UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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: 1-13828
MEMC ELECTRONIC MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1505767
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
501 Pearl Drive St. Peters, Missouri 63376
(Address of principal executive offices) (Zip Code)
(314) 279-5500
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [x] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock outstanding at September 30, 1996: 41,438,326 shares
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; Dollars in thousands, except share data)
Three-Months Ended Nine-Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $303,525 $251,210 $917,667 $624,478
Cost of goods sold 237,034 188,483 681,021 470,813
------- ------- ------- -------
Gross margin 66,491 62,727 236,646 153,665
Marketing, administration and
technology expenses 32,469 23,256 92,576 62,047
------- ------- ------- -------
Operating profit 34,022 39,471 144,070 91,618
Nonoperating (income) expense:
Interest expense - 2,571 494 9,721
Interest income (659) (2,900) (4,394) (4,334)
Royalty income (1,394) (1,591) (4,731) (3,946)
Other, net 3,704 2,083 6,209 2,645
------- ------- ------- -------
1,651 163 (2,422) 4,086
------- ------- ------- -------
Earnings before income taxes,
equity in income of joint
ventures and minority
interests 32,371 39,308 146,492 87,532
Income taxes 12,948 15,570 58,597 36,614
------- ------- ------- -------
Earnings before equity in
income of joint ventures
and minority interests 19,423 23,738 87,895 50,918
Equity in income of joint ventures 1,460 4,207 21,505 6,071
Minority interests in income (loss)
of joint ventures (270) 568 2,135 568
------ ------ ------- ------
Net earnings $21,153 $27,377 $107,265 $56,421
====== ====== ======= ======
Net earnings per share $0.51 $0.71 $2.59 N/A
==== ==== ====
Pro forma net earnings per share N/A N/A N/A $ 2.01
====
Weighted average shares used in
computing earnings per share/
pro forma earnings per share
(in thousands) 41,397 38,745 41,406 28,046
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
September 30, December 31,
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 31,205 $ 77,192
Deposit with affiliate - 55,000
Accounts receivable, less allowance for
doubtful accounts of $2,306 and $2,040 in
1996 and 1995, respectively 176,951 165,994
Notes receivable from affiliates 993 3,149
Inventories 98,594 89,574
Prepaid and other current assets 39,493 38,264
--------- ---------
Total current assets 347,236 429,173
Property, plant and equipment, net of
accumulated depreciation of $355,048 and
$295,228 in 1996 and 1995, respectively 872,660 528,374
Investment in joint ventures 104,703 66,001
Excess of cost over net assets acquired, net
of accumulated amortization of $2,034 and
$1,001 in 1996 and 1995, respectively 51,490 52,523
Other assets 50,565 25,792
--------- ---------
Total assets $1,426,654 $1,101,863
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of
long-term debt $ 23,188 $ 15,407
Accounts payable 154,961 141,459
Accrued liabilities 40,606 29,242
Accrued wages and salaries 30,937 24,142
Income taxes payable 31,401 19,665
--------- --------
Total current liabilities 281,093 229,915
Long-term debt 29,133 40,418
Long-term debt with affiliates 146,400 49,280
Pension and similar liabilities 66,226 59,009
Customer deposits 55,837 -
Other liabilities 35,359 27,936
--------- --------
Total liabilities 614,048 406,558
--------- --------
Minority interests 59,009 52,914
Stockholders' equity:
Preferred stock, $.01 par value, 50,000,000
shares authorized, none issued or
outstanding in 1996 or 1995 - -
Common stock, $.01 par value, 200,000,000
shares authorized, 41,474,531 and
41,399,998 issued and outstanding in 1996
and 1995, respectively 415 414
Additional paid-in capital 574,430 569,959
Retained earnings 176,852 69,587
Cumulative translation adjustment 5,333 4,447
Unearned restricted stock awards (2,105) (2,016)
Treasury stock, at cost: 36,205 shares in 1996 (1,328) -
--------- ---------
Total stockholders' equity 753,597 642,391
--------- ---------
Total liabilities and stockholders'
equity $1,426,654 $1,101,863
========= =========
See accompanying notes to consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Nine-Months Ended
September 30,
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 107,265 $ 56,421
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 64,626 44,116
Minority interests 2,135 568
Equity in income of joint ventures (21,505) (5,093)
Working capital and other 75,038 (15,227)
--------- ---------
Net cash provided by operating
activities 227,559 80,785
--------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment (414,453) (103,697)
Investment in joint ventures (17,197) (29,905)
Deposit with affiliate, net 55,000 (115,000)
Notes receivable from affiliates, net 2,246 17,028
Other 49 272
--------- ---------
Net cash used in investing activities (374,355) (231,302)
--------- --------
Cash flows from financing activities:
Proceeds from initial public offering - 441,348
Incentive plan transactions 872 -
Net short-term borrowings 8,237 (998)
Net short-term borrowings from affiliates (10,000) (6,750)
Proceeds from issuance of long-term debt 807 150,440
Proceeds from issuance of long-term debt
with affiliates 100,000 10,000
Principal payments on long-term debt (482) (159,218)
Principal payments on long-term debt with
affiliates - (135,000)
Contribution from minority interests 2,476 -
Dividend paid - (100,000)
Repurchase of common stock (1,328) -
--------- ---------
Net cash provided by financing activities 100,582 199,822
--------- ---------
Effect of exchange rate changes on cash 227 (64)
--------- ---------
Net (decrease) increase in cash and cash
equivalents (45,987) 49,241
Cash and cash equivalents at beginning of period 77,192 5,112
--------- ---------
Cash and cash equivalents at end of period $ 31,205 $ 54,353
========= =========
See accompanying notes to consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of MEMC
Electronic Materials, Inc. and Subsidiaries (the Company), in the opinion of
management, include all adjustments (consisting of normal, recurring items)
necessary to present fairly the Company's financial position and results of
operations and cash flows for the periods presented. The consolidated
financial statements are presented in accordance with the requirements of
Regulation S-X and consequently do not include all disclosures required by
generally accepted accounting principles. Operating results for the three and
nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
(2) Inventories
Inventories consist of the following:
September 30, December 31,
1996 1995
---- ----
Raw materials and supplies $ 48,157 $ 39,726
Goods in process 26,263 26,669
Finished goods 24,174 23,179
------ ------
$ 98,594 $ 89,574
====== ======
(3) Earnings per Share (EPS)
Net EPS for the three and nine month periods ended September 30, 1996, and for
the three month period ended September 30, 1995 were calculated based on the
weighted average shares outstanding during each respective period.
Pro forma net EPS for the nine months ended September 30, 1995 was calculated
based on the actual number of shares outstanding for the nine months ended
September 30, 1995 plus, for the three months ended March 31, 1995, the number
of shares that would have been required to be sold at the initial public
offering price of $24 per share to fund the excess of a $100,000 dividend paid
to Huls Corporation on April 28, 1995 over the Company's net earnings for the
prior twelve-month period.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net Sales. Consolidated net sales for the third quarter ended September 30,
1996 increased 20.8% to $303.5 million from net sales of $251.2 million in the
third quarter of 1995. The increase in net sales for the third quarter is
attributable to price increases and a continued mix shift to more advanced
large diameter and epitaxial wafers. For the first nine months of 1996,
consolidated net sales increased 46.9% to $917.7 million compared to net sales
of $624.5 million for the corresponding period of 1995. In addition to the
price and mix improvements discussed above, sales increased due to the
inclusion of MEMC Southwest for all of 1996 and the addition of capacity
during the current year. The net sales achieved for the first nine months of
1996 exceeded the total sales for all of 1995.
The third quarter of 1996 marked the first time in more than three years the
Company was not operating at installed capacity. The tight silicon wafer
supply conditions that had existed in the industry for the past several years
have been replaced by an environment in which wafer supplies are more certain.
Some of the Company's customers have reduced their wafer starts in response
to conditions in the semiconductor industry, creating a softer order backlog
going into the fourth quarter. The Company also believes some customers have
begun an effort to lower their inventories before the end of the fiscal year.
Including the impact of the Company's unconsolidated joint ventures, every
market region has seen sales volume declines in comparison to the prior
quarter, with the Asia Pacific market experiencing the largest decrease.
Smaller diameter wafers have received the greatest portion of this decline,
but all diameters and product types have been affected to some extent.
The Company believes that sales for the fourth quarter of 1996 will be
sequentially lower, in the range of $200 million with a resulting decrease in
operating profit. Net earnings could reflect a slight loss for the fourth
quarter.
Gross Margin. For the three months ended September 30, 1996, gross margin
decreased to 21.9% from 25.0% compared with the prior year period. The
decrease in gross margin resulted from a lower rate of capacity utilization
and start-up costs, partially offset by sales mix improvements. Advanced
large diameter and epitaxial products represented 40.5% of product volume for
the third quarter of 1996 compared to 28.5% for the prior year period.
In response to the lower level of capacity utilization the Company has taken
a number of actions, including reductions in overtime pay, elimination of the
majority of temporary and contract workers, reductions in hiring and
implementation of spending restrictions on non-essential activities. These
actions have not compensated fully for the negative impact of unscheduled
production overcapacity. In order to reduce costs further, the Company has
scheduled several short plant shutdown periods during the fourth quarter.
However, start-up costs are anticipated to increase in the fourth quarter as
compared to the third quarter of 1996 due to the completion of MEMC Southwest
and St. Peters plant expansions.
For the nine months ended September 30, 1995, gross margin improved to 25.8%
from 24.6% for the year ago period. The enhancement in gross margin resulted
from price and sales mix improvements during the first nine months of 1996 but
was offset by the lower capacity utilization for the third quarter of 1996,
as discussed above.
Marketing, Administration and Technology Expenses. Marketing, administration
and technology expenses increased to 10.7% and 10.1% of net sales for the
three and nine month periods ended September 30, 1996, respectively compared
to 9.3% and 9.9% for the comparable 1995 periods. These increases are due to
higher expenditures for research and development and administration costs.
Interest Expense. There was no interest expense for the three months ended
September 30, 1996 versus $2.6 million for the three months ended September
30, 1995. This decline resulted from the capitalization of interest related
to capacity expansions in 1996. For the nine months ended September 30, 1996,
interest expense decreased to $0.5 million from $9.7 million for the
comparable period due to the repayment of debt in 1995 with proceeds from the
initial public offering in addition to capitalized interest discussed above.
Average debt outstanding for the third quarter of 1996 was approximately $176
million, which was 8.8% lower than the average debt for the 1995 quarter of
approximately $193 million.
Joint Ventures. Equity in income of joint ventures declined to $1.5 million
for the third quarter of 1996, compared to $4.2 million in the prior year
period. This decrease was attributable to a loss from Taisil, the Taiwanese
joint venture, during its start-up phase. PHC continued to produce positive
earnings during the third quarter of 1996 but has been impacted by reduced
sales volume.
Liquidity and Capital Resources. At September 30, 1996 the Company had cash,
cash equivalents, deposits and notes with affiliates of $32.2 million. The
Company also has $199 million of outstanding borrowings under available credit
facilities totaling $430 million. The $231 million of unused facilities,
including $150 million with affiliates, have expiration dates ranging from
1996 to 2001.
A comparison of components of the Company's financial condition follows
(dollars in millions):
September 30, December 31,
1996 1995
---- ----
Working Capital $66.1 $199.3
Current Ratio 1.24 to 1 1.87 to 1
Stockholders' Equity $753.6 $642.4
Total Debt to Total Capitalization 19.6% 13.1%
Cash flow provided by operating activities was $227.6 million for the nine
months ended September 30, 1996 compared to $80.8 million for the comparable
1995 period. This increase is principally attributable to higher net earnings
and depreciation and amortization, customer deposits and higher payables and
accrued liabilities, offset by increased equity in income of joint ventures.
Capital expenditures for the first nine months of 1996 totaled $414.5 million.
At September 30, 1996 the Company had $214.3 million of committed capital
expenditures. The Company has taken actions where appropriate to delay
installation of selected production equipment at certain locations to better
match production requirements with current demand. However, the Company has
not taken any actions to reduce its plan for strategic investments.
Other. In order to accommodate customer requests for an incremental supply
of silicon wafers beyond that anticipated to be provided by the Company, a
program was initiated in the fourth quarter of 1995 for these customers to pay
in advance for future orders. As of September 30, 1996, the Company has
received approximately $56 million related to this program.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995 -- except for the historical information contained herein, the matters
discussed in this document regarding levels of customer inventories, sales,
operating performance, plant shutdown periods and start-up costs in the fourth
quarter of 1996, and production equipment installations are forward-looking
statements. Such statements involve certain risks and uncertainties that
could cause actual results to differ materially from those in the forward
looking statements. Potential risks and uncertainties include such factors
as demand for the Company's silicon wafers, utilization of manufacturing
capacity, demand for semiconductors generally, limited number of principal
customers, competitors' actions and other risks described in the Company's
filings with the Securities and Exchange Commission, including the reports on
Form 8-K dated September 10, 1996 and 10-K for the year ended December 31,
1995.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at page 9 of this report.
(b) Reports on Form 8-K
During the third quarter of 1996, the Company filed one current report
on Form 8-K, dated September 10, 1996. The Form 8-K was filed to report,
under Item 5, a news release issued by the Company discussing its outlook
for the third and fourth quarters of 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEMC Electronic Materials, Inc.
November 12, 1996 /s/ JAMES M. STOLZE
--------------------------------------------
James M. Stolze
Executive Vice President and Chief Financial
Officer
(on behalf of the registrant and as principal
financial and accounting officer)
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table
of Item 601 of Regulation S-X.
Exhibit
Number Exhibit
------ -------
2 Omitted -- Inapplicable
3-a Omitted -- Inapplicable
3-b By-Laws, as amended as of August 30, 1996
4 Omitted -- Inapplicable
10-hhh Employment Agreement between the Company and Ludger H.
Viefhues
10-iii Stock Option Agreement between the Company and Ludger H.
Viefhues
11 Omitted -- Inapplicable
15 Omitted -- Inapplicable
18 Omitted -- Inapplicable
19 Omitted -- Inapplicable
22 Omitted -- Inapplicable
23 Omitted -- Inapplicable
24 Omitted -- Inapplicable
27 Financial Data Schedule (filed electronically with the
SEC only)
99 Omitted -- Inapplicable