<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 March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
- --------------------------------------------------------------------------------
(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 March 31, 1998: 40,511,164 shares
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except share data)
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net sales $ 235,243 $ 222,284
Cost of goods sold 211,475 194,215
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Gross margin 23,768 28,069
Operating expenses:
Marketing and administration 18,430 17,981
Research and development 20,103 13,407
Restructuring costs 8,026 -
---------- ----------
Operating loss (22,791) (3,319)
---------- ----------
Nonoperating (income) expense:
Interest expense 8,278 -
Interest income (503) (593)
Royalty income (1,101) (2,087)
Other, net 1,591 1,707
---------- ----------
Total nonoperating (income) expense 8,265 (973)
---------- ----------
Loss before income taxes, equity
in loss of joint ventures and
minority interests (31,056) (2,346)
Income taxes (10,559) (1,009)
---------- ----------
Loss before equity in loss of joint
ventures and minority interests (20,497) (1,337)
Equity in loss of joint ventures (11,621) (1,891)
Minority interests 1,280 333
---------- ----------
Net loss $ (30,838) $ (2,895)
========== ==========
Basic loss per share $ (0.75) $ (0.07)
Diluted loss per share $ (0.75) $ (0.07)
========== ==========
Weighted average shares used in computing basic
loss per share 40,898,246 41,336,126
Weighted average shares used in computing diluted
loss per share 40,898,246 41,336,126
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
March 31, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,978 $ 30,053
Accounts receivable, less allowance for doubtful accounts of
$2,218 and $3,473 in 1998 and 1997, respectively 150,239 154,702
Income taxes receivable 8,845 14,382
Inventories 146,828 141,447
Prepaid and other current assets 39,895 36,391
---------- ----------
Total current assets 362,785 376,975
Property, plant and equipment, net of accumulated depreciation of
$492,669 and $465,384 in 1998 and 1997, respectively 1,204,238 1,200,827
Investment in joint ventures 112,699 112,573
Excess of cost over net assets acquired, net of accumulated amortization
of $4,096 and $3,752 in 1998 and 1997, respectively 49,428 49,772
Other assets 69,147 54,277
---------- ----------
Total assets $1,798,297 $1,794,424
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 108,508 $ 122,476
Accounts payable 108,674 146,172
Accrued liabilities 61,474 48,611
Accrued wages and salaries 24,706 21,267
---------- ----------
Total current liabilities 303,362 338,526
Long-term debt, less current portion 597,630 510,038
Pension and similar liabilities 77,555 76,837
Customer deposits 68,122 67,141
Other liabilities 26,829 26,901
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Total liabilities 1,073,498 1,019,443
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Minority interests 57,947 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 137,658 168,496
Accumulated other comprehensive loss (28,146) (25,721)
Unearned restricted stock awards (371) (424)
Treasury stock, at cost: 929,205 and 36,205 shares in 1998 and
1997, respectively (17,020) (1,328)
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Total stockholders' equity 666,852 715,754
---------- ----------
Total liabilities and stockholders' equity $1,798,297 $1,794,424
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(30,838) $ (2,895)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 38,448 26,422
Minority interests (1,280) (333)
Equity in loss of joint ventures 11,621 1,891
Working capital and other (32,634) (35,331)
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Net cash used in operating activities (14,683) (10,246)
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Cash flows from investing activities:
Capital expenditures (49,330) (98,221)
Proceeds from sale of property, plant and equipment 2,916 -
Equity infusions in joint ventures (11,747) -
Dividend received from unconsolidated joint venture - 11,262
Other 550 (1,029)
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Net cash used in investing activities (57,611) (87,988)
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Cash flows from financing activities:
Net short-term borrowings (13,778) (599)
Proceeds from issuance of long-term debt 89,100 87,930
Principal payments on long-term debt (495) (531)
Repurchase of common stock (15,692) -
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Net cash provided by financing activities 59,135 86,800
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Effect of exchange rate changes on cash and cash equivalents 84 (535)
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Net decrease in cash and cash equivalents (13,075) (11,969)
Cash and cash equivalents at beginning of period 30,053 35,096
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Cash and cash equivalents at end of period $ 16,978 $ 23,127
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<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-month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
(2) Loss per share
Basic and diluted loss per share for the three month periods ended March
31, 1998 and 1997 were calculated based upon the weighted average shares
outstanding during each respective period. The following options to
purchase the Company's common stock were outstanding as of March 31, 1998
but were not included in the computation of diluted loss per share for the
first quarter of 1998:
<TABLE>
<CAPTION>
Range of Number Outstanding
Exercise Prices at March 31, 1998
--------------- ------------------
<S> <C>
$15.25-22.50 975,650
24.00-29.00 710,615
32.63-49.50 125,700
---------
1,811,965
=========
</TABLE>
(3) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Raw materials and supplies $ 70,420 $ 65,369
Goods in process 36,647 37,996
Finished goods 39,761 38,082
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$146,828 $141,447
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</TABLE>
(4) 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-month periods ended March 31, 1998 and
1997 was $33,263 and $15,617, respectively. The Company's comprehensive
loss is impacted only by foreign currency translation adjustments.
(5) Restructuring Costs
During the first quarter of 1998, the Company initiated a voluntary
separation program for substantially all hourly and salaried employees in
the United States. Approximately 400 employees have elected to participate
in this program, resulting in an $8.0 million charge to operations for the
three months ended March 31, 1998 that is classified in accrued
liabilities. Those employees who are 50 or over have until May 15, 1998 to
decide whether to participate in the program. As a result, the Company
anticipates an additional charge will be taken in the 1998 second quarter
based upon the level of employee participation.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales. Net sales increased 5.8% to $235.2 million for the three months ended
March 31, 1998, from $222.3 million for the three months ended March 31, 1997.
Product volume increased 15.7% in the 1998 first quarter over the year ago
period, led by eight inch product volume increases of 57.6%, and offset only by
a decline in four inch wafer volume. On a geographic basis, product volumes
increased in all regions of the world compared to the first quarter of 1997.
These increases are indicative of the general recovery in product volumes that
has occurred since the silicon wafer downturn began in the third quarter of
1996, and our customers' transition to and preference for larger diameter
silicon wafers.
As compared to the fourth quarter of 1997, however, sales declined by 9.0%, due
to lower volumes and prices, offset by more favorable product mix. The sales
decline was led by North America, followed by Japan and Asia Pacific, while
Europe was relatively flat. On a product volume basis, all wafer diameters saw a
decrease in volume as compared to the 1997 fourth quarter.
The Company now anticipates that the current soft market conditions will
continue into the second quarter of 1998, and that silicon wafer prices will
continue to decline. As a result, the Company expects to report a net loss in
the 1998 second quarter.
Gross Margin. Gross margin declined from 12.6% in the first quarter of 1997 to
10.1% for the first quarter of 1998. The decline in gross margin is primarily
attributable to continuing pressure on prices, especially for advanced large
diameter wafers, partially offset by improved product mix and utilization of
eight inch facilities that were in start-up in 1997. Advanced large diameter and
epitaxial products represented 43.6% and 35.2% of product volume for the three
months ended March 31, 1998 and 1997, respectively.
Research and Development. Research and development costs rose 49.9% to $20.1
million for the three months ended March 31, 1998, as compared to $13.4 million
for the year-ago period. As a percentage of net sales, research and development
costs were 8.6% and 6.0% of net sales for the first quarter of 1998 and 1997,
respectively. The increase is primarily due to increased investments in the
Company's 12 inch wafer development program.
Restructuring Costs. The Company initiated a voluntary separation program for
the hourly and salaried workforce in the United States during the first quarter
of 1998. As of March 31, 1998, approximately 400 employees have elected to
participate, resulting in an $8.0 million charge to operations. Those employees
who are 50 or over have until May 15, 1998 to decide whether to participate in
the program. The Company anticipates that a charge will be taken in the second
quarter of 1998 similar to that of the 1998 first quarter; however, the amount
of the charge is ultimately based upon the level of employee participation.
Interest Expense. Interest expense totaled $8.3 million for the 1998 first
quarter, while no interest was recorded in the first quarter of 1997. The
increase in interest expense is due to the rise in outstanding debt and the
completion of capital projects for which interest costs could no longer be
capitalized.
Income Taxes. The effective income tax rate was 34.0% for the first quarter of
1998, as compared to 43.0% for the first quarter of 1997. Changes in the
Company's effective tax rate continue to be driven primarily by changes in the
composition of worldwide pretax income.
Equity in Loss of Joint Ventures. Equity in loss of joint ventures rose $9.7
million to a loss of $11.6 million for the three months ended March 31, 1998
compared to the year ago period. Equity in income of joint ventures was $12.3
million for the fourth quarter of 1997. The loss as compared to the year-ago
period is due to the lower volume and prices at PHC and lower prices at Taisil.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Excluding the impact of any net foreign currency transaction gains or losses,
PHC would have contributed income of $0.2 million in the 1998 first quarter,
compared to income of $6.4 million in the 1997 fourth quarter. Taisil would have
incurred a loss of $4.4 million for the first quarter of 1998, compared to a
loss of $1.5 million in the fourth quarter of 1997. Taisil also recorded a
positive tax adjustment associated with certain tax elections amounting to $1.3
million in the 1997 fourth quarter. The decline in operating results for both
entities is attributable to lower volumes and pricing in the first quarter of
1998.
Liquidity and Capital Resources. At March 31, 1998, the Company had cash and
cash equivalents of $17.0 million. The Company's borrowings against its $887.3
million of credit facilities were $706.1 million at March 31, 1998. Outstanding
borrowings increased $73.6 million from December 31, 1997 to March 31, 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 6.1% at March 31, 1998.
A comparison of the components of the Company's financial condition follows
(dollars in millions):
March 31, December 31,
1998 1997
---- ----
Working capital $59.4 $38.4
Current ratio 1.2 to 1 1.1 to 1
Stockholders' equity $666.9 $715.8
Total debt to total capitalization 49.3% 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 $14.7 million for the three months
ended March 31, 1998 compared to $10.2 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, increases
in inventories and deferred taxes, offset mainly by non-cash items such as
depreciation and equity in loss of joint ventures.
Cash flows used in investing activities for the three months ended March 31,
1998 included capital expenditures of $49.3 million which represents a $48.9
million reduction from the first three months of 1997. The Company had committed
capital expenditures of $142.3 million as of March 31, 1998. Capital
expenditures in 1998 primarily relate to equipping the 12 inch pilot line in St.
Peters, Missouri, the 12 inch integrated development line in Utsunomiya, Japan
and the polysilicon expansion at MEMC Pasadena. Given current market conditions,
the Company anticipates that capital expenditures will be less than $250 million
for fiscal year 1998.
Cash flows from financing activities decreased $27.7 million from the 1997
three-month period due to 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 quarter of 1998. Proceeds from issuance of long-term debt were
essentially flat with those of the 1997 first quarter.
The Company's liquidity is affected by many factors - some based on the normal,
ongoing operations of the business and others related to the uncertainties of
the industry and global economies. Although the Company's cash requirements will
fluctuate based on the timing and extent of these factors, management currently
believes that cash generated from operations, together with the liquidity
provided by existing cash balances and anticipated borrowing capability will be
sufficient to satisfy commitments for capital expenditures and other cash
requirements for the next twelve months. There can be no assurance, however,
that the terms of any such borrowings will be on terms equivalent to those in
effect today.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (Continued)
Other. Given current market conditions in the silicon wafer and polysilicon
industries, the non-binding letter of intent to form a granular polysilicon
joint venture with Tokuyama Corporation and Marubeni Corporation was allowed to
expire. Discussions continue, however, with respect to the possibility of
long-term cooperation in operating the granular polysilicon business.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- - except for the historical information contained herein, the matters discussed
in this document regarding anticipated market conditions, wafer prices and the
expected net loss for the 1998 second quarter, charges for the voluntary
separation program in the 1998 second quarter, capital expenditures for 1998 and
the Company's liquidity are forward looking statements. 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
specifically Korea, competitors' actions and other risks described in the
Company's filings with the Securities and Exchange Commission, including the
Company's annual report on Form 10-K for the year ended December 31, 1997.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at page 10 of this report.
(b) Reports on Form 8-K
None.
<PAGE> 9
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> 10
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit
Number Exhibit
------ -------
2 Omitted-- Inapplicable
3-a 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-b 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)
4 Omitted-- Inapplicable
10 Omitted-- Inapplicable
11 Omitted-- Inapplicable
15 Omitted-- Inapplicable
18 Omitted-- Inapplicable
19 Omitted-- Inapplicable
22 Omitted-- Inapplicable
23 Omitted-- Inapplicable
24 Omitted-- Inapplicable
27 Financial Data Schedule (filed electronically with the SEC only)
99 Omitted -- Inapplicable
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,978
<SECURITIES> 0
<RECEIVABLES> 152,457
<ALLOWANCES> 2,218
<INVENTORY> 146,828
<CURRENT-ASSETS> 362,785
<PP&E> 1,696,907
<DEPRECIATION> 492,669
<TOTAL-ASSETS> 1,798,297
<CURRENT-LIABILITIES> 303,362
<BONDS> 597,630
0
0
<COMMON> 414
<OTHER-SE> 666,438
<TOTAL-LIABILITY-AND-EQUITY> 1,798,297
<SALES> 235,243
<TOTAL-REVENUES> 235,243
<CGS> 211,475
<TOTAL-COSTS> 211,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,278
<INCOME-PRETAX> (31,056)
<INCOME-TAX> (10,559)
<INCOME-CONTINUING> (30,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,838)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
