased Software. The Company is obtaining, where feasible, contractual
warranties from systems vendors that their products are or will be Year 2000
compliant. The Company expects this phase of its Year 2000 project to be
completed by the end of the first quarter of 1999. The Company requires Year
2000 contractual warranties from all vendors of new software and hardware. In
addition, the Company is testing newly purchased computer hardware and software
systems in an effort to ensure their Year 2000 compliance.
Embedded Systems. For in-house embedded systems, the Company is modifying its
systems to enable the continuing functioning of equipment into and beyond the
Year 2000. For third party embedded systems, the Company is obtaining, where
feasible, contractual warranties from systems vendors that their products are or
will be Year 2000 compliant. The Company anticipates that such embedded systems
will be fully tested by June 1999.
Suppliers/Business Partners. The Company has also communicated with its
strategic suppliers and equipment vendors seeking assurances that they will be
Year 2000 ready. The Company's goal is to obtain as much detailed information as
possible about its strategic suppliers/business partners' Year 2000 plans so as
to identify those companies which appear to pose a significant risk of failure
to perform their obligations to the Company as a result of the Year 2000. The
Company expects to have compiled detailed information regarding all of its
strategic suppliers and equipment vendors by December 1998. This will be an
ongoing process during the Company's Year 2000 project. For those strategic
suppliers and equipment vendors that do not respond as to their status or their
response is not satisfactory, the Company intends to develop contingency plans
to ensure that sufficient resources are available to continue with business
operations.
Costs to Address the Year 2000. Spending for modifications and updates is being
expensed as incurred and not expected to have a material impact on the Company's
results of operations or cash flows. The cost of the Company's Year 2000 project
is being funded through borrowings. The Company estimates that its total Year
2000 expenditures will be in the range of $5 - $7 million. Through September 30,
1998, the Company has expended approximately $1.0 million consisting mainly of
contract programmers and consulting costs associated with the evaluation,
assessment and remediation of computer systems and manufacturing equipment. The
Company anticipates that contract programming costs will be its most significant
cost as the Year 2000 project proceeds to completion.
Risk Analysis. Like most large business enterprises, the Company is dependent
upon its own internal computer technology and relies upon the timely performance
of its suppliers/business partners. A large-scale Year 2000 failure could impair
the Company's ability to timely deliver silicon wafers with the exacting
specifications required by its customers, thereby causing potential lost sales
and additional expenses. The Company's Year 2000 project seeks to identify and
minimize this risk and includes testing of its in-house applications, purchased
software and embedded systems to ensure that all such systems will function
before and after the Year 2000. The Company is continually refining its
understanding of the risk the Year 2000 poses to its strategic
suppliers/business partners based upon information obtained through our surveys.
This refinement will continue throughout 1998 and into 1999.
Contingency Plans. The Company's Year 2000 project includes the development of
contingency plans for business critical systems and manufacturing equipment as
well as for strategic suppliers/business partners to attempt to minimize
disruption to its operations in the event of a Year 2000 failure. The Company
will be formulating plans to address a variety of failure scenarios, including
failures of its in-house applications, as well as failures of strategic
suppliers/business partners. The Company anticipates it will complete Year 2000
contingency planning by June 1999.
Year 2000 Cautionary Statement. Year 2000 issues are widespread and complex.
While the Company believes it will address them on a timely basis, the Company
cannot guarantee that it will be successful or that these problems will not
materially adversely affect its business or results of operations. To a large
extent, the Company depends on the efforts of its customers, suppliers and other
organizations with which it conducts transactions to address their Year 2000
issues, over which the Company has no control.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the euro. The participating countries have agreed to
adopt the euro as their common legal currency as of that date while still
utilizing their local currency until January 1, 2002.
The Company has begun to assess the potential impact to the Company that may
result from the euro conversion. In addition to tax and accounting
considerations, the Company is also assessing the potential impact from the euro
conversion in a number of other areas, including: the technical challenges to
adapt information technology and other systems to accommodate euro-denominated
transactions; the competitive impact of cross-border price transparency, which
may make it more difficult for businesses to charge different prices for the
same products on a country by country basis; the impact on currency exchange
costs and currency exchange rate risk; and, the impact on existing contracts.
While the Company will continue to assess the impact of the introduction of the
euro, based on currently available information, management does not believe that
that the introduction of the euro will have a material adverse effect on the
Company's financial condition or results of operations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires the recognition of
all derivatives as assets or liabilities within the balance sheet, and requires
both the derivatives and the underlying exposure to be recorded at fair value.
Any gain or loss resulting from changes in fair value will be recorded as part
of the results of operations, or as a component of comprehensive income or loss,
depending upon the intended use of the derivative. SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The Company
has not yet determined the impact of this Statement.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. This Statement
also requires that costs related to the preliminary project stage and the
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. SOP 98-1 is effective for financial
statements issued for fiscal years beginning after December 15, 1998. The
Company has not yet determined the impact of this Statement.
Cautionary Statement Regarding Forward-Looking Statements
This Form 10-Q contains "forward-looking" statements within the meaning of the
Securities Litigation Reform Act of 1995, including those concerning: an
increase in interest expense on existing debt with VEBA AG and its affiliates;
the utilization of the restructuring reserve; the manner, timing and estimated
savings of restructuring activities and the voluntary separation program;
transfer of Spartanburg-based customer orders to other existing facilities;
product volume for the fourth quarter of 1998; capital expenditures for 1998
fourth quarter and 1999; liquidity into 2000; the successful implementation of
Year 2000 initiatives; continued pricing pressure on silicon wafers; and the
impact of the introduction of the euro. Such statements involve certain risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. Potential risks and uncertainties
include such factors as: the demand for the Company's wafers; utilization of
manufacturing capacity; demand for semiconductors generally; changes in the
pricing environment; general economic conditions in the Asia Pacific region and
Japan; competitors' actions; changes in interest rates; willingness of customers
to re-qualify Spartanburg-based customer orders at other Company facilities;
accuracy of assumptions regarding savings from restructuring activities; the
status and effectiveness of the Company's Year 2000 efforts; consummation of the
Company's proposed rights offering and private placement; and other risks
described in the Company's filings with the Securities and Exchange Commission,
including the registration statement on Form S-3 filed on October 22, 1998.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company has a dispute with a manufacturer of equipment for the production of
silicon wafers, which the Company has been unable to resolve. The Company has
been advised that if there is no resolution of this matter in the near future,
the equipment manufacturer will file claims to seek damages against the Company
for up to $6.5 million. While the Company will assert all of its defenses in
this dispute, there can be no assurance that it will be able to resolve this
dispute on terms favorable to the Company.
In a case entitled Damewood vs. MEMC, filed on August 1, 1996, three employees
of the former operator of MEMC Pasadena's plant, Albemarle Corporation, filed
suit against the Company and others in the 189th Judicial District Court, Harris
County, Texas in connection with injuries they sustained during an explosion at
that plant on January 27, 1996. The Company has settled this matter with
plaintiffs and has been dismissed as a party. One of the other defendants, Ethyl
Corporation, was the only defendant in this case at the time of trial in October
1998. A jury awarded a verdict against Ethyl Corporation in the amount of $6.1
million.
In July of 1996, two employees of the former operator of the MEMC Pasadena plant
were injured when flaming liquid escaped from a valve under repair. These
individuals filed suit on June 13, 1997, against the Company and others in a
case entitled Parden vs. MEMC in the 61st Judicial District Court, Harris
County, Texas. Plaintiffs are seeking actual and exemplary damages in an
unstated amount. The Company believes that it has meritorious defenses to this
cause of action. This case is currently set for trial on February 22, 1999.
A demand for defense and indemnity in both these cases was made on behalf of
Ethyl Corporation by Albemarle Corporation against the Company on September 29,
1998. Albemarle Corporation has assumed the obligation to defend and indemnify
Ethyl Corporation under an agreement pursuant to which ownership of the plant
where the injury took place was transferred from Ethyl Corporation to Albemarle
Corporation. This demand for defense and indemnification against the Company is
under evaluation by counsel for the Company. In early November, the Company made
a demand for indemnity in these cases against Albemarle. Demands for indemnity
made by Albemarle Corporation on behalf of Ethyl Corporation and by the Company
are both based on contractual indemnity language contained in the contract for
the sale of the MEMC Pasadena plant from Albemarle Corporation to the Company.
Due to uncertainty regarding the scope and interpretation of contractual
indemnity provisions and the status of any insurance coverage, there can be no
assurance that the ultimate outcome of the matter will not have a material
adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at page 17 of this report.
(b) Reports on Form 8-K
None.
<PAGE>
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.
MEMC Electronic Materials, Inc.
November 13, 1998 /s/ JAMES M. STOLZE
- ----------------- ----------------------------------------
James M. Stolze
Executive Vice President and Chief Financial Officer
(on behalf of the registrant and as principal financial
and accounting officer)
<PAGE>
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit
Number Exhibit
------- -------
3(i) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3-a of the Company's
Form 10-Q for the Quarter ended June 30, 1995)
3(ii) Restated By-laws of the Company (incorporated by reference
to Exhibit 3-b of the Company's Form 10-Q for the Quarter
ended September 30, 1996)
10-g(1) Second Amendment to Technical Agreement effective as of
September 30, 1998 between the Company and POSCO Huls Co.,
Ltd. (Incorporated by reference to Exhibit 10-g(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-cc(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(formerly Huls Corporation) "VEBA Corporation"
(Incorporated by reference to Exhibit 10-cc(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-dd(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-dd(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-ee(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-ee(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-ff(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-ff(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-gg(2) Second Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-gg(2) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-hh(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-hh(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-ii(2) Second Amendment to Revolving Credit Agreement effective
as of September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-ii(2) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-qq(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-qq(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-rr(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-rr(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-ss(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-ss(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-tt(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-tt(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-ccc(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-ccc(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-ddd(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-ddd(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-eee(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Huls AG
(Incorporated by reference to Exhibit 10-eee(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-fff(1) First Amendment to Overnight Loan Agreement effective as
of September 1, 1998 between the Company and VEBA
Corporation (Incorporated by reference to Exhibit
10-fff(1) of the Company's Current Report on Form 8-K
dated October 22, 1998)
10-jjj(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-jjj(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-kkk(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-kkk(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-lll(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-lll(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-mmm(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-mmm(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-xxx(1) First Amendment to Loan Agreement effective as of
September 1, 1998 between the Company and VEBA Corporation
(Incorporated by reference to Exhibit 10-xxx(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-yyy International Transfer Letter Agreement effective as of
October 1, 1998 between the Company and Marcel Coinne
(Incorporated by reference to Exhibit 10-yyy of the
Company's Current Report on Form 8-K dated October 22,
1998)
10-zzz Revolving Credit Agreement dated as of September 23, 1998
between the Company and VEBA AG (Incorporated by reference
to Exhibit 10-zzz of the Company's Current Report on Form
8-K dated October 22, 1998)
10-aaaa Purchase Agreement dated as of October 22, 1998 by and
among the Company and VEBA Corporation (Incorporated by
reference to Exhibit 2 of the Schedule 13D dated October
30, 1998 filed by VEBA Aktiengesellschaft and VEBA
Corporation with respect to the Company)
10-bbbb Standby Agreement dated as of October 22, 1998 by and
among the Company and VEBA Corporation (Incorporated by
reference to Exhibit 3 of the Schedule 13D dated October
30, 1998 filed by VEBA Aktiengesellschaft and VEBA
Corporation with respect to the Company)
27 Financial Data Schedule (filed electronically with the SEC
only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 33,529
<SECURITIES> 0
<RECEIVABLES> 118,324
<ALLOWANCES> 2,367
<INVENTORY> 123,183
<CURRENT-ASSETS> 340,613
<PP&E> 1,693,663
<DEPRECIATION> 531,642
<TOTAL-ASSETS> 1,747,008
<CURRENT-LIABILITIES> 322,516
<BONDS> 718,428
0
0
<COMMON> 414
<OTHER-SE> 458,099
<TOTAL-LIABILITY-AND-EQUITY> 1,747,008
<SALES> 605,081
<TOTAL-REVENUES> 605,081
<CGS> 613,220
<TOTAL-COSTS> 613,220
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,195
<INCOME-PRETAX> (287,235)
<INCOME-TAX> (65,136)
<INCOME-CONTINUING> (239,937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,937)
<EPS-PRIMARY> (5.90)
<EPS-DILUTED> (5.90)
</TABLE>
