SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2003
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 001-13828
MEMC Electronic Materials, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 56-1505767 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
501 Pearl Drive (City of O’Fallon) St. Peters, Missouri | 63376 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code
(636) 474-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered: | |
| $.01 Par Value Common Stock | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
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. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
The aggregate market value of the voting stock held by nonaffiliates of the registrant, based upon the closing price of such stock on June 30, 2003, as reported by the New York Stock Exchange, was approximately $455,678,195.
The number of shares outstanding of the registrant’s Common Stock as of May 1, 2004 was 207,784,214 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant’s 2003 Annual Report (Part II)
2. Portions of the registrant’s 2004 Proxy Statement (Part III)
This Amendment No. 1 to Form 10-K/A for the fiscal year ended December 31, 2003 of MEMC Electronic Materials, Inc. is being filed to include the financial statements of Taisil Electronic Materials Corporation for the fiscal year ended December 31, 2003, as required by Rule 3-09 of Regulation S-X. During 2003, we owned 45% of Taisil Electronic Materials Corporation. No other information contained in the Form 10-K for the fiscal year ended December 31, 2003 has been updated or amended by this Amendment No. 1.
Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1.Financial Statements
The following consolidated financial statements of us and our subsidiaries, included on pages 29 through 59 of the 2003 Annual Report, and the Independent Auditors’ Report thereon of KPMG LLP appearing on page 60 of such report are incorporated herein by reference:
Consolidated Statements of Operations —Years Ended December 31, 2003 and 2002, Period from January 1,2001 through November 13, 2001, and Period from November 14, 2001 through December 31, 2001.
Consolidated Balance Sheets —December 31, 2003 and 2002.
Consolidated Statements of Cash Flows —Years Ended December 31, 2003 and 2002, Period from January 1, 2001 through November 13, 2001, and Period from November 14, 2001 through December 31, 2001.
Consolidated Statements of Stockholders’ Equity (Deficiency)—Years Ended December 31, 2003 and 2002, Period from January 1, 2001 through November 13, 2001, and Period from November 14, 2001 through December 31, 2001.
Notes to Consolidated Financial Statements.
Independent Auditors’ Report.
The following financial statements of Taisil Electronic Materials Corporation, as required by Rule 3-09 of Regulation S-X, appearing herein:
| T-1 | ||
| T-2 | ||
Statements of Operations – Years Ended December 31, 2003, 2002 and 2001 | T-4 | |
Statements of Changes in Stockholders’ Equity – Years Ended December 31, 2003, 2002 and 2001 | T-5 | |
Statements of Cash Flows – Years Ended December 31, 2003, 2002 and 2001 | T-6 | |
| T-7 | ||
2.Financial Statement Schedules | ||
Independent Auditors’ Report on Financial Statement Schedule | F-1 | |
Valuation and Qualifying Accounts | F-2 | |
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3.Exhibits
Exhibit No. | Description | |
| 2-a | Restructuring Agreement between TPG Wafer Holdings LLC and the Company, dated as of November 13, 2001 (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 2-b | Merger Agreement between TPG Wafer Holdings LLC and the Company, dated as of November 13, 2001 (Incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 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-(i)(b) | Certificate of Amendment of Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on July 10, 2002 (Incorporated by reference to Exhibit 3-(i)(b) of the Company’s Form 10-Q for the Quarter ended September 30, 2002) | |
| 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, 2002) | |
| 4-a | Amended and Restated Indenture, dated as of December 21, 2001, among the Company, Citibank, N.A., as trustee, and Citicorp USA, Inc., as collateral agent, and Form of Note attached as an exhibit thereto (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 4-a(1) | Security Agreement among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc., dated as of November 13, 2001 (Incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 4-a(2) | Pledge Agreement among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc., dated as of November 13, 2001 (Incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 4-a(3) | Indemnity, Subrogation and Contribution Agreement among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc., dated as of November 13, 2001 (Incorporated by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 4-a(4) | Guarantee Agreement among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc., dated as of November 13, 2001 (Incorporated by reference to Exhibit 4.5 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 4-(a)(5) | Amendment No. 1, dated as of March 21, 2002, to Amended and Restated Indenture, dated as of December 31, 2001, among the Company, Citibank, N.A., as trustee, and Citicorp USA, Inc. as collateral agent (Incorporated by reference to Exhibit 4-(a)(5) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| 4-(a)(6) | Amendment No. 2, dated as of March 3, 2003, to Amended and Restated Indenture, dated as of December 21, 2001, among the Company, Citibank, N.A., as trustee, and Citicorp USA, Inc., as collateral agent (Incorporated by reference to Exhibit 4-(a)(6) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 4-(a)(7) | Amendment No. 1, dated as of March 3, 2003, to the Pledge Agreement, dated as of November 13, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 4-(a)(7) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 4-(a)(8) | Italian Supplement, dated as of March 3, 2003, to the Pledge Agreement, dated as of November 13, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 14-(a)(8) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 4-b | Form of Warrant Certificate (Incorporated by reference to Exhibit 4.6 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
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Exhibit No. | Description | |
| 10-a | Share Sale and Purchase Agreement dated January 16, 2004 by and among the Company, China Steel Corporation, China Development Industrial Bank and Chiao Tung Bank (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated January 30, 2004) | |
| 10-b | Letter of Exercise of Call Option by Taisil Electronic Materials Corporation to Robina Finance & Leasing Corporation, Ltd. dated February 3, 2004 (Incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated January 30, 2004) | |
| 10-c | Joint Venture Agreement dated August 28, 1990 among the Company, Pohang Iron and Steel Company, Ltd. (“POSCO”) and Samsung Electronics Company, Ltd. (“Samsung”) (Incorporated by reference to Exhibit 10-c of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412) | |
| 10-c(1) | First Amendment to Joint Venture Agreement dated December 9, 1993 among the Company, POSCO and Samsung (Incorporated by reference to Exhibit 10-d of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412) | |
| 10-c(2) | Second Amendment to Joint Venture Agreement dated December 30, 1994 among the Company, POSCO and Samsung (Incorporated by reference to Exhibit 10-e of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412) | |
| * 10-d | Technical Agreement dated December 19, 1990 between the Company and MEMC Korea Company (“MKC”) (formerly, POSCO HÜLS Company Ltd.) (Incorporated by reference to Exhibit 10-d of the Company’s Form 10-K for the Year ended December 31, 1998) | |
| * 10-d(1) | Amendment to Technical Agreement dated as of January 1, 1995 between the Company and MKC (Incorporated by reference to Exhibit 10-g of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412) | |
| 10-d(2) | Second Amendment to Technical Agreement effective as of September 30, 1998 between the Company and MKC (Incorporated by reference to Exhibit 10-g(1) of the Company’s Current Report on Form 8-K dated October 22, 1998) | |
| * 10-d(3) | Third Amendment to Technical Agreement effective as of October 1, 1998 by and between the Company and MKC (Incorporated by reference to Exhibit 10-d(3) of the Company’s Form 10-K for the Year Ended December 31, 1998) | |
| * 10-e | Shareholder’s Agreement dated as of May 16, 1995 between the Company, MEMC Southwest Inc. (“MEMC Southwest”) and Texas Instruments Incorporated (“TI”) (Incorporated by reference to Exhibit 10-h of Amendment No. 4 to the Company’s Form S-1 Registration Statement No. 33-92412) | |
| * 10-e(1) | Second Amendment to Shareholders’ Agreement dated as of April 1, 2000 by and among the Company, MEMC Southwest and TI (Incorporated by reference to Exhibit 10-e(1) of the Company’s Form 10-Q for the Quarter ended June 30, 2000) | |
| * 10-f | TI Purchase Agreement dated as of June 30, 1995 between the Company, MEMC Southwest and TI (Incorporated by reference to Exhibit 10-i of the Company’s Form 10-Q for the Quarter ended June 30, 1995) | |
| * 10-f(1) | Amendment to TI Purchase Agreement dated as of June 5, 1997, between MEMC Southwest and TI (Incorporated by reference to Exhibit 10-i of the Company’s Form 10-Q for the Quarter ended June 30, 1997) | |
| * 10-f(2) | First Amendment to TI Purchase Agreement dated as of April 1, 2000, by and among the Company, MEMC Southwest and TI (Incorporated by reference to Exhibit 10-f(2) of the Company’s Form 10-Q for the Quarter ended June 30, 2000) | |
| * 10-h | Technology Transfer Agreement dated as of June 30, 1995, between the Company, TI and MEMC Southwest (Incorporated by reference to Exhibit 10-k of the Company’s Form 10-Q for the Quarter ended June 30, 1995) | |
| 10-i | Registration Rights Agreement by and among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein, dated as of November 3, 2001 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 10-i(1) | Amendment to Registration Rights Agreement dated July 15, 2002, among the Company, TPG Wafer Holdings LLC and Guarantors specified therein (Incorporated by reference to Exhibit 10-i(1) of the Company’s Form 10-Q for the quarter ended September 30, 2002) | |
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Exhibit No. | Description | |
| 10-i(2) | Amendment No. 2 to Registration Rights Agreement dated November 14, 2002, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(2) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-i(3) | Amendment No. 3 to Registration Rights Agreement dated February 17, 2003, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(3) of the Company’s Form 10-Q for the quarter ended March 31, 2003) | |
| 10-i(4) | Amendment No. 4 to Registration Rights Agreement dated August 31, 2003, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(4) of the Company’s Form 10-Q for the quarter ended September 30, 2003) | |
| 10-j | Form of Master Reserve Volume Agreement (Incorporated by reference to Exhibit 10-m of the Company’s Form 10-K for the Year ended December 31, 1995) | |
| 10-k | Management Advisory Agreement between the Company and TPG GenPar III, L.P., dated as of November 13, 2001 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated November 28, 2001) | |
| 10-m | MEMC Technology License Agreement dated as of July 31, 1995, between Albemarle Corporation and the Company (Incorporated by reference to Exhibit 10-tt of the Company’s Form 10-K for the Year ended December 31, 1995) | |
| * 10-n | Seller Technology License Agreement dated as of July 31, 1995, among Albemarle Corporation, the Company, and MEMC Pasadena, Inc. (Incorporated by reference to Exhibit 10-ll of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) | |
| * 10-o | Technology Purchase Agreement dated as of July 31, 1995, among Albemarle Corporation and the Company (Incorporated by reference to Exhibit 10-mm of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) | |
| 10-p | Ground Lease Agreement dated as of July 31, 1995, between Albemarle Corporation and MEMC Pasadena, Inc. (Incorporated by reference to Exhibit 10-nn of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) | |
| 10-p(1) | Amendment to Ground Lease Agreement dated as of May 31, 1997, between the Company, MEMC Pasadena, Inc., and Albemarle Corporation (Incorporated by reference to Exhibit 10-nn(1) of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) | |
| † 10-aa | Consulting Agreement dated December 15, 2003 between the Company and Thomas P. Stiffler | |
| † 10-bb | MEMC Supplemental Executive Pension Plan 2002 Restatement (Incorporated by reference to Exhibit 10-bb of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-cc | MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan as Amended and Restated on January 26, 2004 | |
| † 10-cc(2) | Form of Stock Option and Restricted Stock Agreement (Incorporated by reference to Exhibit 10-t(1) of the Company’s Form 10-K for the Year ended December 31, 1995) | |
| † 10-cc(3) | Form of Stock Option and Performance Restricted Stock Agreement (Incorporated by reference to Exhibit 10-yy of the Company’s Form 10-K for the Year ended December 31, 1995) | |
| † 10-cc(4) | Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-zz of the Company’s Form 10-K for the Year ended December 31, 1995) | |
| † 10-cc(5) | Form of Stock Option and Performance Restricted Stock Agreement (Incorporated by reference to Exhibit 10-nnn of the Company’s Form 10-Q for the Quarter ended March 31, 1997) | |
| † 10-cc(6) | Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-ooo of the Company’s Form 10-Q for the Quarter ended March 31, 1997) | |
| † 10-cc(7) | Form of Stock Option Agreement (Non-employee Directors) (Incorporated by reference to Exhibit 10-ppp of the Company’s Form 10-Q for the Quarter ended March 31, 1997) | |
| † 10-cc(8) | Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-cc(7) of the Company’s Form 10-K for the Year ended December 31, 1999) | |
| † 10-cc(9) | Form of Stock Option Agreement (4-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(9) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
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Exhibit No. | Description | |
| † 10-cc(10) | Form of Stock Option Agreement (2-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(10) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| † 10-cc(11) | Form of Stock Option Agreement (7-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(11) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| † 10-cc(12) | Form of Stock Option Agreement (Outside Directors) (Incorporated by reference to Exhibit 10-cc(12) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| † 10-dd | MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan as Restated on March 2, 2004 | |
| † 10-dd(1) | Form of Stock Option Agreement (4 year vesting) (Incorporated by reference to Exhibit 10-dd(1) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| † 10-dd(2) | Form of Stock Option Agreement (7 year cliff vesting) (Incorporated by reference to Exhibit 10-dd(2) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| † 10-dd(3) | Form of Stock Option Agreement (end of contract vesting) (Incorporated by reference to Exhibit 10-dd(3) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| † 10-ee | Retirement Agreement dated December 29, 2003 between the Company and James M. Stolze | |
| † 10-ff | Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.1 to the Company’s Form S-8 Registration Statement filed March 1, 2002) | |
| † 10-gg | Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.2 to the Company’s Form S-8 Registration Statement filed March 1, 2002) | |
| † 10-ii | Employment Agreement effective as of March 26, 2002 between the Company and Nabeel Gareeb (Incorporated by reference to Exhibit 10-ii of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-ii(1) | Stock Option Grant Agreement (2002 Service Option) (Incorporated by reference to Exhibit 10-ii(1) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-ii(2) | Stock Option Grant Agreement (Four Year Vesting) (Incorporated by reference to Exhibit 10-ii(2) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-ii(3) | Stock Option Grant Agreement (Seven Year Vesting) (Incorporated by reference to Exhibit 10-ii(3) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-jj | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj of the Company’s Form 10-Q for the Quarter ended September 30, 2002) | |
| † 10-jj(1) | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj(1) of the Company’s Form 10-Q for the Quarter ended March 31, 2003) | |
| † 10-kk | Employment Agreement dated as of January 1, 2002 between the Company and David L. Fleisher | |
| † 10-ll | Retirement Agreement effective as of April 30, 2002 between the Company and Klaus von Horde (Incorporated by reference to Exhibit 10-ll(2) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-ll(1) | Restricted Stock Agreement (Incorporated by reference to Exhibit 10-ll(3) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-ll(2) | Stock Option Award Agreement ($3.55) (Incorporated by reference to Exhibit 10-ll(4) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-ll(3) | Stock Option Award Agreement ($1.50) (Incorporated by reference to Exhibit 10-ll(5) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
| † 10-mm | Agreement dated as of July 7, 2003 between the Company and Jonathon P. Jansky (Incorporated by reference to Exhibit 10-nn of the Company’s Form 10-Q for the Quarter ended September 30, 2003) | |
| 10-aaa | Revolving Credit Agreement, dated as of December 5, 2002, among the Company, the lenders party thereto and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-aaa(1) | Security Agreement, dated as of March 3, 2003, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa(1) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
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Exhibit No. | Description | |
| 10-aaa(2) | Pledge Agreement, dated as of March 3, 2003, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa(2) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-aaa(3) | Italian Supplement, dated as of March 3, 2003, to the Pledge Agreement, dated as of March 3, 2003, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa(3) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-aaa(4) | Indemnity, Subrogation and Contribution Agreement, dated as of March 3, 2003, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa(4) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-aaa(5) | Guarantee Agreement, dated as of March 3, 2003, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa(5) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-vvv | Euro 55,000,000 Second Amended and Restated Credit Agreement dated as of September 6, 2002 between MEMC Electronic Materials, S.p.A. and TPG Wafer Partners LLC (Incorporated by reference to Exhibit 10-vvv of the Company’s Form 10-Q for the Quarter ended September 30, 2002) | |
| 10-vvv(1) | Guaranty Agreement dated as of September 6, 2002 between the Company and TPG Wafer Partners LLC (Incorporated by reference to Exhibit 10-vvv(1) of the Company’s Form 10-Q for the Quarter ended September 30, 2002) | |
| 10-vvv(2) | Amendment No. 1, dated as of March 3, 2003, to the Euro 55,000,000 Second Amended and Restated Credit Agreement dated as of September 6, 2002 between MEMC Electronic Materials, S.p.A. and TPG Wafer Partners LLC (Incorporated by reference to Exhibit 10-vvv(3) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-www | Revolving Credit Agreement, dated as of December 21, 2001, among the Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-www(1) | Security Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-www(2) | Pledge Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-www(3) | Indemnity, Subrogation and Contribution Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-www(4) | Guarantee Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-www(5) | Amendment No. 1, dated as of March 21, 2002, to the Revolving Credit Agreement, dated as of December 21, 2002, among the Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(5) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| 10-www(6) | Omnibus Amendment Agreement dated January 25, 2002, among the Company, Citicorp USA, Inc., and the other signatories thereto (Incorporated by reference to Exhibit 10-www(6) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| 10-www(7) | Omnibus Amendment Agreement No. 2 dated March 27, 2002, among the Company, Citicorp USA, Inc., and the other signatories thereto (Incorporated by reference to Exhibit 10-www(7) of the Company’s Form 10-Q for the Quarter ended March 31, 2002) | |
| 10-www(8) | Amendment No. 2, dated June 21, 2002, to the Revolving Credit Agreement, dated December 21, 2001, among the Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(8) of the Company’s Form 10-Q for the Quarter ended June 30, 2002) | |
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Exhibit No. | Description | |
| 10-www(9) | Amendment No. 1, dated as of March 3, 2003, to the Security Agreement, dated as of December 21, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(9) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-www(10) | Amendment No. 1, dated as of March 3, 2003, to the Pledge Agreement, dated as of December 21, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(10) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-www(11) | Italian Supplement, dated as of March 3, 2003, to the Pledge Agreement, dated as of December 21, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(11) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-www(12) | Amendment No. 3 dated as of March 11, 2003, to the Revolving Credit Agreement, dated as of December 21, 2001, among the Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(12) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-www(13) | Amendment No. 4 dated as of June 13, 2003, to the Revolving Credit Agreement, dated as of December 21, 2001, among the Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(13) of the Company’s Form 10-Q for the Quarter ended June 30, 2003) | |
| 10-xxx | Reimbursement Agreement, dated as of December 21, 2001 by and among the Company, TPG Partners III, L.P., TCW/Crescent Mezzanine Partners III, L.P, TCW/Crescent Mezzanine Trust III, Green Equity Investors III, L.P. and Green Equity Investors Side III, L.P, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-xxx(1) | Amended and Restated Security Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-xxx(2) | Amended and Restated Pledge Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-xxx(3) | Amended and Restated Indemnity, Subrogation and Contribution Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-xxx(4) | Amended and Restated Guarantee Agreement, dated as of December 21, 2001, among the Company, each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
| 10-xxx(5) | Amendment No. 1, dated as of March 3, 2003, to the Amended and Restated Security Agreement, dated as of December 21, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-xxx(5) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-xxx(6) | Amendment No. 1, dated as of March 3, 2003, to the Amended and Restated Pledge Agreement, dated as of December 21, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-xxx(6) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-xxx(7) | Italian Supplement, dated as of March 3, 2003, to the Amended and Restated Pledge Agreement, dated as of December 21, 2001, among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-xxx(7) of the Company’s Form 10-K for the Year ended December 31, 2002) | |
| 10-zzz | Termination and Funding Agreement, dated as of December 21, 2001, by and among the Company, TPG Wafer Credit Partners LLC, T(3) Partners II, L.P., T(3) Parallel II, L.P., TCW/Crescent Mezzanine Partners III, L.P., TCW/Crescent Mezzanine Trust III, Green Equity Investors III, L.P., Green Equity Investors Side III, L.P., and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K dated January 14, 2002) | |
7
Exhibit No. | Description | |
| 13 | Pages 12 through 60 and page 62 of the Company’s 2003 Annual Report | |
| 18 | Preferability Letter of KPMG LLP (Incorporated by reference to Exhibit 18 of the Company’s Form 10-Q for the Quarter ended March 31, 2003) | |
| 21 | Subsidiaries of the Company | |
| ** 23.1 | Consent of KPMG LLP | |
| ** 23.2 | Consent of KPMG Certified Public Accountants | |
| ** 31.1 | Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| ** 31.2 | Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| ** 32 | Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| * | Confidential treatment of certain portions of these documents has been granted. |
| ** | Filed herewith. |
| † | These exhibits constitute management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. |
(b) REPORTS ON FORM 8-K
During the fourth quarter of 2003, we filed the following current reports on Form 8-K:
Item 7 and Item 12 Form 8-K filed on October 27, 2003.
Item 5 and Item 7 Form 8-K filed on December 9, 2003.
8
Report of Independent Registered Public Accounting Firm
The Board of Directors
Taisil Electronic Materials Corporation:
We have audited the accompanying balance sheet of Taisil Electronic Materials Corporation as of December 31, 2002 and the related statements of operations, changes in stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Taisil Electronic Materials Corporation as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in the Republic of China.
Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such difference is presented in note 16 of the financial statements.
/s/ KPMG Certified Public Accountants
Taipei, Taiwan (the Republic of China)
January 17, 2003
T-1
TAISIL ELECTRONIC MATERIALS CORPORATION
December 31, 2003 and 2002
(expressed in thousands of US dollars)
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
| ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents (note 4) | $ | 9,595 | 12,279 | ||||
Short-term investments (note 5) | 4,183 | 2,208 | |||||
Notes and accounts receivable, net of allowance for sales returns and discounts of $79 and $509 in 2003 and 2002, respectively (note 6 ) | 6,799 | 9,756 | |||||
Receivables from related parties (note 3) | 3,982 | 398 | |||||
Other current financial assets (note 14) | 145 | 142 | |||||
Inventories, net (note 7) | 13,545 | 12,534 | |||||
Prepayments and other current assets (note 3) | 2,396 | 866 | |||||
Deferred income tax, net (note 13) | 2,238 | 971 | |||||
Total current assets | 42,883 | 39,154 | |||||
Property, plant and equipment (notes 3, 8 and 14): | |||||||
Buildings | 51,902 | 51,885 | |||||
Machinery and equipment | 239,711 | 237,024 | |||||
Furniture and fixtures | 5,487 | 7,088 | |||||
| 297,100 | 295,997 | ||||||
Less: accumulated depreciation | (198,267 | ) | (184,785 | ) | |||
Prepayments for equipment | 3,972 | 5,397 | |||||
Net property, plant, and equipment | 102,805 | 116,609 | |||||
Other assets: | |||||||
Deferred technology fees (note 3) | 319 | 820 | |||||
Deferred income tax, net (note 13) | 1,066 | 1,990 | |||||
Other assets (note 14) | 6,891 | 6,712 | |||||
Total other assets | 8,276 | 9,522 | |||||
| $ | 153,964 | 165,285 | |||||
See accompanying notes to financial statements
T-2
TAISIL ELECTRONIC MATERIALS CORPORATION
BALANCE SHEETS (Continued)
December 31, 2003 and 2002
(expressed in thousands of US dollars, except par value)
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Short-term loans (note 9) | $ | 11,879 | 21,366 | ||||
Short-term bills payable (note 9) | 881 | 12,057 | |||||
Current portion of long-term loans (notes 3, 10 and 14) | 656 | 6,404 | |||||
Notes and accounts payable (note 3) | 5,958 | 2,605 | |||||
Payables for construction in progress and prepayments for equipment | 464 | 1,264 | |||||
Accrued expenses and other current liabilities (note 3) | 6,184 | 5,449 | |||||
Total current liabilities | 26,022 | 49,145 | |||||
Long-term loans (notes 3, 10 and 14) | 7,018 | 5,425 | |||||
Accrued pension liabilities (note 11) | 2,187 | 1,743 | |||||
Total liabilities | 35,227 | 56,313 | |||||
Commitments and contingent liabilities (note 15) | |||||||
Stockholders’ equity (note 12): | |||||||
Common stock - par value NT$10 | 130,913 | 130,913 | |||||
Accumulated deficit | (12,176 | ) | (21,941 | ) | |||
Total stockholders’ equity | 118,737 | 108,972 | |||||
| $ | 153,964 | 165,285 | |||||
See accompanying notes to financial statements.
T-3
TAISIL ELECTRONIC MATERIALS CORPORATION
Years ended December 31, 2003, 2002 and 2001
(expressed in thousands of US dollars, except for per share data)
| 2003 | 2002 | 2001 | ||||||||
| (unaudited) | (unaudited) | |||||||||
Net sales (note 3) | $ | 81,614 | 78,345 | 83,546 | ||||||
Cost of goods sold (note 3) | 66,360 | 67,164 | 72,208 | |||||||
Gross margin | 15,254 | 11,181 | 11,338 | |||||||
Operating expenses: | ||||||||||
Selling, general and administrative | 3,998 | 7,417 | 7,822 | |||||||
Research and development | 1,291 | 1,413 | 1,711 | |||||||
| 5,289 | 8,830 | 9,533 | ||||||||
Operating income | 9,965 | 2,351 | 1,805 | |||||||
Non-operating income (expense): | ||||||||||
Interest income | 95 | 175 | 665 | |||||||
Interest expense (note 3) | (827 | ) | (2,096 | ) | (5,370 | ) | ||||
Gain (loss) on foreign exchange, net | (280 | ) | (611 | ) | 2,635 | |||||
Other income, net | 1,273 | 1,089 | 1,082 | |||||||
| 261 | (1,443 | ) | (988 | ) | ||||||
Income before income tax | 10,226 | 908 | 817 | |||||||
Income tax expense (benefit) (note 13) | (273 | ) | 3,842 | 7,426 | ||||||
| 10,499 | (2,934 | ) | (6,609 | ) | ||||||
Casualty loss - net (note 8) | (734 | ) | — | — | ||||||
Net income (loss) | $ | 9,765 | (2,934 | ) | (6,609 | ) | ||||
Earnings (loss) per common share | $ | 0.02 | (0.01 | ) | (0.02 | ) | ||||
Weighted average number of shares outstanding | 400,000,000 | 400,000,000 | 400,000,000 | |||||||
See accompanying notes to financial statements
T-4
TAISIL ELECTRONIC MATERIALS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended December 31, 2003, 2002 and 2001
(expressed in thousands of US dollars)
Common stock | Capital surplus | Accumulated deficit | Total | |||||||||
Balance as of January 1, 2001 (unaudited) | $ | 130,913 | 2 | (12,400 | ) | 118,515 | ||||||
Gain on disposal of property and equipment appropriated as capital surplus | — | 6 | (6 | ) | — | |||||||
Net loss | — | — | (6,609 | ) | (6,609 | ) | ||||||
Balance as of December 31, 2001 (unaudited) | 130,913 | 8 | (19,015 | ) | 111,906 | |||||||
Reversal from capital surplus of gains from the disposition of property and equipment | — | (8 | ) | 8 | — | |||||||
Net loss | — | — | (2,934 | ) | (2,934 | ) | ||||||
Balance as of December 31, 2002 | 130,913 | — | (21,941 | ) | 108,972 | |||||||
Net income | — | — | 9,765 | 9,765 | ||||||||
Balance as of December 31, 2003 (unaudited) | $ | 130,913 | — | (12,176 | ) | 118,737 | ||||||
See accompanying notes to financial statements
T-5
TAISIL ELECTRONIC MATERIALS CORPORATION
Years ended December 31, 2003, 2002 and 2001
(expressed in thousands of US dollars)
| 2003 | 2002 | 2001 | ||||||||
| (unaudited) | (unaudited) | |||||||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | 9,765 | (2,934 | ) | (6,609 | ) | ||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: | ||||||||||
Depreciation and amortization | 16,641 | 21,040 | 28,473 | |||||||
Provision (reversal) for allowance for sales discount | (430 | ) | 1,369 | 5,046 | ||||||
Provision for inventory loss | 414 | 761 | 730 | |||||||
Loss from disposal of property and equipment | — | — | 38 | |||||||
Decrease (increase) in notes and accounts receivable | (194 | ) | 599 | 7,893 | ||||||
Decrease (increase) in inventories | (1,425 | ) | 3,080 | 3,761 | ||||||
Decrease (increase) in prepayments and other current assets | (1,533 | ) | (30 | ) | 466 | |||||
Decrease (increase) in deferred income taxes | (343 | ) | 3,773 | 8,039 | ||||||
Increase (decrease) in notes and accounts payable | 3,353 | (2,150 | ) | (1,585 | ) | |||||
Increase (decrease) in accrued expenses and other current liabilities | 735 | (70 | ) | (3,139 | ) | |||||
Increase in accrued pension liabilities | 444 | 331 | 343 | |||||||
Net cash provided by operating activities | 27,424 | 25,769 | 43,456 | |||||||
Cash flows from investing activities: | ||||||||||
Increase in short-term investments: | (1,975 | ) | (1,142 | ) | (853 | ) | ||||
Additions to property, plant and equipment | (3,131 | ) | (1,997 | ) | (4,165 | ) | ||||
Proceeds from disposal of property and equipment | — | — | 52 | |||||||
Decrease (increase) refundable deposits : | (184 | ) | 3,391 | (10,051 | ) | |||||
Increase in restricted bank deposits | — | (1 | ) | (27 | ) | |||||
Net cash provided by (used in) investing activities | (5,290 | ) | 251 | (15,044 | ) | |||||
Cash flows from financing activities: | ||||||||||
Increase (decrease) in short-term loans and bills payable | (20,663 | ) | 1,206 | 13,663 | ||||||
Increase in long-term loans | 2,140 | — | 3,089 | |||||||
Repayment of long-term loans | (6,295 | ) | (27,224 | ) | (42,744 | ) | ||||
Net cash used in financing activities | (24,818 | ) | (26,018 | ) | (25,992 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (2,684 | ) | 2 | 2,420 | ||||||
Cash and cash equivalents at beginning of the year | 12,279 | 12,277 | 9,857 | |||||||
Cash and cash equivalents at end of the year | $ | 9,595 | 12,279 | 12,277 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||
Cash paid for interest | $ | 889 | 2,157 | 5,685 | ||||||
Cash paid for income taxes (including refundable income taxes) | $ | 55 | 17 | 65 | ||||||
Cash paid for property, plant and equipment: | ||||||||||
Increase in property, plant and equipment | $ | 2,331 | 3,110 | 4,055 | ||||||
Less: increase (decrease) in other payables | (800 | ) | 1,113 | (110 | ) | |||||
Cash paid | $ | 3,131 | 1,997 | 4,165 | ||||||
Supplemental disclosures of non-cash financing activities: | ||||||||||
Current amounts of long-term liabilities | $ | 656 | 6,404 | 27,307 | ||||||
See accompanying notes to financial statements
T-6
TAISIL ELECTRONIC MATERIALS CORPORATION
(Amounts expressed in thousands of US dollars or
New Taiwan dollars, except per share data, unless otherwise stated)
(Amounts and information with respect to 2003 and 2001 are unaudited)
(1) Organization and business environment
Taisil Electronic Materials Corporation (the “Company”), was founded in the Hsinchu Science Park of the Republic of China (“ROC”) on September 26, 1994. The Company is engaged in the research, development, production and sale of the latest generation silicon wafers.
(2) Significant accounting policies
The financial statements are prepared in accordance with accounting principles generally accepted in the ROC. The significant accounting policies and measurement basis adopted in preparing the accompanying financial statements are summarized as follows:
(a) Revenue recognition
Revenue is recognized when title to the products and risk of ownership are transferred to the customers, which occurs principally at the time product is consumed by the customer and, to a lesser degree, at the time of shipment.
Allowance for sales discounts is provided based on the amount of discount granted to individual customers.
(b) Use of estimates
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Economic conditions and events could cause actual results to differ significantly from such management estimates.
(c) Functional and reporting currency
The Company reports its financial position and results of operations using the United States dollar as the functional currency.
(d) Foreign currency transactions
Foreign currency transactions in currencies other than the functional currency are recorded at rates in effect at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at year-end are translated at the exchange rate then prevailing. Gains or losses resulting from settlement of such transactions or translations are included in non-operating income (expense).
T-7
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(e) Short-term investments
Investments are carried at the lower of cost or market value. The market value of open-ended investment funds is determined on the basis of the fund’s net worth at the balance sheet date. Costs of shares sold are determined on a weighted-average basis.
(f) Allowance for doubtful accounts
Allowance for doubtful accounts is based on the age, credit quality and results of the Company’s evaluation of the collectibility of outstanding balances of notes and accounts receivable.
(g) Inventories
Inventories are stated at the lower of cost or fair value. Cost is determined using the weighted-average method. The fair value of raw materials is determined on the basis of replacement cost. Fair values of work in process and finished goods are determined on the basis of net realizable value. A provision for inventory obsolescence and devaluation is recorded when management determines that the fair values of inventories are less than their cost basis.
(h) Property, plant and equipment
Property, plant and equipment are stated at acquisition cost. Depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets using the straight-line method less any salvage value. The range of the estimated useful lives are as follows: buildings - 40 or 55 years, machinery and equipment - 3 to 15 years, and other equipment - 3 to 5 years. Interest costs related to the construction of property, plant and equipment are capitalized and included in the cost of the related asset. Gains or losses on the disposal of property, plant and equipment are recorded as non-operating income (expenses) in the accompanying statements of operations. Before December 27, 2001, any gain, net of related income taxes, was required to be transferred from unappropriated earnings to capital surplus in the year of disposal in accordance with the Company Law of the ROC.
Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of property, plant and equipment, the estimated future undiscounted net cash flow of each asset is compared to the carrying amount of the asset. If the carrying amount exceeds the undiscounted cash flow, the impairment is measured based on the fair values of the assets. At December 31, 2003 and 2002, the estimated future undiscounted net cash flows of property, plant and equipment exceeded their carrying amount.
(i) Technology fees
The Company has entered into a technical assistance service agreement with MEMC Electronic Materials, Inc. involving information and processes embodying technology, equipment design, and assets and property rights for the manufacture of silicon wafers. Payments for such technology are capitalized and amortized over five years on a straight-line basis from the commencement of commercial production.
T-8
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(j) Deferred charges
The costs of electrical facility installation charges are accounted for as deferred charges and are amortized over their estimated useful lives of five years on a straight-line basis.
(k) Employee retirement plan
The Company adopted a retirement plan covering substantially all employees in December 1995. Benefits are based on the employees’ years of service. Beginning in August 1996, in accordance with the ROC Labor Standards Law, the Company made monthly contributions to a pension fund with the Central Trust of China. As approved by the authorities, the funding rate was set at 2% of salaries and wages. Retirement benefits to employees will be paid from the retirement fund first, and if the fund is insufficient, the balance will be paid by the Company.
Pension costs charged to earnings are actuarially computed. The measurement date is the balance sheet date. Accrued pension liabilities are recognized for the excess of accumulated benefit obligation over the fair value of plan assets. Net periodic pension costs including current service cost and net obligations at transition are amortized over a 27-year period using the straight-line method, beginning in 1998.
(l) Income taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes are determined based on differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect during the years in which the differences are expected to reverse. The income tax effects resulting from taxable temporary differences are recognized as deferred income tax liabilities. The income tax effects resulting from deductible temporary differences, net operating loss carry forwards and income tax credits, are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and if it is considered more likely than not that the deferred tax assets will not be realized, a valuation allowance is recognized accordingly.
Classification of the deferred income tax assets or liabilities as current or non-current is based on the classification of the related asset or liability. If a deferred income tax asset or liability is not directly related to a specific asset or liability, then the classification is based on the expected realization date of such deferred income tax asset or liability.
Income tax expense is reduced by investment tax credits in the year in which the credits arise.
According to the ROC Income Tax Law, the Company’s undistributed income, if any, earned after December 31, 1997, is subject to an additional 10% retained earning tax. The surtax is charged to income tax expense after the appropriation of earnings is approved by the stockholders in the following year.
(m) Casualty losses
Casualty loss consists of accrued loss caused by a fire on December 10, 2003, less the estimated insurance compensation.
T-9
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(n) Earnings (loss) per common share
Earnings (loss) per share of common stock are computed based on the weighted-average number of common shares outstanding during the period.
(3) Transactions with related parties
(a) Name and relationship
Name of related party | Relationship with the Company | |
MEMC Electronic Materials Inc. and Subsidiaries (“MEMC and subsidiaries”) | Includes MEMC Electronic Materials, Inc. and all of its majority owned consolidated affiliates, including the investor using the equity method to account for its investment in the Company | |
Chiao Tung Bank Taiwan, ROC (“CTB”) | Investor and represented on the Company’s Board of Directors |
(b) Significant transactions with related parties
(i) Net sales to and corresponding amounts receivable from related parties are as follows:
| Sales | |||||||
| 2003 | 2002 | 2001 | |||||
| (unaudited) | (unaudited) | ||||||
MEMC and subsidiaries | $ | 6,840 | 4,370 | 4,724 | |||
Account receivable December 31, | ||||||
| 2003 | 2002 | |||||
| (unaudited) | ||||||
MEMC and subsidiaries | $ | 4,059 | 398 | |||
Less: allowance for sales returns and discounts | (77 | ) | — | |||
| $ | 3,982 | 398 | ||||
T-10
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(ii) Purchases from and corresponding amounts payable to related parties are as follows:
| Purchases | |||||||
| 2003 | 2002 | 2001 | |||||
| (unaudited) | (unaudited) | ||||||
MEMC and subsidiaries | $ | 3,153 | 2,191 | 1,439 | |||
Account payable December 31, | |||||
| 2003 | 2002 | ||||
| (unaudited) | |||||
MEMC and subsidiaries | $ | 1,078 | 23 | ||
(iii) Financing
The Company’s long-term loans from CTB are summarized as follows:
Year | Maximum balance | Interest rate | Ending balance | Interest expense | Interest payable | Collateral | |||||||
2003 (unaudited) | $ | 8,353 | 3.19%- 5.915% | 1,787 | 234 | 5 | Machinery and equipment of $21,955 | ||||||
2002 | $ | 15,735 | 5.49%- 6.0786% | 8,167 | 770 | 43 | Machinery and equipment of $26,285 | ||||||
(iv) Technology fees and royalties
According to the technical assistance service agreement between the Company and MEMC and subsidiaries, the Company is obligated to pay a royalty license fee. For the years ended December 31, 2003, 2002 and 2001, such royalty totalled $4,056, $3,196, and $3,423, respectively. As of December 31, 2003 and 2002, unpaid balances amounted to $2,170 and $1,593, respectively, which were included in accrued expenses and other current liabilities.
(v) Commission and service income
The Company earned $1,201, $418 and $260 worth of commission and service income for the years ended December 31, 2003, 2002 and 2001, respectively, for agency and service support provided to related parties. As of December 31, 2003 and 2002, the related receivables of $999 and $311, respectively, were included in prepayment and other current assets.
T-11
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(vi) Toll fees and testing fees
The Company engaged MEMC and subsidiaries to process silicon wafers. Toll fees paid for the years ended December 31, 2003, 2002 and 2001 were as follows:
| 2003 | 2002 | 2001 | |||||
| (unaudited) | (unaudited) | ||||||
MEMC and subsidiaries | $ | 174 | 56 | 234 | |||
As of December 31, 2003 and 2002, amounts due that resulted from the above transactions were as follows:
| December 31, | |||||
| 2003 | 2002 | ||||
| (unaudited) | |||||
MEMC and subsidiaries | $ | — | 4 | ||
(vii) Acquisition of property, plant and equipment
The value of property, plant and equipment acquired from MEMC and subsidiaries for the year ended December 31, 2002 amounted to $88 and remain unpaid.
(viii) As of December 31, 2003 and 2002, temporary disbursements due to related parties amounted to $4 and $126 respectively, and are included in accrued expenses and other current liabilities.
(4) Cash and cash equivalents
Cash and cash equivalents consist of the following:
| December 31, | |||||
| 2003 | 2002 | ||||
| (unaudited) | |||||
Cash on hand and in banks | $ | 811 | 798 | ||
Time deposits | 8,784 | 11,481 | |||
| $ | 9,595 | 12,279 | |||
(5) Short-term investments
Short-term investments consist of open-ended investment funds at December 31, 2003 and 2002. The fair value of such investments at December 31, 2003 and 2002 was approximately $4,200 and $2,224, respectively.
T-12
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(6) Notes and Accounts Receivable
Notes and Accounts Receivable consist of the following:
| December 31, | |||||||
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
Notes receivable | $ | 17 | 10 | ||||
Accounts receivable | 4,071 | 10,255 | |||||
Pledged accounts receivable | 11,264 | — | |||||
Less: short-term borrowing secured by accounts receivable | (8,474 | ) | — | ||||
The amount reserved for pledged accounts receivable | 2,790 | — | |||||
Notes and accounts receivable | 6,878 | 10,265 | |||||
Less: allowance for sales returns and discounts | (79 | ) | (509 | ) | |||
| $ | 6,799 | 9,756 | |||||
(7) Inventories
The components of inventories are summarized below:
| December 31, | |||||||
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
Finished goods | $ | 3,006 | 4,165 | ||||
Work in process | 3,099 | 1,404 | |||||
Raw materials and spare parts | 11,920 | 11,016 | |||||
| 18,025 | 16,585 | ||||||
Less: provision for inventory devaluation | (4,480 | ) | (4,051 | ) | |||
| $ | 13,545 | 12,534 | |||||
Insurance coverage on inventories | $ | 14,127 | 14,387 | ||||
(8) Property, plant and equipment
Insurance coverage on property, plant and equipment, as of December 31, 2003 and 2002, amounted to $200,129 and $189,912, respectively.
Due to a fire that occurred on December 10, 2003, the Company shut down some of its production lines. As of the reporting date, the damaged machinery and equipment had not yet been recovered.
T-13
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(9) Short-term loans and short-term bills payable
| December 31, | |||||||||||
| 2003 (unaudited) | 2002 | ||||||||||
| Amount | Interest rate | Amount | Interest rate | ||||||||
Unsecured loans | $ | 6,475 | 1.35%-1.395% | 12,949 | 1.9%-2.3% | ||||||
Credit loans and import loans under letters of credit | 5,404 | 1.2%-1.8% | 8,417 | 1.87%-2.47% | |||||||
| 11,879 | 21,366 | ||||||||||
Commercial paper payable | 883 | 12,085 | 1.22%-1.95% | ||||||||
Unamortized discount | (2 | ) | (28 | ) | |||||||
| 881 | 12,057 | ||||||||||
| $ | 12,760 | 33,423 | |||||||||
(10) Long-term loans
| December 31, | |||||||||||||
Bank | Credit line and purpose | Period | Repayment term | 2003 (unaudited) | 2002 | ||||||||
| Chiao Tung Bank | NT$240 million for purchase of machinery | February 1998 to February 2005 | Repayable in 17 quarterly installments starting in February 2001 | $ | — | 3,185 | |||||||
| Chiao Tung Bank | NT$100 million for purchase of machinery | November 1995 to November 2005 | Repayable in 29 quarterly installments starting in January 1999 | 914 | 1,291 | ||||||||
| Chiao Tung Bank | NT$200 million for purchase of machinery | December 1996 to November 2003 | Repayable in 17 quarterly installments starting in December 1999 | — | 901 | ||||||||
| Chiao Tung Bank | NT$200 million for purchase of machinery | December 1996 to November 2003 | Repayable in 17 quarterly installments starting in March 2000 | — | 1,692 | ||||||||
| Chiao Tung Bank | NT$80 million for purchase of machinery | December 1996 to November 2006 | Repayable in 29 quarterly instalments starting in January 2000 | 874 | 1,098 | ||||||||
Industrial Bank of Taiwan | NT$200 million for purchase of machinery | September 2000 to September 2004 | Repayable in 11 quarterly instalments starting in March 2002 | — | 3,662 | ||||||||
| Industrial Bank of Taiwan | NT$200 million for purchase of machinery | May 2003 to May 2006 | Payable on the due date | 5,886 | — | ||||||||
| 7,674 | 11,829 | ||||||||||||
| Less: current portion | (656 | ) | (6,404 | ) | |||||||||
| $ | 7,018 | 5,425 | |||||||||||
T-14
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
As of December 31, 2003, the following amounts of long-term loans were to come due during the next five years:
Year | Amount | ||
2004 | $ | 656 | |
2005 | 656 | ||
2006 | 6,237 | ||
After 2007 | 125 | ||
| $ | 7,674 | ||
The ranges of interest rates for all long-term borrowings for the years ended December 31, 2003, 2002 and 2001 were 2.57%-3.19%, 5.49%-6.24% and 3.084%-7.49%, respectively. As of December 31, 2003 and 2002, total unused lines of credit for both short-term and long-term loans combined amounted to $1,923 and $62,241, respectively.
As of December 31, 2003 and 2002, certain plant and equipment were pledged as security for long-term loans (refer to note 14).
(11) Pension
The following table sets forth the benefit obligation and accrued pension liabilities of the Company’s pension plan:
| December 31, | |||||||
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
Benefit obligation: | |||||||
Vested benefit obligation | $ | — | — | ||||
Non-vested benefit obligation | (2,058 | ) | (1,844 | ) | |||
Accumulated benefit obligation | (2,058 | ) | (1,844 | ) | |||
Effects of future salary increase | (1,232 | ) | (1,180 | ) | |||
Projected benefit obligation | (3,290 | ) | (3,024 | ) | |||
Fair value of plan assets | 1,479 | 1,303 | |||||
Benefit obligation in excess of plan assets | (1,811 | ) | (1,721 | ) | |||
Unrecognized net obligation at transition | 448 | 459 | |||||
Unrecognized pension gain | (824 | ) | (481 | ) | |||
Accrued pension liabilities | $ | (2,187 | ) | (1,743 | ) | ||
The net pension costs consist of the following components:
| 2003 | 2002 | 2001 | ||||||||
| (unaudited) | (unaudited) | |||||||||
Service cost | $ | 485 | 480 | 497 | ||||||
Interest expense | 115 | 114 | 127 | |||||||
Expected returns on pension plan assets | (53 | ) | (52 | ) | (37 | ) | ||||
Amortization and deferral | 14 | 13 | 1 | |||||||
Net pension costs | $ | 561 | 555 | 588 | ||||||
T-15
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
Significant actuarial assumptions are as follows:
| 2003 | 2002 | 2001 | |||||||
| (unaudited) | (unaudited) | ||||||||
Discount rate | 3.50 | % | 3.75 | % | 4.50 | % | |||
Rate of salary progression | 2.50 | % | 2.50 | % | 3.00 | % | |||
Projected return on plan assets | 2.75 | % | 3.75 | % | 4.50 | % |
(12) Stockholders’ equity
(a) Capital stock
As of December 31, 2003 and 2002, the Company’s authorized common stock, par value NT$10 per share, totalled NT$4,800,000; the issued capital was $130,913 (NT$4,000,000).
(b) Capital surplus
Capital surplus can only be used to offset a deficit or to increase issued share capital.
Pursuant to a shareholders’ resolution on May 23, 2003, the Company decided to transfer capital surplus from the gain on disposal of fixed assets amounting to $8 to accumulated deficit.
(c) Distribution of earnings
In accordance with the ROC Company Law, the Company’s articles of incorporation stipulate that 10% of annual earnings (net of losses of prior years, if any) is to be retained as a statutory reserve until such retention equals the amount of issued share capital. The distribution of remaining earnings should be proposed by the board of directors and decided in a stockholders meeting. At least 0.01% of the distribution should be appropriated as employees’ bonuses when the stockholders approve an earnings distribution.
(13) Income taxes
The Company is authorized to be a “Science-based industry” and “Important technology-based industry” as defined by the ROC Statute for the Establishment and Administration of Science-Based Industrial Park (the Statute). The Company’s earnings are subject to an income tax rate of 25 percent. Before January 20, 2001, the statutory tax rate of the Company was 20 percent. Income tax expense was as follows:
| 2003 | 2002 | 2001 | ||||||
| (unaudited) | (unaudited) | |||||||
Current income tax expense | $ | — | — | — | ||||
Deferred income tax expense (benefit) | (273 | ) | 3,842 | 7,426 | ||||
| $ | (273 | ) | 3,842 | 7,426 | ||||
T-16
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
The differences between income tax expense (benefit) based on the statutory income tax rate and the income tax expense (benefit) as reported in the accompanying statements of operations are summarized as follows:
| 2003 | 2002 | 2001 | ||||||||
| (unaudited) | (unaudited) | |||||||||
Expected income tax expense | $ | 3,154 | 1,410 | 899 | ||||||
Tax effect of permanent differences | (747 | ) | — | — | ||||||
Effect of tax rate change | — | — | (5,723 | ) | ||||||
Investment tax credits decrease (earned), net | (78 | ) | 895 | 6,175 | ||||||
Tax exemption | (1,161 | ) | (430 | ) | (93 | ) | ||||
Expired loss carryforward | 8,636 | 5,991 | 1,234 | |||||||
Additional 10% income surtax on the undistributed earnings | 431 | — | — | |||||||
Others | 8 | 159 | 2,433 | |||||||
Valuation allowance (decrease) increase | (10,516 | ) | (4,183 | ) | 2,501 | |||||
Income tax expense (benefit) | $ | (273 | ) | 3,842 | 7,426 | |||||
The temporary differences, tax credits, loss carryforwards and their effects on deferred income tax are as follows:
| December 31, | |||||||||||||
| 2003 (unaudited) | 2002 | ||||||||||||
| Amount | Income tax effect | Amount | Income tax effect | ||||||||||
Current assets: | |||||||||||||
Unrealized loss from inventory devaluation | $ | 4,032 | 1,008 | 3,537 | 884 | ||||||||
Unrealized foreign exchange loss (gain) | (117 | ) | (29 | ) | 164 | 41 | |||||||
Unrealized loss | 736 | 184 | — | — | |||||||||
Loss carryforward | 17,924 | 4,481 | 184 | 46 | |||||||||
Investment tax credits earned | 392 | 392 | — | — | |||||||||
| 6,036 | 971 | ||||||||||||
Less: valuation allowance | (3,798 | ) | — | ||||||||||
| $ | 2,238 | 971 | |||||||||||
Noncurrent assets: | |||||||||||||
Investment tax credits earned | $ | 659 | 659 | 1,375 | 1,375 | ||||||||
Difference in technology fees | 2,092 | 523 | 2,432 | 608 | |||||||||
Accrued pension liabilities | 2,172 | 543 | 1,758 | 440 | |||||||||
Loss carryforward | — | — | 57,113 | 14,278 | |||||||||
| 1,725 | 16,701 | ||||||||||||
Less: valuation allowance | (659 | ) | (14,711 | ) | |||||||||
| $ | 1,066 | 1,990 | |||||||||||
T-17
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
The ROC tax regulations stipulate that investment tax credits used by the Company each year shall not exceed 50% of the current income tax payable, and any unused balance can be carried forward to the following four years, subject to the same percentage limitation for each year except in the year of expiration when any remainder can be used for offset of income tax payable in that year. As of December 31, 2003, the estimated unused income tax credits, resulting from investment in machinery and equipment and research and development, available to reduce future tax liabilities and the years of expiration were as follows:
Year of investment | Tax credits | Year of expiration | |||
2000 | $ | 392 | 2004 | ||
2001 | 552 | 2005 | |||
2002 | 29 | 2006 | |||
2003 | 78 | 2007 | |||
| $ | 1,051 | ||||
According to the Statute for the Establishment and Administration of Science-Based Industrial Park, a science-based company may, within two years from the date on which it begins to sell its products or to render services, select any fiscal year in the four-year period from such date for exemption from profit-seeking enterprise income tax for a period of five consecutive years from the starting date of such fiscal year. The Company’s initial NT$2,000,000 capital expenditure project (phase I project) is entitled to enjoy the tax holiday incentive schemes. The Company has chosen January 1, 2000 as the tax holiday starting date.
Pursuant to the ROC Income Tax Law, the Company’s tax losses may be carried forward for up to five years to reduce future taxable income. As of December 31, 2003, the estimated tax loss carryforwards were as follows:
Year loss | Amount | Year of expiration | |||
1999 | $ | 17,924 | 2004 | ||
The tax authorities have examined and assessed the Company’s income tax returns through 2000.
Beginning in 1998, an integrated income tax system was implemented in the ROC. Under the new tax system, the income tax paid at the corporate level can be used to offset the ROC resident stockholders’ individual income tax. The Company is required to establish an Imputation Credit Account (“ICA”) to maintain a record of the corporate income taxes paid and imputation credit that can be allocated to each stockholder. The credit available to the ROC resident stockholders is calculated by multiplying the dividend by the creditable ratio. The creditable ratio is calculated as the balance of the ICA divided by earnings retained since January 1, 1998.
T-18
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
Information relating to the ICA is summarized as follows:
| December 31, | |||||||
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
Accumulated deficit: | |||||||
Earned after December 31, 1998 | $ | (12,176 | ) | (21,941 | ) | ||
Imputation credit account balance | $ | 1 | 1 | ||||
| 2003 | 2002 | ||||||
| (unaudited) | |||||||
Creditable ratio for earnings: | |||||||
Distribution to resident stockholders | — | — | |||||
(14) Pledged assets
Pledged assets were as follows:
| December 31, | |||||||
Assets | Related secured liabilities/assets | 2003 | 2002 | ||||
| (unaudited) | |||||||
Time deposits – recorded in other current financial assets | Deposit with customs for export | $ | 59 | 58 | |||
Machinery and equipment | Long-term loans | 21,955 | 35,001 | ||||
Prepayment for equipment | Long-term loans | — | 2,335 | ||||
Buildings | Long-term loans | — | 34,961 | ||||
Refundable deposits | Deposit for stock repurchase agreement (other assets) | 6,819 | 6,667 | ||||
| $ | 28,833 | 79,022 | |||||
(15) Commitments (Contingency)
(a) Operating lease
The Company leases a plant site from the Science-Based Industrial Park Administration Bureau for a period of 20 years, expiring December 31, 2014. In accordance with the lease agreement, rental payments are subject to adjustment when the government reappraises the land value. The current rent is $975 (NT$33,554) per year.
T-19
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
Future minimum lease payments as of December 31, 2003, under the existing noncancellable agreement are:
Years | Minimum lease payments | |||
2004 through 2008 | $ | 4,877 | ($975 annually) | |
2009 through 2013 | 4,877 | |||
2014 | 975 | |||
| $ | 10,729 | |||
(b) Technical service agreement
In accordance with a technical assistance agreement between the Company and MEMC, the Company is required to pay MEMC an annual royalty based on a certain percentage of net sales and operating income within 10 years of beginning the sales of products.
(c) Purchase of equipment
As of December 31, 2003 and 2002, the Company had outstanding letters of credit amounting to approximately $1,190 and $3,402, respectively, and was committed to purchase equipment with a total estimated cost of $1,614 and $1,906, respectively.
(d)An unrelated third party acquired 19,718,000 shares of the Company’s NT$ 10 par value common stock from the Company’s employees at NT$11.75 per share in 2002. On September 6, 2002 the Company entered into a two-year agreement with this unrelated third party to purchase 19,718,000 shares of the Company’s common stock at a fixed price of NT$11.75 per share. The terms of the contract require the Company to pay an annual fee to the counter-party until the expiration of the agreement, as well as a one-time security deposit payment of NT$231,687 (US$6,667) to secure the Company’s performance of its obligations under the agreement. The Company’s security deposit payment is included in other assets on the balance sheet.
(16) Accounting principles generally accepted in the United States of America
The Company’s financial statements have been prepared in accordance with ROC GAAP. ROC GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). A brief description of certain significant differences between ROC GAAP and US GAAP are set out below. The organizations that promulgate ROC GAAP and US GAAP have projects ongoing that could have a significant impact on future comparisons such as this. This brief description is not intended to provide a comprehensive listing of all existing or future differences between ROC GAAP and US GAAP, including those specifically related to the Company or to the industry in which the Company operates. No attempt has been made in this summary to identify disclosure, presentation or classification differences that would affect the manner in which transactions and events are reflected in the Company’s financial statements or the notes thereto.
T-20
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
Certain differences which would have a significant effect on the Company’s results of operations and stockholders’ equity are as follows:
(a) Technology fee
Under ROC GAAP, the Company capitalizes and amortizes certain costs in connection with a technical assistance agreement entered into with a shareholder, MEMC. Under US GAAP, such payments would be expensed as incurred or treated as a return of capital investment, depending on the nature of the payment.
(b) Income tax
Under ROC GAAP, a valuation allowance is provided on deferred tax assets when they are not certain to be realized based on the projection of future taxable income. However, the criteria by which the need for a valuation allowance is determined is less stringent as compared to US GAAP. Under US GAAP, cumulative losses in recent years are a significant piece of negative evidence which is difficult to overcome with projections of future taxable income for the purpose of determining the valuation allowance.
Under a revised ROC tax rule effective on January 1, 1998, an additional 10% corporate income tax is assessed on taxable income but only to the extent such taxable income is not distributed before the end of the following year. As a result, from January 1, 1998 to January 20, 2002, the undistributed income of the Company would be subject to a corporate tax rate of 28% and distributed income would be taxed at 20%. Commencing from January 20, 2002, the undistributed and distributed income is subject to a corporate tax rate of 32.5% and 25%, respectively. Under ROC GAAP, the 10% tax on undistributed earnings is recognized as an expense at the date that stockholders resolve the amount of the earnings distribution. Under US GAAP, the Company would measure its tax expense, including the tax effects of temporary differences, using the undistributed rate.
(c) Provision for inventory obsolescence and devaluation
A provision for inventory obsolescence and devaluation is recorded when management determines that the market values of inventories are less than their cost basis. Under ROC GAAP, such provisions can be reversed in whole or in part if management further determines that the market values of inventories are greater that their cost basis.
Under US GAAP, provisions for inventory obsolescence and devaluation become a permanent adjustment to the carrying amount of the specific inventory whose market values are less than their cost basis, as deemed by management. Obsolescence and devaluation provision adjustments are included as part of cost of goods sold under US GAAP, and cannot be reversed once they are recorded.
(d) Computer software
Under ROC GAAP, there are no specific accounting guidelines related to costs of computer software developed or obtained for internal use.
US GAAP provides detailed guidance regarding the accounting treatment for internal-use software costs. American Institute of Certified Public Accountants Statement of Position 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” specifies the requirements for the capitalization of computer software costs obtained or developed for internal use.
T-21
TAISIL ELECTRONIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (continued)
(e) Repurchase of Company stock pursuant to the agreement described in Note 15(d)
Under ROC GAAP, the security deposit payment required by the agreement described in Note 15(d) is recorded as an asset until such time as the Company legally acquires ownership in the shares of stock, at which time the cost of the shares would be recorded as treasury stock, a contra-equity account.
Under US GAAP, payments made by the Company under a completed and enforceable contractual agreement to repurchase Company stock would be recorded as treasury stock, a contra-equity account.
In addition under US GAAP, payments made by a third party at the direction of the Company to acquire Company stock from its employees would result in a charge recorded to compensation expense to the extent that the repurchase cost per share exceeds the fair value of the shares on the purchase date. No such compensation expense is recognized under ROC GAAP under these circumstances.
T-22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | ||
By: | /s/ THOMAS E. LINNEN | |
Thomas E. Linnen Senior Vice President and Chief Financial Officer | ||
Date: June 23, 2004
EXHIBIT INDEX
The following exhibits are filed as part of this report.
Exhibit No. | Description | |
| 23.1 | Consent of KPMG LLP | |
| 23.2 | Consent of KPMG Certified Public Accountants | |
| 31.1 | Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32 | Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
