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MEMC Electronic Materials, Inc. 501 Pearl Drive (City of O’Fallon) Post Office Box 8 St. Peters, Missouri 63376 USA Phone: 636-474-5000 Fax: 636-474-5158 www.memc.com | | 
For Immediate Release MEMC REPORTS THIRD QUARTER RESULTS |
St. Peters, MO, October 26, 2006 – MEMC Electronic Materials, Inc. (NYSE: WFR) today reported financial results for the quarter ended September 30, 2006.
Highlights:
| • | | Net sales of $407.9 million |
| • | | Gross margin of $192.5 million (47.2% of net sales) |
| • | | Operating income of $160.7 million (39.4% of net sales) |
| • | | Ending cash and short-term investment balance of $451.9 million |
| • | | Finalized solar wafer agreement with Suntech |
The Company reported net sales of $407.9 million, which represents an increase of over 10% from the second quarter level of $370.5 million. Higher selling prices and increased product volumes drove the sequential improvement.
The Company reported gross margin in the quarter of $192.5 million, or 47.2% of net sales, compared to $160.5 million, or 43.3% of net sales, in the second quarter. The sequential improvement in gross margin was primarily the result of higher selling prices, increased product volume and continued cost reductions.
The Company reported operating income during the quarter of $160.7 million, or 39.4% of net sales. This compares to $127.3 million, or 34.4% of net sales, for the second quarter. This sequential improvement in operating income was the result of both a higher gross margin and operating leverage as operating expenses moved below the 8% mark as a percentage of net sales.
During the quarter, deferred revenue on the balance sheet decreased by $8.7 million. This change resulted in a $2.0 million benefit to revenue on the income statement, with an associated $0.6 million increase in cost of goods sold.
Using an estimated effective cash tax rate of 19%, non-GAAP net income for the third quarter of 2006 was $128.6 million (including $4.5 million in pre-tax stock compensation expense) and non-GAAP diluted EPS was $0.56. Net income for the third quarter, using a book tax rate of 42.2% and including $4.5 million in pre-tax stock compensation expense, was $91.0 million and diluted EPS was $0.40. The book tax rate was higher during the quarter due in part to the repatriation of cash from foreign operations.
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During the quarter, the company finalized its $5-$6 billion solar wafer agreement with Suntech. As part of the agreement, the company received a warrant to purchase up to a 4.9% equity stake in Suntech, for which the company will be required to mark the warrants to market each quarter until they are exercised. The results for the third quarter include a non-cash charge to other income/expense of $2.4 million from re-valuing these warrants to reflect the market value of the warrants as of the end of the quarter. In addition, as a result of the Suntech agreement, the company has established a long term deferred revenue account with a balance of $67 million. This deferred revenue and associated profit will be recognized as product deliveries are made to Suntech over the 10-year life of the agreement and will be included in the company’s regularly reported results.
During the third quarter, the company generated operating cash flow of $140.4 million, or 34.4% of sales. Capital expenditures for the quarter totaled $34.0 million. Free cash flow (operating cash flow minus capital expenditures) was $106.4 million or 26.1% of sales. MEMC ended the third quarter with cash and short-term investments of $451.9 million, compared to $314.2 million at the end of the prior quarter.
“Our robust third quarter results reflect our strong market position,” commented Nabeel Gareeb, MEMC’s chief executive officer. “Compared to the previous quarter, MEMC achieved significant growth in revenue and margins. In addition, our continuing focus on execution and cash flow generation has enabled the Company to grow cash balances by almost $140 million during the third quarter alone. The company now has cash and short-term investments of over $450 million.”
Outlook
“The environment in the semiconductor industry is mixed. Some customers have indicated short-term softness as they work through their inventory issues. A second group is indicating a recovery as they have finished working through their inventory issues present earlier in the quarter. A third group of customers never slowed down and show signs of continued growth. Throughout all of this, the solar market continues to be strong. As a result, demand for polysilicon continues to be robust, thereby allowing the pricing environment to stay healthy.”
“Based on these factors, and the strong baseline results from the third quarter, we are targeting sales in the fourth quarter to be between $410-$415 million. In addition, we are targeting margins to improve by up to 100 basis points compared to the reported third quarter levels.
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Other Events
“In addition to our third quarter results, the company announced today a $2.5-$3 billion definitive agreement to supply solar wafers to Gintech. With this announcement, MEMC now has agreements to supply solar wafers worth between $7-$9 billion over the next ten years. Solar represents a very significant and profitable growth vehicle for MEMC, and we are excited to announce Gintech as our newest partner,” concluded Gareeb.
Conference Call
MEMC will host a conference call today, October 26, 2006, 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 atwww.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 7:30 p.m. ET on October 26, 2006, until 11:59 pm ET on November 2, 2006. To access the replay, please dial (402) 220-2075 at any time during that period. A replay will also be available until 11:59 pm ET on November 2, 2006 on the Company’s web site atwww.memc.com.
About MEMC
MEMC is a global leader in the manufacture and sale of wafers and related intermediate products to the semiconductor and solar industries. 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 and solar cells.
Contact:
Bill Michalek
Director, Investor Relations
MEMC Electronic Materials, Inc.
(636) 474-5443
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Certain matters discussed in this news release are forward-looking statements, including our expectation that fourth quarter 2006 sales will be between $410-$415 million and that margins will improve by up to 100 basis points compared to the third quarter levels. 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 and semiconductors as well as polysilicon; customer acceptance of our new products; utilization of manufacturing capacity; our ability to reduce manufacturing and operating costs; inventory levels of our customers; changes in the pricing environment for both silicon wafers and polysilicon; assumptions underlying management’s financial estimates; general economic conditions; actions by competitors, customers and suppliers; changes in product specifications and manufacturing processes; changes in financial market conditions; changes in the composition of worldwide taxable income; the impact of competitive products and technologies; changes in interest and currency exchange rates and other risks described in the company’s filings with the Securities and Exchange Commission. 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.
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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,
2006 | | | September 30,
2005 | | | September 30,
2006 | | | September 30,
2005 | |
Net sales | | $ | 407,949 | | | $ | 280,743 | | | $ | 1,120,038 | | | $ | 803,938 | |
Cost of goods sold | | | 215,441 | | | | 195,497 | | | | 634,387 | | | | 548,113 | |
| | | | | | | | | | | | | | | | |
Gross margin | | | 192,508 | | | | 85,246 | | | | 485,651 | | | | 255,825 | |
| | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Marketing and administration | | | 22,774 | | | | 18,634 | | | | 68,961 | | | | 55,504 | |
Research and development | | | 9,072 | | | | 7,166 | | | | 27,055 | | | | 24,809 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 160,662 | | | | 59,446 | | | | 389,635 | | | | 175,512 | |
| | | | |
Nonoperating (income) expense: | | | | | | | | | | | | | | | | |
Interest expense | | | 199 | | | | 1,703 | | | | 2,011 | | | | 5,551 | |
Interest income | | | (4,227 | ) | | | (882 | ) | | | (8,465 | ) | | | (2,584 | ) |
Currency (gains) losses | | | 667 | | | | (1,083 | ) | | | 1,045 | | | | (324 | ) |
Other, net | | | 2,215 | | | | 1,778 | | | | 1,118 | | | | 943 | |
| | | | | | | | | | | | | | | | |
Total nonoperating (income) expense | | | (1,146 | ) | | | 1,516 | | | | (4,291 | ) | | | 3,586 | |
| | | | | | | | | | | | | | | | |
Income before income taxes, equity in loss of joint venture and minority interests | | | 161,808 | | | | 57,930 | | | | 393,926 | | | | 171,926 | |
Income tax provision (benefit) | | | 68,329 | | | | (45,107 | ) | | | 148,782 | | | | (30,595 | ) |
| | | | | | | | | | | | | | | | |
Income before equity in loss of joint venture and minority interests | | | 93,479 | | | | 103,037 | | | | 245,144 | | | | 202,521 | |
Minority interests | | | (2,432 | ) | | | (1,412 | ) | | | (4,806 | ) | | | (3,381 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 91,047 | | | $ | 101,625 | | | $ | 240,338 | | | $ | 199,140 | |
| | | | | | | | | | | | | | | | |
| | | | |
Basic income per share | | $ | 0.41 | | | $ | 0.47 | | | $ | 1.08 | | | $ | 0.94 | |
Diluted income per share | | $ | 0.40 | | | $ | 0.45 | | | $ | 1.05 | | | $ | 0.88 | |
Weighted average shares used in computing basic income per share | | | 222,058,257 | | | | 214,706,291 | | | | 221,926,627 | | | | 210,934,542 | |
Weighted average shares used in computing diluted income per share | | | 229,713,394 | | | | 227,148,309 | | | | 229,554,783 | | | | 225,538,733 | |
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
| | | | | | | | |
| | | September 30,
2006 | | | December 31,
2005 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 418,394 | | | $ | 126,494 | |
Short term investments | | | 33,478 | | | | 27,117 | |
Accounts receivable, net | | | 186,955 | | | | 125,183 | |
Inventories | | | 96,055 | | | | 119,956 | |
Prepaid and other current assets | | | 31,344 | | | | 37,528 | |
| | | | | | | | |
Total current assets | | | 766,226 | | | | 436,278 | |
| | |
Property, plant and equipment, net | | | 552,748 | | | | 494,927 | |
Deferred tax assets, net | | | 152,986 | | | | 165,570 | |
Other assets | | | 118,194 | | | | 51,328 | |
| | | | | | | | |
Total assets | | $ | 1,590,154 | | | $ | 1,148,103 | |
| | | | | | | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Short-term borrowings and current portion of long-term debt | | $ | 5,100 | | | $ | 18,305 | |
Accounts payable | | | 108,250 | | | | 105,500 | |
Accrued liabilities | | | 59,635 | | | | 48,938 | |
Deferred revenue | | | 5,069 | | | | 14,558 | |
Accrued wages and salaries | | | 34,549 | | | | 25,987 | |
Income taxes payable | | | 92,813 | | | | 11,621 | |
| | | | | | | | |
Total current liabilities | | | 305,416 | | | | 224,909 | |
Long-term debt, less current portion | | | 32,299 | | | | 34,821 | |
Pension and similar liabilities | | | 81,922 | | | | 91,028 | |
Deferred revenue | | | 67,261 | | | | — | |
Other liabilities | | | 71,482 | | | | 41,362 | |
| | | | | | | | |
Total liabilities | | | 558,380 | | | | 392,120 | |
| | | | | | | | |
Minority interests | | | 43,816 | | | | 44,646 | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock | | | | | | | | |
Common stock | | | 2,229 | | | | 2,223 | |
Additional paid-in capital | | | 214,017 | | | | 191,535 | |
Retained earnings | | | 798,042 | | | | 557,704 | |
Accumulated other comprehensive loss | | | (22,059 | ) | | | (35,854 | ) |
Treasury stock | | | (4,271 | ) | | | (4,271 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 987,958 | | | | 711,337 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,590,154 | | | $ | 1,148,103 | |
| | | | | | | | |
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30,
2006 | | | September 30,
2005 | | | September 30,
2006 | | | September 30,
2005 | |
Cash Flows from Operating Activities: | | | | | | | | | | | | | | | | |
Net income | | $ | 91,047 | | | $ | 101,625 | | | $ | 240,338 | | | $ | 199,140 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 17,637 | | | | 14,989 | | | | 51,547 | | | | 41,628 | |
Minority interests | | | 2,432 | | | | 1,412 | | | | 4,805 | | | | 3,381 | |
Stock compensation | | | 4,542 | | | | 174 | | | | 11,948 | | | | 673 | |
Working capital and other | | | 24,739 | | | | (37,895 | ) | | | 66,758 | | | | (30,823 | ) |
| | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 140,397 | | | | 80,305 | | | | 375,396 | | | | 213,999 | |
| | | | | | | | | | | | | | | | |
| | | | |
Cash Flows from Investing Activities: | | | | | | | | | | | | | | | | |
Proceeds from sale of time deposits | | | 2,088 | | | | (43 | ) | | | 16,383 | | | | 19,045 | |
Purchases of time deposits | | | (4,242 | ) | | | 48 | | | | (17,611 | ) | | | (20,060 | ) |
Capital expenditures | | | (33,985 | ) | | | (30,990 | ) | | | (96,740 | ) | | | (141,567 | ) |
Proceeds from sale of property, plant and equipment | | | — | | | | 2 | | | | 145 | | | | 6 | |
Other | | | 3,750 | | | | — | | | | 3,750 | | | | — | |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (32,389 | ) | | | (30,983 | ) | | | (94,073 | ) | | | (142,576 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Cash Flows from Financing Activities: | | | | | | | | | | | | | | | | |
Net short-term borrowings | | | (240 | ) | | | (6,604 | ) | | | (13,209 | ) | | | (7,752 | ) |
Proceeds from issuance of long-term debt | | | — | | | | 60,000 | | | | — | | | | 60,000 | |
Principal payments on long-term debt | | | — | | | | (66,523 | ) | | | (2,691 | ) | | | (70,967 | ) |
Debt financing fees | | | — | | | | (1,184 | ) | | | — | | | | (1,184 | ) |
Proceeds from issuance of common stock | | | 975 | | | | 7,752 | | | | 6,284 | | | | 12,873 | |
Proceeds from customer deposit | | | 21,219 | | | | — | | | | 21,219 | | | | | |
Dividend to minority interest | | | — | | | | — | | | | (5,636 | ) | | | (9,546 | ) |
Excess tax benefits from share-based payment arrangements | | | 1,052 | | | | — | | | | 1,052 | | | | — | |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 23,006 | | | | (6,559 | ) | | | 7,019 | | | | (16,576 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 1,049 | | | | (124 | ) | | | 3,558 | | | | 3,266 | |
| | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 132,063 | | | | 42,639 | | | | 291,900 | | | | 58,113 | |
Cash and cash equivalents at beginning of period | | | 286,331 | | | | 64,993 | | | | 126,494 | | | | 49,519 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 418,394 | | | $ | 107,632 | | | $ | 418,394 | | | $ | 107,632 | |
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