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 March 31, 2005
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) |
(I. R. S. Employer Identification No.) |
| 501 Pearl Drive (City of O’Fallon) St. Peters, Missouri |
63376 | |
| (Address of principal executive offices) | (Zip Code) |
(636) 474-5000
(Registrant’s telephone number, including area code)
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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). x Yes ¨ No
The number of shares of the registrant’s common stock outstanding at April 29, 2005 was 209,122,223.
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except share data)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Net sales |
$ | 257,854 | $ | 228,760 | ||||
| Cost of goods sold |
164,577 | 155,417 | ||||||
| Gross margin |
93,277 | 73,343 | ||||||
| Operating expenses: |
||||||||
| Marketing and administration |
18,153 | 17,188 | ||||||
| Research and development |
11,397 | 8,913 | ||||||
| Operating income |
63,727 | 47,242 | ||||||
| Nonoperating (income) expense: |
||||||||
| Interest expense |
1,911 | 3,319 | ||||||
| Interest income |
(711 | ) | (1,549 | ) | ||||
| Currency (gains) losses |
731 | (6,364 | ) | |||||
| Other, net |
(647 | ) | (1,898 | ) | ||||
| Total nonoperating (income) expense |
1,284 | (6,492 | ) | |||||
| Income before income taxes, equity in loss of joint venture and minority interests |
62,443 | 53,734 | ||||||
| Income tax provision (benefit) |
(16,479 | ) | 13,434 | |||||
| Income before equity in loss of joint venture and minority interests |
78,922 | 40,300 | ||||||
| Equity in loss of joint venture |
— | (1,717 | ) | |||||
| Minority interests |
(1,764 | ) | (2,677 | ) | ||||
| Net income |
$ | 77,158 | $ | 35,906 | ||||
| Basic income per share |
$ | 0.37 | $ | 0.17 | ||||
| Diluted income per share |
$ | 0.34 | $ | 0.16 | ||||
| Weighted average shares used in computing basic income per share |
208,826,451 | 207,192,291 | ||||||
| Weighted average shares used in computing diluted income per share |
223,934,369 | 222,131,836 | ||||||
See accompanying notes to consolidated financial statements.
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MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 116,319 | $ | 92,314 | ||||
| Accounts receivable, less allowance for doubtful accounts of $1,555 and $1,633 in 2005 and 2004, respectively |
130,534 | 140,728 | ||||||
| Inventories |
135,266 | 127,564 | ||||||
| Prepaid and other current assets |
28,220 | 29,724 | ||||||
| Total current assets |
410,339 | 390,330 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $205,466 and $198,595 in 2005 and 2004, respectively |
476,338 | 444,670 | ||||||
| Deferred tax assets, net |
126,766 | 119,835 | ||||||
| Other assets |
54,527 | 55,107 | ||||||
| Total assets |
$ | 1,067,970 | $ | 1,009,942 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Short-term borrowings and current portion of long-term debt |
$ | 23,056 | $ | 24,399 | ||||
| Accounts payable |
133,380 | 124,083 | ||||||
| Accrued liabilities |
21,393 | 37,743 | ||||||
| Accrued wages and salaries |
24,080 | 19,117 | ||||||
| Income taxes payable |
21,855 | 10,282 | ||||||
| Total current liabilities |
223,764 | 215,624 | ||||||
| Long-term debt, less current portion |
113,345 | 116,082 | ||||||
| Pension and similar liabilities |
116,219 | 116,427 | ||||||
| Other liabilities |
46,693 | 72,432 | ||||||
| Total liabilities |
500,021 | 520,565 | ||||||
| Minority interests |
48,242 | 46,479 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value, 50,000,000 shares authorized, none issued and outstanding at 2005 and 2004 |
— | — | ||||||
| Common stock, $.01 par value, 300,000,000 shares authorized, 209,829,078 and 209,108,105 issued at 2005 and 2004, respectively |
2,098 | 2,091 | ||||||
| Additional paid-in capital |
158,448 | 154,736 | ||||||
| Retained earnings |
385,509 | 308,351 | ||||||
| Accumulated other comprehensive loss |
(21,992 | ) | (17,389 | ) | ||||
| Deferred compensation |
(728 | ) | (1,263 | ) | ||||
| Treasury stock, 714,205 shares in 2005 and 2004 |
(3,628 | ) | (3,628 | ) | ||||
| Total stockholders’ equity |
519,707 | 442,898 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,067,970 | $ | 1,009,942 | ||||
See accompanying notes to consolidated financial statements.
Page 4
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 77,158 | $ | 35,906 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
13,339 | 9,921 | ||||||
| Interest accretion |
221 | 1,081 | ||||||
| Minority interests |
1,764 | 2,677 | ||||||
| Equity in income (loss) of joint venture |
— | 1,717 | ||||||
| Stock compensation |
386 | 718 | ||||||
| Working capital and other |
(19,523 | ) | (4,506 | ) | ||||
| Net cash provided by operating activities |
73,345 | 47,514 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(54,432 | ) | (26,089 | ) | ||||
| Purchase of business, net of cash acquired |
— | (57,226 | ) | |||||
| Net cash used in investing activities |
(54,432 | ) | (83,315 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net short-term borrowings |
(171 | ) | (1,221 | ) | ||||
| Proceeds from issuance of long-term debt |
— | 60,014 | ||||||
| Principal payments on long-term debt |
(883 | ) | (962 | ) | ||||
| Proceeds from issuance of common stock |
3,867 | 1,856 | ||||||
| Net cash provided by financing activities |
2,813 | 59,687 | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
2,279 | 1,934 | ||||||
| Net increase in cash and cash equivalents |
24,005 | 25,820 | ||||||
| Cash and cash equivalents at beginning of period |
92,314 | 96,859 | ||||||
| Cash and cash equivalents at end of period |
$ | 116,319 | $ | 122,679 | ||||
See accompanying notes to consolidated financial statements.
Page 5
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(1) Nature of Operations
We are a leading worldwide producer of wafers for the semiconductor industry. We operate manufacturing facilities in every major semiconductor manufacturing region throughout the world, including Europe, Japan, Malaysia, South Korea, Taiwan and the United States. Our customers include virtually all of the major semiconductor device manufacturers in the world. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) and in three general categories: prime polished, epitaxial and test/monitor. A prime polished wafer is a highly refined, pure wafer with an ultra-flat and ultra-clean surface. An epitaxial wafer consists of a thin, silicon layer grown on the polished surface of the wafer. A test/monitor wafer is substantially the same as a prime polished wafer, but with some less rigorous specifications.
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(2) Significant Accounting Policies
Stock-Based Compensation
We account for our stock-based compensation under Accounting Principles Board Opinion No. 25 (Opinion 25), “Accounting for Stock Issued to Employees”, and related interpretations. We record compensation expense related to restricted stock units awards over the vesting periods of the awards and reflect the unearned portion of deferred compensation as a separate component of stockholders’ equity.
No compensation cost has been recognized for non-qualified stock options granted under the plans when the exercise price of the stock options equals the market price on the date of grant. Compensation expense equal to the intrinsic value of the options has been recognized over the vesting periods for options granted at a price below market price on the grant date and deferred compensation has been recorded for the unearned portion of the options as a separate component of stockholders’ equity. Had compensation cost been determined for our non-qualified stock options based on the fair value at the grant dates consistent with the alternative method set forth under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” we would have reported the amounts indicated below:
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Net income, as reported |
$ | 77,158 | $ | 35,906 | ||||
| Add: |
||||||||
| Stock-based employee compensation included in reported net income, net of related tax effects |
240 | 718 | ||||||
| Deduct: |
||||||||
| Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects |
(2,425 | ) | (5,084 | ) | ||||
| Pro forma net income |
$ | 74,973 | $ | 31,540 | ||||
| Income per share: |
||||||||
| Basic-as reported |
$ | 0.37 | $ | 0.17 | ||||
| Diluted-as reported |
$ | 0.34 | $ | 0.16 | ||||
| Basic-pro forma |
$ | 0.36 | $ | 0.15 | ||||
| Diluted-pro forma |
$ | 0.34 | $ | 0.14 | ||||
(3) Basis of Presentation
The accompanying unaudited consolidated financial statements of MEMC Electronic Materials, Inc. and subsidiaries (MEMC), in our opinion, include all adjustments (consisting of normal, recurring items) necessary to present fairly MEMC’s financial position and results of operations and cash flows for the periods presented. We have presented the consolidated financial statements in accordance with the requirements of Regulation S-X and consequently do not include all disclosures required by accounting principles generally accepted in the United States of America. This report on Form 10-Q, including unaudited consolidated financial statements, should be read in conjunction with our annual report on Form 10-K for the fiscal year ended December 31, 2004, which contains MEMC’s audited financial statements for such year and the related management’s discussion and analysis of financial condition and results of operations. Operating results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
Page 7
(4) Earnings per share
For the three month periods ended March 31, 2005 and 2004, basic and diluted earnings per share (EPS) were calculated as follows:
| Three Months Ended March 31, 2005 |
Three Months Ended March 31, 2004 | |||||||||||
| Basic |
Diluted |
Basic |
Diluted | |||||||||
| EPS numerator: |
||||||||||||
| Net income |
$ | 77,158 | $ | 77,158 | $ | 35,906 | $ | 35,906 | ||||
| EPS denominator: |
||||||||||||
| Weighted average shares outstanding |
208,806,451 | 208,806,451 | 207,192,291 | 207,192,291 | ||||||||
| Warrants |
— | 12,703,163 | — | 11,534,830 | ||||||||
| Stock options |
— | |||||||||||