<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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
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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
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(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 July 31, 1998: 40,511,164 shares
<PAGE> 2
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 202,153 $ 245,780 $ 437,396 $ 468,064
Cost of goods sold 205,965 214,948 417,440 409,163
------------ ------------ ------------ ------------
Gross margin (3,812) 30,832 19,956 58,901
Operating expenses:
Marketing and administration 18,940 16,878 37,370 34,859
Research and development 17,664 15,769 37,767 29,176
Restructuring costs 131,428 -- 139,454 --
------------ ------------ ------------ ------------
Operating loss (171,844) (1,815) (194,635) (5,134)
------------ ------------ ------------ ------------
Nonoperating (income) expense:
Interest expense 8,986 1,256 17,264 1,256
Interest income (376) (190) (879) (783)
Royalty income (1,423) (2,205) (2,524) (4,292)
Other, net 1,609 (8,248) 3,200 (6,541)
------------ ------------ ------------ ------------
Total nonoperating (income) expense 8,796 (9,387) 17,061 (10,360)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes, equity
in loss of joint ventures and
minority interests (180,640) 7,572 (211,696) 5,226
Income taxes (36,935) 3,257 (47,494) 2,248
------------ ------------ ------------ ------------
Earnings (loss) before equity in loss of joint
ventures and minority interests (143,705) 4,315 (164,202) 2,978
Equity in loss of joint ventures (6,860) (1,205) (18,481) (3,096)
Minority interests 1,920 1,109 3,200 1,442
------------ ------------ ------------ ------------
Net earnings (loss) $ (148,645) $ 4,219 $ (179,483) $ 1,324
============ ============ ============ ============
Basic earnings (loss) per share $ (3.67) $ 0.10 $ (4.41) $ 0.03
Diluted earnings (loss) per share $ (3.67) $ 0.10 $ (4.41) $ 0.03
============ ============ ============ ============
Weighted average shares used in computing basic
earnings (loss) per share 40,511,164 41,338,426 40,703,636 41,409,163
Weighted average shares used in computing diluted
earnings (loss) per share 40,511,164 41,524,290 40,703,636 41,556,378
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,777 $ 30,053
Accounts receivable, less allowance for doubtful accounts of
$2,300 and $3,473 in 1998 and 1997, respectively 132,602 154,702
Income taxes receivable 7,634 14,382
Inventories 134,971 141,447
Prepaid and other current assets 38,008 36,391
----------- -----------
Total current assets 329,992 376,975
Property, plant and equipment, net of accumulated depreciation of
$483,377 and $465,384 in 1998 and 1997, respectively 1,154,887 1,200,827
Investment in joint ventures 105,839 112,573
Excess of cost over net assets acquired, net of accumulated amortization
of $4,440 and $3,752 in 1998 and 1997, respectively 49,084 49,772
Other assets 112,186 54,277
----------- -----------
Total assets $ 1,751,988 $ 1,794,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 109,154 $ 122,476
Accounts payable 93,018 146,172
Provision for restructuring costs 54,192 --
Accrued liabilities 57,187 48,611
Accrued wages and salaries 18,567 21,267
----------- -----------
Total current liabilities 332,118 338,526
Long-term debt, less current portion 669,880 510,038
Pension and similar liabilities 83,119 76,837
Customer deposits 68,122 67,141
Other liabilities 27,024 26,901
----------- -----------
Total liabilities 1,180,263 1,019,443
----------- -----------
Minority interests 56,027 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,
41,440,369 issued and outstanding in 1998 and 1997 414 414
Additional paid-in capital 574,317 574,317
Retained earnings (accumulated deficit) (10,987) 168,496
Accumulated other comprehensive loss (30,708) (25,721)
Unearned restricted stock awards (318) (424)
Treasury stock, at cost: 929,205 and 36,205 shares in 1998 and
1997, respectively (17,020) (1,328)
----------- -----------
Total stockholders' equity 515,698 715,754
----------- -----------
Total liabilities and stockholders' equity $ 1,751,988 $ 1,794,424
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(179,483) $ 1,324
Adjustments to reconcile net earnings (loss) to net cash used
in operating activities:
Depreciation and amortization 78,384 56,588
Restructuring costs 114,800 --
Minority interests (3,200) (1,442)
Equity in loss of joint ventures 18,481 3,096
Loss (gain) on sale of property, plant and equipment 34 (6,831)
Working capital and other (66,429) (55,643)
--------- ---------
Net cash used in operating activities (37,413) (2,908)
--------- ---------
Cash flows from investing activities:
Capital expenditures (107,939) (175,105)
Proceeds from sale of property, plant and equipment 3,043 12,284
Equity infusions in joint ventures (11,747) --
Dividend received from unconsolidated joint venture -- 11,262
Other (398) 809
--------- ---------
Net cash used in investing activities (117,041) (150,750)
--------- ---------
Cash flows from financing activities:
Net short-term borrowings (3,726) 40,509
Proceeds from issuance of long-term debt 170,404 103,347
Principal payments on long-term debt (9,715) (1,368)
Stock options exercised -- 156
Repurchase of common stock (15,692) --
--------- ---------
Net cash provided by financing activities 141,271 142,644
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (93) (213)
--------- ---------
Net decrease in cash and cash equivalents (13,276) (11,227)
Cash and cash equivalents at beginning of period 30,053 35,096
--------- ---------
Cash and cash equivalents at end of period $ 16,777 $ 23,869
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
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 six-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
(2) 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 participation in the small diameter wafer
operations in China. In order to gain production efficiencies,
semiconductor manufacturers have increased their use of large diameter
manufacturing lines in preference to small diameter lines. In addition, a
number of semiconductor manufacturers recently have undertaken
restructuring initiatives focused on permanently eliminating small diameter
lines. The combination of these developments in the industry led the
Company to conclude that its small diameter wafer capacity would exceed
demand even after the semiconductor market begins to recover. Therefore,
the decisions concerning Spartanburg and the China joint venture were made.
The Company also decided to forego construction of a new eight inch wafer
facility in Malaysia. This decision is based upon industry overcapacity and
the resultant price erosion for eight inch wafers.
The Company recorded a charge to operations during the second quarter of
$114,800 (of which $78,100 is non-cash) related to the above actions,
comprised of the following:
<TABLE>
<S> <C>
Asset impairment/write-off $ 78,100
Dismantling costs 24,500
Personnel costs 12,200
--------
$114,800
========
</TABLE>
The assets for which an impairment loss has been recorded, or which have
been written off entirely, are primarily property, plant and equipment that
cannot be sold or used at other Company manufacturing 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 site that do not have applicability
elsewhere within the Company.
The provision for dismantling costs relates to the Spartanburg production
facility and includes estimates for the removal of production equipment,
dismantling of the facility, collection and disposal of process chemicals,
decontamination of manufacturing equipment, shutdown 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 $16,600 charge to complete the voluntary separation program for
approximately 600 hourly and salaried U.S. employees that began in the
first quarter of 1998. Substantially all this amount was paid to employees
as of June 30, 1998. The total charge to operations for this program was
$24,600, which includes an $8,000 provision made during the first quarter
of 1998.
These restructuring activities are expected to be implemented over the next
12 months. During this time the Company will transfer the small diameter
production activities of the Spartanburg facility to other existing Company
locations. Estimated pre-tax savings as a result of these restructuring
activities and the voluntary separation plan are $60,000 on an annualized
basis. One-half of the estimated savings will begin 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 wafer facilities within the Company and the
willingness of these customers to re-qualify at other sites, but these
savings will begin in the third quarter of 1998.
<PAGE> 6
(3) Earnings (loss) per share
The numerator for basic and diluted earnings (loss) per share calculation
is net earnings (loss) for all periods presented. The denominator for the
basic and diluted earnings (loss) per share calculation for the three and
six-month periods ended June 30, 1998 are the same (the weighted average
shares outstanding for each respective period) due to the net loss incurred
during each period. A reconciliation of weighted average shares for the
basic and diluted earnings (loss) per share calculation for the three and
six-month periods ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1997
---- ----
<S> <C> <C>
Weighed average shares used
for basic earnings (loss) per
share 41,338,426 41,409,163
Effect of dilutive securities:
Restricted stock 64,000 64,000
Stock options 121,864 83,215
---------- ----------
Weighted average shares used
for dilutive earnings (loss)
per share 41,524,290 41,556,378
========== ==========
</TABLE>
The following options to purchase the Company's common stock were
outstanding as of June 30, 1998 but were not included in the computation of
diluted loss per share for the three and six month periods ended June 30,
1998:
<TABLE>
<CAPTION>
Range of Number Outstanding
Exercise Prices at June 30, 1998
--------------- ------------------
<S> <C>
$15.00-22.50 990,000
24.00-29.00 661,564
32.63-49.50 124,100
---------
1,775,664
=========
</TABLE>
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials and supplies $ 69,465 $ 65,369
Goods in process 30,892 37,996
Finished goods 34,614 38,082
-------- --------
$134,971 $141,447
======== ========
</TABLE>
(5) Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. All comparative information has been reclassified to
conform to the current year presentation.
Comprehensive loss for the three and six-month periods ended June 30, 1998
was $151,207 and $184,470, respectively. For the three and six-month
periods ended June 30, 1997, the Company had comprehensive income of $9,563
and a comprehensive loss of $6,054, respectively. The Company's
comprehensive loss is impacted only by foreign currency translation
adjustments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales. Net sales decreased 17.8% to $202.2 million for the three months
ended June 30, 1998, from $245.8 million for the three months ended June 30,
1997. Product volume declined 5.5% in the 1998 second quarter over the year ago
period due to weakening demand for smaller diameter wafers, partially offset by
a 23.8% increase in eight inch product volume. On a geographic basis, product
volumes decreased most significantly in the United States, followed by the Asia
Pacific region, while Japan was essentially flat and Europe experienced strong
volume growth compared to the second quarter of 1997.
Net sales for the six month period ended June 30, 1998 decreased 6.6% to $437.4
million from $468.1 million for the comparable period. Product volume increased
4.4% for the first half of 1998 over the year-ago period, led by a 38.4%
increase in eight inch volume, partially offset by volume declines in all
smaller diameter wafers. Volume increases by geographic region were highest in
Europe, followed by Japan. Sales to the Asia Pacific region were flat, and were
<PAGE> 7
slightly lower in the United States.
Excess capacity in the semiconductor industry, particularly DRAMs, continuing
problems and weakness in the Asian and Japanese economies, and lower than
expected PC sales have caused product volumes in the silicon wafer industry to
decline over the past two quarters. These factors, in addition to excess
capacity in the silicon wafer industry, have caused average selling prices to
decline significantly since the beginning of 1997. As the Company believes these
industry conditions are likely to persist in the near term, the Company
anticipates that product volumes and pricing will continue to weaken in the 1998
third quarter, and that the Company's significant excess capacity will persist
through 1999.
Gross Margin. Gross margin declined from 12.5% in the second quarter of 1997 to
a negative 1.9% for the second quarter of 1998. The decline in gross margin is
primarily attributable to continuing pressure on prices, especially for advanced
large diameter wafers, and lower product volume. For the six months ended June
30, 1998, gross margin was 4.6%, as compared to 12.6 % for the year-ago period.
The decline in gross margin for the first six months of 1998 is also
attributable to falling prices, partially offset by an increase in eight inch
product volume and improved product mix.
Advanced large diameter and epitaxial products represented 45% and 39% of
product volume for the three months ended June 30, 1998 and 1997, respectively.
The increase in eight inch product volume is a result of the Company's customers
running larger diameter production lines in preference to smaller diameter lines
in order to gain production efficiencies during the semiconductor industry
downturn.
Marketing and Administration. Marketing and administration costs were $18.9
million for the second quarter of 1998, a 12.2% increase over the second quarter
of 1997. For the six month period, marketing and administration costs increased
$2.5 million, or 7.2%, over the same period in 1997. The increase in marketing
and administration costs for both the three and six-month periods is due
primarily to expenses associated with redesign of the Company's business systems
as part of a worldwide SAP implementation that began in 1998.
Research and Development. Research and development costs rose 12.0% to $17.7
million for the three months ended June 30, 1998, as compared to $15.8 million
for the year-ago period. Research and development costs increased 29.4% to $37.8
million for the six-month period as compared to the year-ago period. The
increase is due to continuing investments in the Company's 12 inch wafer
development program. The expenses for this program are anticipated to rise as a
result of depreciation associated with the installation of equipment and
start-up of the Company's 12 inch integrated development line in Utsunomiya,
Japan.
Restructuring Costs. Because of developments in the semiconductor industry,
including the increased use of large diameter lines by manufacturers and the
focus on permanent elimination by some manufacturers of small wafer diameter
lines, 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 participation in the small diameter wafer operations in
China. These decisions were made principally because of the Company's
determination that even after the semiconductor market begins to recover, the
Company will have excess small diameter wafer capacity in light of industry
developments. In an effort to control further excess capacity of the Company's
large diameter wafer facilities, the Company also decided in the second quarter
to forego construction of a new eight inch wafer facility in Malaysia.
These actions resulted in a charge to operations during the second quarter of
$114.8 million (of which $78.1 million is non-cash), comprised of $78.1 million
for asset impairments, $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 been written off entirely 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 site. 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 2, Notes to Consolidated Financial Statements, above.
Also in the second quarter of 1998, the Company recorded a $16.6 million charge
to complete the voluntary separation program for approximately 600 hourly and
salaried U.S. employees that began in the first quarter of 1998. The total
charge to operations for this program was $24.6 million, which includes an $8.0
million provision made during the first quarter of 1998.
Management expects that the restructuring activities discussed above will be
implemented over the next 12 months. During this time, the Company will transfer
the small diameter production activities of the Spartanburg facility to other
Company locations. Estimated pre-tax savings as a result of these restructuring
activities and the voluntary separation plan are $60 million on an annualized
basis. One-half of the estimated savings are expected to begin 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
<PAGE> 8
factors as the transfer of the Spartanburg-based customer orders to other wafer
facilities within the Company and the willingness of these customers to
re-qualify at other sites, but these savings will begin in the third quarter of
1998. 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 $9.0 million and $17.3 million for
the three and six-month periods ended June 30, 1998, respectively as compared to
$1.3 million for each of the three and six-month periods of 1997. The increase
in interest expense is due to the completion of capital projects for which
interest costs could no longer be capitalized and increased borrowings.
Other, Net. Other, net decreased approximately $10 million for the three and
six-month periods ended June 30, 1998 as compared to the same periods 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 22.4% for the first six 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 pretax income, certain of
the restructuring costs that are not deductible for tax purposes and
non-deductible operating expenses at the Malaysian and Chinese joint ventures.
Equity in Loss of Joint Ventures. Equity in loss of joint venture was $6.9
million in the second quarter of 1998, as compared to a loss of $1.2 million in
the year-ago period. The loss in the second quarter of 1998 includes the
write-off of certain deferred tax assets totaling $5.4 million at Taisil, the
Taiwan joint venture, which are not anticipated to be utilized prior to the
initiation of a tax holiday beginning in 2000. Excluding the write-off, equity
in loss of joint ventures would have been $1.5 million in the second quarter of
1998, reflecting lower volumes and prices at PHC, and lower prices at Taisil.
For the six months ended June 30, 1998, equity in loss of joint ventures was
$18.5 million, a $15.4 million increase over the first six months of 1997.
Excluding the impact of the deferred tax asset write-off discussed above,
equity in loss of joint ventures would have been $13.1 million for the six
months ended June 30, 1998. This decrease as compared to the year-ago period is
due to the lower volumes and prices at PHC and Taisil.
Liquidity and Capital Resources. At June 30, 1998, the Company had cash and cash
equivalents of $16.8 million. The Company's borrowings against its $936.1
million of credit facilities were $779.0 million at June 30, 1998. Outstanding
borrowings increased $146.5 million from December 31, 1997 to June 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 6.0% at June 30, 1998.
A comparison of the components of the Company's financial condition follows
(dollars in millions):
June 30, December 31,
1998 1997
---- ----
Working capital $ (2.1) $ 38.4
Current ratio 1.0 to 1 1.1 to 1
Stockholders' equity $ 515.7 $ 715.8
Total debt to total capitalization 57.7% 44.9%
==== ====
The Company's primary sources of liquidity historically have been cash flows
from operating activities and borrowings from affiliates and, to a lesser
extent, from third parties. The Company's principal uses of cash have been to
support its operating activities, capital expenditures and equity infusions in
joint ventures. The Company's capital expenditures and its recent operating
performance have resulted in significant negative cash flow.
Cash flows used in operating activities were $37.4 million for the six months
ended June 30, 1998 compared to $2.9 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 non-cash items such as the restructuring charge recorded
during the 1998 second quarter, depreciation and equity in loss of joint
ventures.
Cash flows used in investing activities for the six months ended June 30, 1998
included capital expenditures of $107.9 million, which represents a $67.2
million reduction from the first six months of 1997. The Company had committed
capital expenditures of $95.8 million as of June 30, 1998. Capital expenditures
for the first half of 1998 primarily relate to equipping the 12 inch pilot line
in St. Peters, Missouri, the 12 inch integrated development line in Utsunomiya,
<PAGE> 9
Japan and the polysilicon expansion at MEMC Pasadena. Given current market
conditions, the Company anticipates that capital expenditures will be
approximately $220 million for fiscal year 1998.
Cash flows from financing activities were essentially flat as compared to the
1997 six-month period, although the 1998 period includes higher long-term and
lower short-term borrowings than in 1997, and the repurchase of 893,000 shares
of the Company's common stock totaling $15.7 million during the first quarter of
1998.
The Company's liquidity and cash flow are being negatively impacted by the
Company's operating losses caused by excess capacity and declining prices,
increasing research and development costs and interest expense, and capital
expenditures. As a result, the Company could experience difficulty in obtaining
additional credit facilities from unrelated third parties on terms acceptable to
the Company. Management currently believes that cash generated from operations,
together with the liquidity provided by existing cash balances and credit
facilities will be insufficient to satisfy commitments for capital expenditures
and other cash requirements for the next twelve months. Accordingly, the Company
is discussing with its principal stockholder and related affiliates additional
financing and the restructuring of existing credit facilities. Although there
can be no assurance, management believes it can obtain sufficient financing to
meet its cash requirements for the next 12 months.
Year 2000. Many computer systems experience problems handling dates beyond the
year 1999. Many existing computer programs only use two digits to identify a
year in the date field. Such systems and programs must be modified or replaced
prior to January 1, 2000 in order to remain functional. The Company has
undertaken a company-wide Year 2000 project, staffed with a diverse team of
personnel representing all levels of the Company's operations and headed by the
Company's Executive Vice President and Chief Financial Officer. The Company has
also retained an outside consulting firm to assist in ensuring the proper
project structure is put in place and that the requisite level of awareness of
the Year 2000 issue is across all levels of the Company. These early phases of
the project are complete, a project structure is in place and the Company has
now entered the remediation, testing and implementation phases of the project.
All sites are at different stages of completion. The goal of management is to
have all systems and equipment Year 2000 ready by June 1999 and critical systems
and process equipment ready by 1998 year end.
In addition, some Year 2000 exposures relate to the Company's suppliers and
customers. The Company has identified its key suppliers and business partners
and has sent out initial requests for information on their Year 2000 compliance
status. The Company has dedicated resources to monitor these parties' progress
as they address the Year 2000 issue. Additional requests will be sent, responses
tracked and contingency plans developed as required to address potential
failures of these parties to be Year 2000 ready.
Failure by the Company and/or the third parties with whom it does business to be
prepared for and properly address the Year 2000 issue could have a material
adverse effect on the Company and its ability to conduct business. The Company
expects to implement successfully the systems and programming changes necessary
to address the Year 2000 issue and does not believe the cost of such actions
will have a material adverse effect on the Company, its results of operations or
financial condition.
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.
This Form 10-Q contains "forward-looking" statements within the meaning of the
Securities Litigation Reform Act of 1995, including those concerning the manner,
timing and estimated savings of restructuring activities and the voluntary
separation program, transfer of Spartanburg-based small diameter production
activities to other existing locations, product volume and pricing for the third
quarter of 1998, excess capacity through 1999, increases in research and
development expenses, capital expenditures for 1998, the Company's ability to
secure financing in the future on terms acceptable to the Company, liquidity for
the next twelve months and the successful implementation of Year 2000
initiatives. 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 Asia and Japan, competitors' actions, willingness of customers to
re-qualify Spartanburg-based production at other Company locations, accuracy of
assumptions regarding savings from restructuring activities, success of the
Company's discussions with its principal stockholder and related affiliates
concerning financing matters and other risks described in the Company's filings
with the Securities and Exchange Commission, including the report on Form 10-K
for the year ended December 31, 1997.
<PAGE> 10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at page 13 of this report.
(b) Reports on Form 8-K
During the second quarter of 1998, the Company filed one current report
on Form 8-K, dated April 14, 1998. The Form 8-K was filed to report,
under Item 5, the Company's outlook for its financial results for the
first and second quarters of 1998.
<PAGE> 11
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.
March 2, 1999 /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> 12
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-gg(1) First Amendment to Credit Agreement effective as of July 1, 1998
between the Company and Huls AG (incorporated by reference to
Exhibit 10-gg(1) of the Company's Form 10-Q for the Quarter Ended
June 30, 1998)
10-ii(1) Amendment to Loan Agreement effective March 4, 1998 between the
Company and Huls AG (incorporated by reference to Exhibit
10-ii(1) of the Company's Form 10-Q for the Quarter Ended June
30, 1998)
10-qqq MEMC Electronic Materials, Inc. Special Incentive Plan Summary
(incorporated by reference to Exhibit 10-qqq of the Company's
Form 10-Q for the Quarter Ended June 30, 1998)
10-rrr Special Incentive Bonus Agreement dated as of March 26, 1998
between the Company and Marcel Coinne (incorporated by reference
to Exhibit 10-rrr of the Company's Form 10-Q for the Quarter
Ended June 30, 1998)
10-sss Special Incentive Bonus Agreement dated as of March 24, 1998
between the Company and Ralph D. Hartung (incorporated by
reference to Exhibit 10-sss of the Company's Form 10-Q for the
Quarter Ended June 30, 1998)
10-ttt Special Incentive Bonus Agreement dated as of March 31, 1998
between the Company and James M. Stolze (incorporated by
reference to Exhibit 10-ttt of the Company's Form 10-Q for the
Quarter Ended June 30, 1998)
10-uuu Employment Agreement effective as of April 1, 1998 between the
Company and Klaus R. von Horde (incorporated by reference to
Exhibit 10-uuu of the Company's Form 10-Q for the Quarter Ended
June 30, 1998)
10-vvv Letter Agreement dated April 17, 1998 between the Company and Dr.
Werner Schmitz (incorporated by reference to Exhibit 10-vvv of
the Company's Form 10-Q for the Quarter Ended June 30, 1998)
10-www Agreement dated May 19, 1998 between the Company and Ralph D.
Hartung (incorporated by reference to Exhibit 10-www of the
Company's Form 10-Q for the Quarter Ended June 30, 1998)
10-xxx Loan Agreement dated as of June 30, 1998 between the Company and
Huls Corporation (incorporated by reference to Exhibit 10-xxx of
the Company's Form 10-Q for the Quarter Ended June 30, 1998)
27 Financial Data Schedule (filed electronically with the SEC only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of June 30, 1998 and the consolidated statement of
operations for the six month period ended June 30, 1998, and is qualified in its
entirety by reference to such financial information.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,777
<SECURITIES> 0
<RECEIVABLES> 134,902
<ALLOWANCES> 2,300
<INVENTORY> 134,971
<CURRENT-ASSETS> 329,992
<PP&E> 1,638,264
<DEPRECIATION> 483,377
<TOTAL-ASSETS> 1,751,988
<CURRENT-LIABILITIES> 332,118
<BONDS> 669,880
0
0
<COMMON> 414
<OTHER-SE> 515,284
<TOTAL-LIABILITY-AND-EQUITY> 1,751,988
<SALES> 437,396
<TOTAL-REVENUES> 437,396
<CGS> 417,440
<TOTAL-COSTS> 417,440
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 17,264
<INCOME-PRETAX> (211,696)
<INCOME-TAX> (47,494)
<INCOME-CONTINUING> (179,483)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (179,483)
<EPS-PRIMARY> (4.41)
<EPS-DILUTED> (4.41)
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