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, 2000 __________________________
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.
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(Exact name of registrant as specified in its charter)
Delaware 56-1505767
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(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
501 Pearl Drive (City of O'Fallon) St. Peters, Missouri 63376
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(Address of principal executive offices) (Zip Code)
(636) 474-5000
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(Registrant's telephone number, including area code)
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(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
The number of shares of the registrant's common stock outstanding at October 20,
2000 was 69,612,900.
<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)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net sales $222,800 $182,781 $616,405 $510,624
Cost of goods sold 185,611 177,859 539,324 521,484
---------- ---------- ---------- ----------
Gross margin 37,189 4,922 77,081 (10,860)
Operating expenses:
Marketing and administration 17,421 15,962 50,106 50,134
Research and development 16,788 20,723 54,416 61,290
---------- ---------- ---------- ----------
Operating income (loss) 2,980 (31,763) (27,441) (122,284)
---------- ---------- ---------- ----------
Nonoperating (income) expense:
Interest expense 19,086 15,899 54,900 49,054
Interest income (420) (450) (2,112) (1,183)
Royalty income (3,539) (1,500) (7,738) (4,183)
Other, net 323 1,337 582 1,483
---------- ---------- ---------- ----------
Total nonoperating expense 15,450 15,286 45,632 45,171
---------- ---------- ---------- ----------
Loss before income taxes, equity
in income (loss) of joint
ventures and minority
interests (12,470) (47,049) (73,073) (167,455)
Income taxes (3,367) (14,585) (19,730) (51,911)
---------- ---------- ---------- ----------
Loss before equity in income
(loss) of joint ventures
and minority interests (9,103) (32,464) (53,343) (115,544)
Equity in income (loss) of
joint ventures 6,747 (2,642) 7,463 (11,122)
Minority interests 75 1,389 750 3,383
---------- ---------- ---------- ----------
Net loss $ (2,281) $ (33,717) $ (45,130) $(123,283)
========== ========== ========== ==========
Basic loss per share $ (.03) $ (.48) $ (.65) $ (2.06)
========== ========== ========== ==========
Diluted loss per share $ (.03) $ (.48) $ (.65) $ (2.06)
========== ========== ========== ==========
Weighted average shares used
in computing basic
loss per share 69,611,552 69,521,389 69,591,476 59,761,618
========== ========== ========== ==========
Weighted average shares used
in computing diluted
loss per share 69,611,552 69,521,389 69,591,476 59,761,618
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
September 30, December 31,
2000 1999
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 99,059 $ 28,571
Accounts receivable, less allowance
for doubtful accounts $2,905 and
$2,409 in 2000 and 1999, respectively 151,065 111,559
Income taxes receivable - 9,237
Inventories 124,829 98,419
Deferred tax assets, net 14,883 12,905
Prepaid and other current assets 26,804 15,229
----------- -----------
Total current assets 416,640 275,920
Property, plant and equipment, net of
accumulated depreciation of
$1,043,475 and $703,252 in 2000
and 1999, respectively 1,133,324 1,090,358
Investments in joint ventures 44,393 97,254
Excess of cost over net assets acquired,
net of accumulated amortization of $6,960
and $6,466 in 2000 and 1999, respectively 46,064 47,058
Deferred tax asset, net 213,814 183,902
Other assets 74,844 30,089
----------- -----------
Total assets $ 1,929,079 $ 1,724,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and
current portion of long-term debt $ 414,574 $ 22,163
Accounts payable 72,402 85,704
Accrued liabilities 48,810 29,795
Customer deposits 21,302 16,556
Provision for restructuring costs 9,566 12,839
Income taxes payable 10,142 -
Accrued wages and salaries 30,508 22,557
----------- -----------
Total current liabilities 607,304 189,614
Long-term debt, less current portion 695,695 869,759
Pension and similar liabilities 102,943 95,731
Customer deposits 39,165 48,456
Other liabilities 42,758 44,893
----------- -----------
Total liabilities 1,487,865 1,248,453
Minority interests 72,422 43,337
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 50,000,000
shares authorized, none issued or outstanding
at 2000 or 1999 - -
Common stock, $.01 par value, 200,000,000
shares authorized, 70,542,105 and 70,463,505
issued in 2000 and 1999, respectively 705 705
Additional paid-in capital 771,432 770,476
Accumulated deficit (344,447) (299,317)
Accumulated other comprehensive loss (41,878) (22,053)
Treasury stock, at cost: 929,205 in 2000 and 1999 (17,020) (17,020)
----------- -----------
Total stockholders' equity 368,792 432,791
----------- -----------
Total liabilities and stockholders' equity $ 1,929,079 $ 1,724,581
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Nine Months Ended
September 30,
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $ (45,130) $ (123,283)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 121,754 117,705
Minority interests (750) (3,383)
Equity in (income) loss of joint ventures (7,463) 11,122
(Gain) loss on sale of property,
plant and equipment (1,288) 1,380
Working capital and other (71,474) (95,256)
----------- -----------
Net cash used in operating activities (4,351) (91,715)
Cash flows from investing activities:
Capital expenditures (32,589) (35,439)
Proceeds from sale of property, plant and equipment 1,427 44
Equity infusions in joint ventures - (12,052)
Purchase of business, net of cash acquired 10,660 -
Notes receivable from affiliates - 9,664
----------- -----------
Net cash used in investing activities (20,502) (37,783)
Cash flows from financing activities:
Net short-term borrowings 66,425 (6,708)
Proceeds from issuance of long-term debt 38,096 216,642
Principal payments on long-term debt (8,515) (272,802)
Proceeds from issuance of common stock 958 197,271
----------- -----------
Net cash provided by financing activities 96,964 134,403
Effect of exchange rates on cash and cash equivalents (1,623) (417)
----------- -----------
Net increase in cash 70,488 4,488
Cash and cash equivalents at beginning of period 28,571 16,168
----------- -----------
Cash and cash equivalents at end of period $ 99,059 $ 20,656
=========== ===========
See accompanying notes to consolidated financial statements.
<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 or MEMC), 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. This report on Form 10-Q, including unaudited
consolidated financial statements, should be read in conjunction with the
Company's annual report to shareholders for the fiscal year ended December 31,
1999, which contains the Company's audited financial statements for such year
and the related management's discussion and analysis of financial condition and
results of operations. Operating results for the nine-month period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
(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, 2000 and
1999 is the same within each period (the weighted average shares outstanding for
each respective period). The Company had 2,689,784 options outstanding at
September 30, 2000 which were not included in the computation of diluted loss
per share due to the net loss incurred during the three and nine-month periods
ended September 30, 2000.
(3) Inventories
Inventories consist of the following:
September 30, December 31,
2000 1999
---------- ----------
Raw materials and supplies $ 55,033 $ 49,537
Goods in process 31,596 23,493
Finished goods 38,200 25,389
---------- ----------
$ 124,829 $ 98,419
========== ==========
(4) Restructuring Costs
During 1998, the Company recorded a charge to operations of $121,670 related to
the decisions to close its small diameter wafer facility in Spartanburg, South
Carolina, to withdraw from its 60%-owned joint venture in a small diameter wafer
operation in China and to forego construction of a new 200 millimeter wafer
facility at its 75%-owned joint venture in Malaysia. Restructuring activity
since the provision for restructuring costs was recorded is as follows:
Amount Balance Balance
Utilized/ Sept.30, Dec.31,
Provision Reversed 2000 1999
Asset impairment/write-off:
Spartanburg property, plant and equipment $ 36,300 $ 36,300 $ - $ -
Malaysian joint venture assets 28,000 27,498 502 530
Chinese joint venture assets 13,800 13,615 185 360
Other infrastructure 3,225 3,225 - -
-------- -------- ------- --------
Total 81,325 80,638 687 890
-------- -------- ------- --------
Dismantling and related costs:
Dismantling costs 11,345 6,021 5,324 7,260
Costs incurred by equipment suppliers 5,000 5,000 - -
Environmental costs 3,500 3,417 83 400
Operating leases 3,000 2,511 489 1,000
Other 3,000 342 2,658 2,864
-------- -------- ------- --------
Total 25,845 17,291 8,554 11,524
-------- -------- ------- --------
Personnel costs 14,500 14,175 325 425
-------- -------- ------- --------
Total restructuring costs $121,670 $112,104 $ 9,566 $ 12,839
======== ======== ======= ========
Substantially all of the dismantling and related costs, and the personnel costs
included in the $9,566 restructuring reserve at September 30, 2000 are related
to the Spartanburg facility. Approximately 10 percent of the reserve is expected
to be utilized by December 31, 2000. Timing for utilization of the remainder of
the reserve is primarily dependent on the timing of the sale of the Spartanburg
facility.
(5) Comprehensive Loss
Comprehensive loss for the three months ended September 30, 2000 and 1999 was
$14,773 and $25,936, respectively. Comprehensive loss for the nine months ended
September 30, 2000 and 1999 was $64,955 and $133,022, respectively. The
Company's only adjustment from net loss to comprehensive loss was foreign
currency translation adjustments in all periods presented.
(6) Acquisition
On September 29, 2000 the Company acquired an additional 40% of Posco Huls Co.,
Ltd. (renamed MEMC Korea Company ("MKC") after the acquisition) bringing the
Company's ownership percentage of MKC to 80%. The purchase price of
approximately $68 million was funded by borrowings from an affiliate of E.ON AG.
E.ON AG is the majority shareholder and principal lender of the Company. The
balance sheet of MKC has been consolidated at September 30, 2000. Under Korean
law, there are significant restrictions on MKC's ability to pay dividends and
make loans, thereby limiting the Company's access to MKC's cash assets.
Beginning in the fourth quarter of 2000 the operating results of MKC will be
consolidated as part of MEMC.
(7) Debt
At September 30, 2000 the Company included $54 million in short-term debt and
$80 million in long-term debt obligations with the consolidated reporting of
MKC's balance sheet. The Company also incurred approximately $71 million in
short-term debt from an affiliate of E.ON AG in connection with the purchase of
the additional 40% of MKC. These events along with current portions due on long
debt obligations brought current debt and long-term debt to $414 and $696
million, respectively, at September 30, 2000. Of this debt, $835 million was
loans from E.ON AG and/or its affiliates at September 30, 2000.
The Company's loans from E.ON AG and its affiliates begin to mature in 2001. The
Company does not currently anticipate having sufficient funds from operations to
repay these loans upon maturity commencing in 2001, and will need to seek and
obtain replacement financing. There can be no assurance that such capital will
be available on terms acceptable to the Company or that the Company will be able
to refinance its loans with E.ON AG and its affiliates upon maturity. If the
Company fails to repay the loans when due the Company will be in default under
the loans and E.ON AG and its affiliates could accelerate all amounts
outstanding under the loans. This would have a material adverse effect on the
Company. The Company has been working closely with E.ON AG on the financial
implications of these loans. The Company is also working with investment bankers
and other advisors to determine the best solutions for MEMC.
Under its credit facilities with E.ON AG and its affiliates, the Company cannot
pledge any of its assets to secure additional financing without the consent of
E.ON AG and its affiliates. In addition, under the Company's short-term loan
with an affiliate of E.ON AG used to fund the acquisition of the additional 40%
interest in MKC, the Company is required to pay 100% of any net proceeds
received by the Company from the issuance of equity or debt securities, or from
any additional incurrence of debt, to such affiliate of E.ON AG as a mandatory
principal repayment. In addition this loan agreement requires the Company's to
pay 75% of any cash received from MKC, through dividends, reductions or
repurchases of equity, share redemptions or loans, to such affiliate of E.ON AG
as a mandatory principal repayment.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales. Net sales increased 22% to $223 million for the third quarter of 2000
from $183 million for the third quarter of 1999. The increase was primarily
attributable to a 12% increase in product volume and significant price increases
in the third quarter of 2000 compared to the third quarter of 1999. Net sales
increased 21% to $616 million for the nine months ended September 30, 2000 from
$511 million for the nine months ended September 30, 1999. The increase was
primarily attributable to a 15% increase in product volume and moderate price
increases. On a geographic basis, the increase in product volumes for the
three-month period ended September 30, 2000 as compared to the year-earlier
period was led by sales in the U.S, Europe, and Japan. For the nine-month period
ended September 30, 2000 as compared to the year-earlier period volumes were
significantly higher in all world areas.
The Company expects product volumes to remain relatively level in the fourth
quarter as a result of the normal seasonality in the industry, as well as
anticipated plant shut-downs for the holidays and for routine maintenance. The
Company is optimistic that the firming of wafer pricing will continue, and
anticipates a slight increase in overall average selling prices in the coming
quarter. For the third quarter 2000, MKC recorded total revenues from third
parties of $42 million and total net income of $7.5 million. The purchase price
of approximately $68 million for the additional 40% interest in MKC, bringing
the Company's ownership percentage to 80%, was funded by borrowings from an
affiliate of E.ON AG, the majority shareholder and principal lender of the
Company. As a result of the anticipated volumes and future consolidated
reporting of MKC, the Company anticipates that fourth quarter revenues will be
comparable to the combined MEMC and MKC customer sales recorded in the third
quarter of 2000. With the consolidated reporting of MKC and continued focus on
cost structure improvements, the Company anticipates approaching breakeven net
income in the fourth quarter.
Gross Margin. Gross margin improved to 17% in the third quarter of 2000 from 3%
for the third quarter of 1999. Gross margin improved to 13% in the nine months
ended September 30, 2000 from negative 2% in the nine months ended September 30,
1999. The increase in gross margin in both the three and nine-month periods
ended September 30, 2000 compared to the corresponding September 30, 1999
periods was primarily attributable to significantly higher volumes coupled with
higher pricing, an improved product mix and significant cost reductions.
Advanced large diameter and epitaxial products represented 56% and 53% of
product volume for the third quarters of 2000 and 1999, respectively. The
Company expects continued, but gradual, improvements in its cost structure over
the next few quarters from the consolidated reporting of MKC and continued cost
reductions. MKC enjoys a lower cost structure than most of the Company's other
facilities, due to its focused operations on relatively fewer products and
customers.
Research and Development. Research and development expenses in the 2000 third
quarter totaled $17 million, compared to $21 million in the year-ago period. The
decrease in reported expense is attributable to continued focus and spending
control, coupled with increasing revenue from 300 millimeter wafers, which
offset technology expenses.
Interest Expense. Interest expense increased to $19 million for the quarter
ended September 30, 2000 from $16 million for the quarter ended September 30,
1999. The increase in interest expense was attributable to increased borrowings
and increased weighted average cost of borrowing in the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999.
Income Taxes. The Company realized an income tax benefit at the rate of 27% for
both the three and nine-month periods ended September 30, 2000 and an income tax
benefit at the rate of 31% for both the three and nine-month periods ended
September 30, 1999. The reduced rate of income tax benefit is primarily a result
of changes in the composition of the Company's worldwide taxable income. The
Company expects an effective tax rate for the year 2000 consistent with the
first nine months.
Equity in Income (Loss) of Joint Ventures. Equity in income (loss) of joint
ventures was $7 million income in the third quarter of 2000, as compared to a
loss of $3 million in the third quarter of 1999. The Company's share of the
income of MKC, accounted for through September 30, 2000 as an unconsolidated
joint venture, was $3 million in the third quarter of 2000 compared to a loss of
$1 million in the third quarter of 1999. MKC's increased profitability was
primarily due to a significant increase in product volume. The Company's share
of the income of Taisil Electronic Materials Corporation (Taisil), the Company's
45%-owned, unconsolidated joint venture in Taiwan, was $4 million in the third
quarter 2000 compared to a loss of $2 million in the third quarter of 1999.
Taisil's improved income was primarily due to a 19% increase in product volume
and a significant increase in average selling price in the third quarter of 2000
compared to third quarter of 1999.
Equity in income (loss) of joint ventures was $7 million income in the nine
months ended September 30, 2000, as compared to loss of $11 million in the nine
months ended September 30, 1999. The Company's share of the income of MKC was $3
million in the nine months ended September 30, 2000 compared to a loss of $5
million in the nine months ended September 30, 1999. MKC's improved net income
was primarily due to a significant increase in product volume in the nine months
ended September 30, 2000 compared to the nine months ended September 30, 1999.
The Company's share of the income of Taisil was $4 million in the nine months
ended September 30, 2000 compared to a loss of $6 million in the nine months
ended September 30, 1999. Taisil's improved net income was primarily due to a
20% increase in product volume and a significant increase in average selling
price in the nine months ended September 30, 2000 compared to the nine months
ended September 30, 1999.
Net Loss. Net loss for the three-month periods ended September 30, 2000 and 1999
was approximately $2 million and $34 million, respectively. The reduction in net
loss for the three months ended September 30, 2000 was primarily a result of
increased gross margin of $32 million and a $9 million increase in joint venture
income partially offset by a reduced income tax benefit. The Company had a net
loss of $0.03 per share for the quarter ended September 30, 2000 on
approximately 69.6 million shares outstanding compared to a net loss of $0.48
per share for the quarter ended September 30, 1999 on 69.5 million weighted
average shares outstanding.
Net loss for the nine-month periods ended September 30, 2000 and 1999 was
approximately $45 million and $123 million, respectively. The reduction in net
loss for the nine months ended September 30, 2000 was primarily a result of
increased gross margin of $88 million and joint venture income increasing $19
million partially offset by a reduced income tax benefit. The Company had a net
loss of $0.65 per share for the nine-month period ended September 30, 2000 on
approximately 69.6 million shares outstanding compared to a net loss of $2.06
per share for the nine-month period ended September 30, 1999 on 59.8 million
weighted average shares outstanding.
The weighted average shares outstanding reflect the issuance of 15.4 million
shares of common stock in a private placement to an affiliate of E.ON AG in
March 1999 and 13.6 million shares of common stock in connection with the
Company's rights offering in April 1999.
Liquidity and Capital Resources.
At September 30, 2000, the Company had $99 million of cash and cash equivalents
compared to $29 million at December 31, 1999. The increase is primarily
attributable to the consolidated reporting of MKC which had cash and cash
equivalents at September 30, 2000 of approximately $79 million. Under Korean
law, however, there are significant restrictions on MKC's ability to pay
dividends and make loans, thereby limiting the Company's access to MKC's cash
assets.
Cash flows used in operating activities improved to $4 million for the nine
months ended September 30, 2000 from $92 million for nine months ended September
30, 1999. This $88 million improvement was due primarily to the reduction in
operating losses.
Accounts receivable of $151 million at September 30, 2000 increased $39 million,
or 35%, from $112 million at December 31, 1999. This increase was primarily
attributable to the 22% increase in net sales during the third quarter 2000 over
fourth quarter 1999 and to the consolidated reporting of MKC's balance sheet as
of September 30, 2000. Days sales outstanding were 60 days at September 30,
2000 compared to 56 days at December 31, 1999 based upon annualized sales for
the respective immediately preceding quarters. MKC's receivables have been
excluded from this calculation as its sales were not consolidated for the
periods ended September 30, 2000 and December 31, 1999.
Inventories increased $26 million, or 27%, from December 31, 1999 to $125
million at September 30, 2000. This increase was primarily due to the
consolidated reporting of MKC's balance sheet as of September 30, 2000. Total
related inventory reserves for obsolescence, lower of cost or market issues, or
other impairments were $15 million at September 30, 2000, compared to $17
million at December 31, 1999. Quarter-end inventories, excluding MKC's
inventory, as a percentage of annualized quarterly net sales declined 2% to 11%
for the period ended September 30, 2000 compared to the period ended December
31, 1999.
The Company's net deferred tax assets increased $32 million in the first nine
months of 2000 to $229 million at September 30, 2000. The Company provides for
income taxes on a quarterly basis based on an estimated annual effective tax
rate. The Company estimates that net operating loss carryforwards increased $58
million in the nine months ended September 30, 2000. Management believes it is
more likely than not that, with its projections of future taxable income and
after consideration of the valuation allowance, the Company will generate
sufficient taxable income to realize the benefits of the net deferred tax assets
existing at September 30, 2000. In order to realize the net deferred tax assets
existing at September 30, 2000, the Company will need to generate future taxable
income of approximately $625 million over the next 20 years. There can be no
assurance, however, that the Company will generate sufficient taxable income to
realize the full benefit of the existing net deferred tax assets.
At December 31, 1999, the Company's net operating loss carryforwards totaled
$647 million, of which $7 million will expire in 2001; $13 million will expire
in 2002; $29 million will expire in 2003; $9 million will expire in 2004; $14
million will expire in 2012; $322 million will expire in 2018; and $253 million
will expire in 2019.
On June 16, 2000, VEBA AG, which through its affiliates is the majority
shareholder and principal lender of the Company, merged with VIAG AG. The
VEBA/VIAG group, now known as E.ON AG, has stated that its core businesses will
be energy and specialty chemicals. E.ON AG's stated intent is to systematically
and optimally divest certain non-core businesses, including the Company. The
Company intends to work closely with E.ON AG to effectuate an orderly
divestiture process that preserves and optimizes the value of the Company. A
decrease of ownership interest of E.ON AG and its affiliates may result in
annual limitations for federal income tax purposes of the Company's ability to
use its tax loss carryforwards under Internal Revenue Code Section 382.
Net cash used in investing activities improved $17 million to $21 million in the
nine months ended September 30, 2000 compared to the nine months ended September
30, 1999. For the nine months ended September 30, 2000, cash used by investing
activities reflected slightly decreased spending on capital projects, a
reduction in equity infusions in joint ventures, a reduction in notes receivable
from affiliates, and cash from MKC in excess of the purchase price by $11
million. The capital expenditures in the first nine months of 2000 primarily
related to the implementation of SAP worldwide and to maintenance capital. The
Company expects that capital expenditures will not exceed $65 million in 2000.
At September 30, 2000, the Company had $21 million of committed capital
expenditures related to various manufacturing and technology projects.
The Company made no equity infusions into joint ventures in the nine months
ended September 30, 2000, compared to an equity infusion of $12 million into
Taisil in the nine months ended September 30, 1999. Although to date Taisil has
an accumulated deficit, the Company does not consider its investment in Taisil
to be impaired as of September 30, 2000 based on Taisil's increasing product
volumes and capacity utilization, improving operating results, positive
operating cash flow generated in 1999 and positive net income and cash flow in
the nine months ended September 30, 2000.
Cash flows provided by financing activities decreased to $97 million in the nine
months ended September 30, 2000 from $134 million in the nine months ended
September 30, 1999. The 2000 financing activities consisted primarily of
issuance of debt by the Company. In the nine months ended September 30, 1999,
the financing activities consisted primarily of stock offerings, partially
offset by repayment of short-term and long-term debt. The primary use of
financing in the nine months ended September 30, 2000 was a $68 million
short-term loan from an affiliate of E.ON AG to purchase the additional 40%
interest in MKC.
At September 30, 2000, the Company maintained $1,032 million of committed
long-term loan agreements, of which $999 million was outstanding. The Company
also maintained $178 million of short-term lines of credit, of which less than
$111 million was outstanding at September 30, 2000. The Company's weighted
average cost of borrowing was 8.4% at September 30, 2000 and 7.8% at December
31, 1999. Total debt outstanding increased to $1,100 million at September 30,
2000 from $892 million at December 31, 1999. Of the $218 million increase in
debt, $134 million relates to liabilities acquired in connection with the
purchase of MKC, and approximately $71 million was incurred in connction with
the purchase of the additional 40% interest in MKC. The total debt to total
capital ratio at September 30, 2000 was 72% as compared to 65% at December 31,
1999.
The silicon wafer industry is highly capital intensive. The Company's capital
needs depend on numerous factors, including its profitability and investment in
capital expenditures and research and development. Management believes that the
liquidity provided by existing cash balances and credit facilities, together
with cash generated from operations, will be sufficient to satisfy commitments
for capital expenditures and operating cash requirements through 2000. If,
however, the Company's future financial performance fails to meet management's
current expectations, then the Company may require additional financing in order
to satisfy planned capital expenditures and operating cash requirements for
2000. There can be no assurance that such financing will be available on terms
acceptable to the Company.
Historically, the Company has funded its operations primarily through loans from
E.ON AG and its affiliates, internally generated funds, and issuances of common
stock. To a lesser extent, the Company has raised funds by borrowing money from
commercial banks. Under its credit facilities with E.ON AG and its affiliates,
the Company cannot pledge any of its assets to secure additional financing
without the consent of E.ON AG and its affiliates. In addition, under the
Company's short-term loan with an affiliate of E.ON AG used to fund the
acquisition of the additional 40% interest in MKC, the Company is required to
pay 100% of any net proceeds received by the Company from the issuance of equity
or debt securities, or from any additional incurrence of debt, to such affiliate
of E.ON AG as a mandatory principal repayment. This loan agreement also requires
the Company's to pay 75% of any cash received from MKC, through dividends,
reductions or repurchases of equity, share redemptions or loans, to such
affiliate of E.ON AG as a mandatory principal repayment.
The Company's loans from E.ON AG and its affiliates begin to mature in 2001. The
Company does not currently anticipate having sufficient funds from operations to
repay these loans upon maturity commencing in 2001, and will need to seek and
obtain replacement financing. There can be no assurance that such capital will
be available on terms acceptable to the Company or that the Company will be able
to refinance its loans with E.ON AG and its affiliates upon maturity. If the
Company fails to repay the loans when due the Company will be in default under
the loans and E.ON AG and its affiliates could accelerate all amounts
outstanding under the loans. This would have a material adverse effect on the
Company. The Company has been working closely with E.ON AG on the financial
implications of these loans and the divestiture. The Company is also working
with investment bankers and other advisors to determine the best solutions for
MEMC.
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. In July 1999, the Financial
Accountings Standards Board changed the effective date of SFAS No. 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company does
not believe that the implementation of this Statement will have a material
effect on its financial condition or results of operations.
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: the timing
and utilization of the restructuring reserve; future pricing; future product
volumes; effects of consolidated reporting of MKC; continued cost improvements;
fourth quarter 2000 revenues; expectation of approaching breakeven net income in
the fourth quarter 2000; expected effective income tax rate; liquidity through
2000; expectation that 2000 capital expenditures will not exceed $65 million;
the Company's ability to generate future taxable income as it relates to the
realization of the net deferred tax asset; the Company's intention to work
closely with E.ON AG to effect an orderly divestiture process that preserves and
optimizes the value of the Company; expectation that the Company will not have
sufficient funds from operations to repay loans from E.ON AG and its affiliates
upon maturity; and the impact of the implementation of SFAS No. 133. 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: market demand for
silicon wafers; utilization of manufacturing capacity; ability of the Company to
reduce manufacturing costs; demand for semiconductors generally; changes in the
pricing environment; general economic conditions; competitors' actions; changes
in currency exchange rates; changes in the components of worldwide taxable
income; technological changes; changes in product specifications and
manufacturing processes; accuracy of management's assumptions regarding the
dismantling and sale of the Spartanburg facility; changes in the plans and
intentions of third parties, including E.ON AG; changes in financial market
conditions; changes in interest rates; and other risks described in the
Company's filing with the Securities and Exchange Commission, including the
Company's annual report on Form 10-K for the year ended December 31, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign exchange rates. The Company enters into
currency forward contracts to minimize its transactional currency risks. The
Company does not use derivative financial instruments for speculative or trading
purposes. There have been no significant changes in the Company's holdings of
interest rate sensitive or foreign currency exchange rate sensitive instruments
since December 31, 1999.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
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(i)(a) Certificate of Amendment of Restated Certificate of Incorporation of
the Company as filed with the Secretary of State of the State of
Delaware on June 2, 2000 (incorporated by reference to Exhibit 3(i)
(a) of the Company's Form 10-Q for the Quarter ended June 30, 2000)
3(ii) Restated By-laws of the Company (incorporated by reference to
Exhibit 3(ii) of the Company's Form 10-Q for the Quarter ended
June 30, 1999)
10-s Share Sale and Purchase Agreement dated as of September 7, 2000 by
and between Pohang Iron & Steel Co., Ltd. and the Company
10-yyy Euro 80,000,000 Credit Agreement dated as of September 22, 2000
between MEMC Electronic Materials, S.p.A. and VEBA International
Finance B.V.
10-zzz Guaranty Agreement dated as of September 22, 2000 between the
Company and VEBA International Finance B.V.
27 Financial Data Schedule
(filed electronically with the SEC only)
-------------------------------
(b) Reports on Form 8-K
During the third quarter of 2000, the Company filed no current reports on Form
8-K.
<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 8, 2000 /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
601of Regulation S-K.
Exhibit
Number Exhibit
10-s Share Sale and Purchase Agreement dated as of September 7, 2000
by and between Pohang Iron & Steel Co., Ltd. and the Company
10-yyy Euro 80,000,000 Credit Agreement dated as of September 22, 2000
between MEMC Electronic Materials, S.p.A. and VEBA International
Finance B.V.
10-zzz Guaranty Agreement dated as of September 22, 2000 between the
Company and VEBA International Finance B.V.
27 Financial Data Schedule (filed electronically with SEC only)
