MEMC Continues to Deliver Solid Quarterly Results
ST. PETERS, Mo., Oct. 27, 2003 -- MEMC Electronic Materials, Inc. today reported financial results for the third quarter ended September 30, 2003.
Summary of the 2003 third quarter results: * Net sales of $195.9 million * Gross margin of 30% of net sales * Operating income of $36.5 million (19% of net sales) * Net income of $35.2 million, diluted EPS of $0.16
Commenting on the quarter, Nabeel Gareeb, MEMC's Chief Executive Officer, said,
"MEMC continues to execute on our strategy and to deliver solid financial results. This quarter, our net sales continued to increase. Our diluted earnings per share improved to $0.16, compared to $0.13 in the 2003 second quarter. We continue to benefit from our operational improvements, as well as currency gains this quarter."
Net sales were $195.9 million for the 2003 third quarter compared to $191.8 million for the 2003 second quarter. The increase in net sales was primarily a result of increased product volumes.
The Company reported gross margin in the 2003 third quarter of $58.5 million, or 30% of net sales, compared to $55.6 million, or 29% of net sales, in the 2003 second quarter. The Company reported operating income of $36.5 million, or 19% of net sales, in the 2003 third quarter, up from operating income of $33.7 million, or 18% of net sales, for the 2003 second quarter.
Other nonoperating income in the 2003 third quarter included currency gains of $11.6 million, compared to currency gains of $1.5 million in the 2003 second quarter. The currency gains in the 2003 third quarter were primarily associated with the revaluation of a Yen-based intercompany loan and the strengthening of the Yen during the quarter.
The Company's effective income tax rate for the 2003 third quarter was 25%, compared to 22.5% in the 2003 second quarter. The Company expects its effective income tax rate in 2003 will be approximately 25%.
The Company reported increased net income available to common stockholders of $35.2 million, or $0.16 per diluted share, for the 2003 third quarter compared to $27.3 million, or $0.13 per diluted share, in the 2003 second quarter.
The Company achieved operating cash flow of $25.3 million for the 2003 third quarter, compared to $23.5 million in the 2003 second quarter.
Capital expenditures during the 2003 third quarter totaled $25.2 million, compared to $21.2 million in the 2003 second quarter. The Company expects capital expenditures in calendar year 2003 to be in the range of $80.0 to $90.0 million as the Company increases its capability and capacity for larger diameter products.
The Company's cash and cash equivalents and short-term investments totaled $125.8 million at the end of the 2003 third quarter, compared to $127.6 million at the end of the 2003 second quarter.
On August 19, 2003, the Company's controlling stockholder, an investor group led by Texas Pacific Group (TPG) agreed to pay E.ON AG and its affiliates (E.ON) a $25.2 million contingent performance purchase price payment. This payment arises out of the November 13, 2001 acquisition by TPG of all of E.ON's debt and equity holdings in MEMC. The purchase agreement between E.ON and TPG contained provisions for a contingent performance purchase price payment by TPG to E.ON based on MEMC's "Earnings Before Interest, Taxes, Depreciation and Amortization", as defined in that agreement, for fiscal year 2002.
As a result of the contingent performance purchase price payment in August, TPG's additional $25.2 million basis in MEMC was pushed down to MEMC's accounting records for the third quarter. This increased the Company's property, plant and equipment balance by $26.1 million, increased the value of the Company's investments in joint ventures by $1.1 million, and decreased the Company's deferred tax assets by $2.0 million. Additionally, the value assigned to the common stock and warrants acquired by TPG was increased by approximately $23.5 million and the value assigned to the senior subordinated secured notes held by TPG was increased by approximately $1.7 million.
The senior subordinated secured notes will accrete up to their face value plus accrued stated interest over their maturity using the effective interest method. Based on the new basis of the notes, assuming these notes remain outstanding until their maturity, interest expense related to the accretion of the notes and the related stated interest expense is expected to be $0.7 million, $3.9 million, $10.2 million, $26.4 million, and $55.6 million in the years 2003 through 2007, respectively.
The contingent payment and the related pushdown evaluation caused the Company to reevaluate its estimates of useful lives for its property, plant and equipment. In this process, the useful lives were extended to reflect longer productive lives based on research and development activities. The net result of the push-down of the contingent payment, the extension of the useful lives of property, plant and equipment, and the increase in our planned 2003 capital expenditures is expected to favorably impact the quarterly run rate of depreciation and amortization by approximately $2.5 million per quarter. The 2003 third quarter was similarly impacted. A significant portion of the Company's depreciation and amortization is reflected in cost of goods sold.
Outlook
"Depending upon our customers' fab shutdown schedules during the holiday season, we expect our net sales in the 2003 fourth quarter to increase by approximately 3 to 5 percentage points compared to the 2003 third quarter. We also anticipate that our operating results will continue to improve sequentially in the 2003 fourth quarter compared to the 2003 third quarter," concluded Gareeb.
Conference Call
MEMC will host a conference call today, October 27, 2003, at 5:30 p.m. ET to discuss the Company's third quarter results and related business matters. A live webcast will be available on the Company's web site at www.memc.com. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.
A replay of the conference call will be available from 6:30 p.m. ET on October 27, until 11:59 p.m. ET on October 31, 2003. To access the replay, please dial 706-645-9291, and use passcode "3507717", at any time during that period.
About MEMC
MEMC is the world's largest public company solely devoted to the supply of wafers to semiconductor device manufacturers. MEMC has been a pioneer in the design and development of wafer technologies over the past four decades. With R&D and manufacturing facilities in the U.S., Europe and Asia, MEMC enables the next generation of high performance semiconductor devices.
Certain matters discussed in this news release are forward-looking statements, including our expectation that our effective income tax rate in 2003 will be approximately 25%, our expectation that our capital expenditures in calendar year 2003 will be in the range of $80 to $90 million, our expectation that the quarterly run rate of depreciation and amortization will be favorably impacted by approximately $2.5 million per quarter, depending upon our customers' fab shutdown schedules during the holiday season, our expectation that our net sales in the 2003 fourth quarter will increase by approximately 3 to 5 percentage points compared to the 2003 third quarter, and our anticipation that our operating results will improve sequentially in the 2003 fourth quarter compared to the 2003 third quarter. 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 market demand for wafers, customer acceptance of our new products, utilization of manufacturing capacity, our ability to reduce manufacturing and operating costs, inventory levels of our customers, demand for semiconductors generally, changes in the pricing environment, general economic conditions, actions by competitors, customers, and suppliers, the impact of competitive products and technologies, technological changes, changes in currency exchange rates, changes in the composition of worldwide taxable income, the accuracy of our assumptions regarding the amount and timing of our capital expenditures, and other risks described in the Company's filings with the Securities and Exchange Commission, including the Company's 2002 Form 10-K, as amended. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking 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, June 30, September 30, September 30,
2003 2003 2002 2003 2002
Net sales $ 195,897 $ 191,829 $ 190,264 $576,071 $501,186
Costs of
goods sold 137,378 136,205 137,417 407,726 381,805
Gross margin 58,519 55,624 52,847 168,345 119,381
Operating expenses
Marketing
and
administration 13,613 13,391 16,053 41,098 51,221
Research and
development 8,406 8,530 6,725 24,326 19,993
Restructuring costs - - 8,315 - 15,300
Operating income 36,500 33,703 21,754 102,921 32,867
Nonoperating
(income) expense
Interest expense 2,665 3,303 58,250(1) 9,975 69,194(1)
Interest income (1,870) (1,916) (1,860) (5,777) (4,672)
Royalty income (1,038) (1,092) (769) (2,924) (2,371)
Other, net (11,921) (1,163) 3,843 (10,920) (4,582)
Total
nonoperating
(income)
expense (12,164) (868) 59,464 (9,646) 57,569
Income (loss)
before income
taxes, equity
in income
of joint ventures
and minority
interests 48,664 34,571 (37,710) 112,567 (24,702)
Income taxes 12,166 7,763 5,368 28,142 13,235
Income (loss)
before equity in
income of joint
ventures and
minority
interests 36,498 26,808 (43,078) 84,425 (37,937)
Equity in income
of joint ventures 1,589 1,665 1,308 4,317 1,971
Minority interests (2,890) (1,197) (2,982) (6,529) (4,839)
Net income
(loss) $35,197 $ 27,276 $(44,752) $82,213 $(40,805)
Cumulative
preferred
stock
dividends $ - $ - $(934) $ - $(17,027)
Net income (loss)
allocable to
common
stockholders $35,197 $ 27,276 $(45,686) $82,213 $(57,832)
Basic income
(loss) per share $ 0.17 $ 0.14 $ (0.25) $ 0.41 $ (0.54)
Diluted income
(loss) per share $ 0.16 $ 0.13 $ (0.25) $ 0.38 $ (0.54)
Weighted average
shares used in
computing basic
income (loss)
per
share 206,517,384 200,637,931 182,742,775 200,908,620 107,850,403
Weighted
average
shares
used in
computing
diluted income
(loss)
per share 223,771,825 217,710,967 182,742,775 217,401,562 107,850,403
(1) Includes non-cash accretion of $53,382 for the 2002 third quarter,
$639 for the 2002 second quarter, and $54,021 for the nine months
ended September 30, 2002, to bring the 55 million Euro note to its
full face value.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, June 30, December 31,
2003 2003 2002
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 85,141 $ 86,763 $ 119,651
Short-term investments 40,680 40,853 45,995
Accounts receivable, net 107,378 98,099 95,022
Inventories 97,962 96,177 85,106
Prepaid and
other current assets 25,767 18,515 17,934
Total current assets 356,928 340,407 363,708
Property, plant
and equipment, net 253,453 203,315 184,875
Investments in joint ventures 22,237 19,548 16,820
Goodwill, net 3,761 3,761 3,761
Deferred tax assets, net 18,494 26,090 33,668
Other assets 38,489 33,935 28,850
Total assets $ 693,362 $ 627,056 $ 631,682
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Short-term borrowings and
current portion
of long-term debt $ 80,625 $ 53,350 $ 123,640
Accounts payable 82,642 69,400 68,014
Accrued liabilities 28,768 31,103 33,986
Customer deposits 14,555 14,468 15,055
Provision for
restructuring costs 3,020 4,826 7,808
Income taxes 10,992 13,317 14,183
Accrued wages and salaries 22,239 19,969 23,387
Total current liabilities 242,841 206,433 286,073
Long-term debt, less
current portion 60,017 87,414 160,998
Pension and similar
liabilities 109,445 107,611 104,866
Customer deposits 9,742 14,789 19,617
Other liabilities 32,274 29,789 26,812
Total liabilities 454,319 446,036 598,366
Minority interests 62,015 59,125 57,996
Commitments and contingencies
Stockholders' equity
(deficiency)
Common stock 2,078 2,072 1,965
Additional paid-in capital 150,553 123,572 26,965
Retained earnings (deficit) 47,746 12,549 (34,467)
Accumulated other
comprehensive loss (14,712) (6,556) (7,329)
Deferred compensation (4,190) (5,022) (7,094)
Treasury stock (4,447) (4,720) (4,720)
Total stockholders'
equity (deficiency) 177,028 121,895 (24,680)
Total liabilities and
stockholders' equity
(deficiency) $ 693,362 $ 627,056 $ 631,682
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2003 2003 2002 2003 2002
Cash flows
from
operating
activities
Net income
(loss) $ 35,197 $ 27,276 $(44,752) $ 82,213 $(40,805)
Adjustments
to reconcile
net income
(loss) to net
cash provided
by operating
activities
Depreciation
and
amortization 6,183 8,334 8,442 23,274 25,149
Interest
accretion 695 554 54,154 1,868 56,556
Minority
interests 2,890 1,197 2,982 6,529 4,839
Stock
compensation 832 837 2,523 2,904 6,682
Equity in
income of
joint ventures (1,589) (1,665) (1,308) (4,317) (1,971)
Working capital
and other (18,885) (13,026) 14,453 (39,087) (6,332)
Net cash
provided
by
operating
activities 25,323 23,507 36,494 73,384 44,118
Cash flows
from investing
activities
Capital
expenditures (25,209) (21,202) (5,179) (62,224) (12,325)
Short-term
investments, net 172 4,485 (4,818) 5,314 (7,138)
Proceeds from
sale of property,
plant and equipment 15 - 577 37 911
Net cash used
in investing
activities (25,022) (16,717) (9,420) (56,873) (18,552)
Cash flows from
financing activities
Net short-term
borrowings (7,791) (53,060) (3,622) (61,129) 9,950
Proceeds from
issuance of
common stock 3,783 96,135 - 100,498 695
Dividend to
minority interest - (2,510) - (2,510) (2,251)
Proceeds from
issuance of
long-term debt - 35,000 - 40,000
Principal payments
on long-term
debt (1,447) (81,384) (35,267) (94,295) (57,502)
Net cash used
in financing
activities (5,455) (40,819) (3,889) (57,436) (9,108)
Effective of exchange
rate changes on
cash and cash
equivalents 3,532 5,331 (1,784) 6,415 6,556
Net increase
(decrease) in cash
and cash
equivalents (1,622) (28,698) 21,401 (34,510) 23,014
Cash and cash
equivalents at
beginning of period 86,763 115,461 76,969 119,651 75,356
Cash and cash
equivalents at
end of period $ 85,141 $ 86,763 $ 98,370 $ 85,141 $ 98,370