MEMC Reports Operating Income of $32.1 Million in 2002 Fourth Quarter
Monday January 27, 4:00 pm ET
ST. PETERS, Mo., Jan. 27 /PRNewswire-FirstCall/ -- MEMC Electronic Materials, Inc. (NYSE: WFR - News) today reported financial results for the fourth quarter and year ended December 31, 2002.
Summary of the fourth quarter results:
* Net sales of $186.0 million
* Gross margin of 29% of net sales
* Operating income of $32.1 million (17% of net sales)
* Net income of $35.7 million and basic EPS of $0.18
Commenting on the quarterly results, Nabeel Gareeb, MEMC's Chief Executive Officer, said:
"We are extremely pleased to report continued sequential improvement in our operating results. As we had anticipated, our sales contracted slightly this quarter relative to the 2002 third quarter as a result of industry market conditions. Even with the slight decline in net sales, we were able to achieve improvement in both our gross margin and our operating margin compared to last quarter. These improvements are a testament to the hard work of all our employees worldwide and the loyalty of our customers. This clearly demonstrates that we have continued the relentless march towards our long-term business model."
Fourth Quarter Results
Net sales were $186.0 million for the fourth quarter ended December 31, 2002 compared to $190.3 million for the 2002 third quarter.
The Company reported gross margin in the 2002 fourth quarter of $54.1 million, or 29% of net sales, compared to $52.8 million, or 28% of net sales, in the 2002 third quarter. The Company reported operating income of $32.1 million, or 17% of net sales in the fourth quarter of 2002, compared to operating income of $21.8 million, or 11% of net sales for the third quarter of 2002. Excluding restructuring charges, operating income in the 2002 third quarter would have been $30.1 million, or 16% of net sales.
The Company reported net income allocable to common stockholders of $35.7 million, or $0.18 per basic share, for the 2002 fourth quarter, compared to a net loss allocable to common stockholders of $45.7 million, or $0.25 loss per basic share, in the 2002 third quarter. Excluding a $7.5 million one-time gain from the option on MEMC Pasadena, the Company's earnings per basic share in the 2002 fourth quarter would have been $0.14.
Interest expense decreased from $58.3 million in the 2002 third quarter to $4.2 million in the 2002 fourth quarter. As previously reported, interest expense in the 2002 third quarter included non-cash accretion of approximately $53.4 million related to a 55 million Euro note that matured in September 2002.
Other, net in the 2002 fourth quarter included a $7.5 million one-time gain on an option on MEMC Pasadena, Inc., which expired October 31, 2002. In addition, currency gains in the 2002 fourth quarter totaled $4.5 million compared to a $2.9 million currency loss in the 2002 third quarter.
The Company achieved operating cash flow of $42.6 million for the 2002 fourth quarter, a 17% increase, compared to $36.5 million in the 2002 third quarter. Free cash flow, which is operating cash flow after capital expenditures, was $32.9 million for the 2002 fourth quarter compared to $31.3 million in the 2002 third quarter. Capital expenditures during the 2002 fourth quarter totaled $9.6 million compared to $5.2 million in the 2002 third quarter. Depreciation and amortization in the 2002 fourth quarter totaled $9.0 million compared to $8.4 million in the 2002 third quarter.
The Company's effective income tax rate for the 2002 fourth quarter was 8%. Going forward, the Company expects its effective income tax rate will be approximately 30%.
Outlook
"Looking forward, based on current industry market conditions, we expect our net sales in the 2003 first quarter to be approximately flat compared to the 2002 fourth quarter. We anticipate our gross margin and operating margin as a percentage of sales will be approximately flat in the 2003 first quarter compared to the 2002 fourth quarter as the pricing contracts that are effective on January 1, 2003 offset expected cost reductions in the 2003 first quarter," continued Gareeb.
"At this point, we are introducing operating cash flow as another element of our long-term steady-state model. Specifically, our target is to generate operating cash flow at a rate of greater than 20 percent of net sales and free cash flow, which is operating cash flow after capital expenditures, of approximately 5 to 10 percent of net sales. Our objective is to use this free cash flow to reduce our debt and to continue to strengthen our balance sheet. This will allow us to achieve our long-term objective of being self-funding."
2002 Results
For the year ended December 31, 2002, the Company's net sales increased 11% to $687.2 million compared to $617.9 million in 2001. Gross margin increased to $173.5 million or 25% of net sales compared to negative $51.5 million or negative 8% of net sales in 2001. The improvement in gross margin was due to lower depreciation and amortization resulting from push down accounting, as well as the benefits realized from headcount reductions and yield and productivity improvements in 2002, partially offset by declines in average selling prices in 2002 compared to the first nine months of 2001.
The Company reported a net loss allocable to common stockholders of $22.1 million, or $0.17 per basic share, for the year ended December 31, 2002, compared to a net loss allocable to common stockholders of $522.7 million, or $7.51 per basic share, in 2001. Excluding the non-cash interest accretion of approximately $54.0 million related to a 55 million Euro note recognized in 2002 and the $7.5 million one-time gain on the option on MEMC Pasadena recognized in the 2002 fourth quarter, net income available to common stockholders would have been $24.4 million, or $0.19 per basic share for the year ended December 31, 2002.
The Company generated $86.7 million of cash from operations for the year ended December 31, 2002 compared to $24.6 million of cash used in operations in the prior year. The improved cash flow was primarily a result of the improved operating results and cash cost reductions. Capital expenditures in 2002 totaled $22.0 million compared to $49.8 million in 2001. Depreciation and amortization totaled $34.2 million for the year ended December 31, 2002 compared to $174.6 million in 2001. The decrease in depreciation and amortization was primarily the result of the application of push-down accounting.
Other, net in 2002 included a $7.5 million one-time gain on an option on MEMC Pasadena, Inc., which expired October 31, 2002. In addition, currency gains in 2002 totaled $11.2 million compared to currency losses of $3.5 million in 2001.
The analysis of the Company's annual operating results utilizes combined information for the year ended December 31, 2001. The Company's assets and liabilities were adjusted to reflect a new basis resulting from push-down accounting as of November 13, 2001, following the acquisition by the investor group led by Texas Pacific Group of E.ON's equity and debt interests in MEMC. The combined information consists of the sum of the financial data from January 1, 2001 through November 13, 2001 for the predecessor and from November 14, 2001 through December 31, 2001 for the successor to obtain the annual data for 2001. The comparability of the Company's operating results for the periods prior to and following push down accounting is affected by the purchase accounting adjustments.
Conference Call
MEMC will host a conference call today, January 27, 2003, at 5:30 p.m. EST to discuss the Company's fourth quarter results and related business matters. A live webcast will be available on the Company's Web site at 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 8:30 p.m. EST on January 27, until 11:59 p.m. EST on January 31, 2003. To access the replay, please dial 703-326-3020, and use passcode "6383103", at any time during that period.
About MEMC
MEMC is a leading worldwide producer of silicon wafers for the semiconductor industry. Silicon wafers are the fundamental building block from which almost all semiconductor devices are manufactured, such as are used in computers, mobile electronic devices, automobiles, and other consumer and industrial products. Headquartered in St. Peters, MO, MEMC operates manufacturing facilities directly in every major semiconductor manufacturing region throughout the world, including Europe, Japan, Malaysia, South Korea, and the United States and through a joint venture in Taiwan.
Certain matters discussed in this news release are forward-looking statements, including our expected effective income tax rate of approximately 30 percent; our expectation that our net sales in the 2003 first quarter will be approximately flat compared to the 2002 fourth quarter; our anticipation that gross margin and operating margin as a percentage of sales will be approximately flat in the 2003 first quarter compared to the 2002 fourth quarter due to new pricing contracts effective for the 2003 year offsetting expected cost reductions in the 2003 first quarter; our target for our long- term steady-state model to generate operating cash flow at a rate of greater than 20 percent of net sales and free cash flow, which is operating cash flow after capital expenditures, of approximately 5 to 10 percent of net sales; our objective to use free cash flow to reduce our debt and continue to strengthen our balance sheet; and our long-term objective of being self-funding. 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 silicon wafers, customer acceptance of our new products, utilization of manufacturing capacity, our ability to reduce manufacturing and operating costs, inventory levels of our customers, demand for semiconductors generally, changes in the pricing environment, general economic conditions, actions by competitors, customers, and suppliers, the impact of competitive products and technologies, technological changes, financing for extraordinary transactions, changes in financial market conditions, changes in interest and foreign currency exchange rates, changes in the composition of worldwide taxable income, and other risks described in the Company's filings with the Securities and Exchange Commission, including the Company's 2001 Form 10-K, as amended. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except share data)
Three Months Ended
December 31, September 30, November 14 October 1
through through
December 31, November 13,
2002 2002 2001 2001
(Successor) (Successor) (Successor) (Predecessor)(1)
Net sales 185,994 $190,264 $ 58,846 $61,572
Cost of goods sold 131,917 137,417 70,577 77,595
Gross margin 54,077 52,847 (11,731) (16,023)
Operating expenses:
Marketing and
administration 14,565 16,053 7,973 7,811
Research and development 7,430 6,725 7,535 10,296
Restructuring -- 8,315 2,971 7,089
Operating income (loss) 32,082 21,754 (30,210) (41,219)
Nonoperating (income) expense:
Interest expense 4,162 58,2502 3,599 10,530
Interest income (2,164) (1,860) (1,516) (862)
Royalty income (824) (769) (448) (378)
Other, net (13,361) 3,843 4,173 (742)
Total nonoperating
(income) expense (12,187) 59,464 5,808 8,548
Income (loss) before
income taxes, equity
in income (loss) of
joint ventures and
minority interests 44,269 (37,710) (36,018) (49,767)
Income taxes 3,477 5,368 1,576 (29)
Income (loss) before
equity in income (loss)
of joint ventures and
minority interests 40,792 (43,078) (37,594) (49,738)
Equity in income (loss)
of joint ventures (732) 1,308 (2,822) (16)
Minority interests (4,325) (2,982) 11,019 1,060
Net income (loss) $35,735 $(44,752) $(29,397) $(48,694)
Cumulative preferred
stock dividends $-- $ 934 $ 4,247 $--
Income (loss)
allocable to
common stockholders $ 35,735 $(45,686) $(33,644) $(48,694)
Basic income
(loss) per share $0.18 $( 0.25) $( 0.48) $( 0.70)
Diluted income
(loss) per share $0.17 $( 0.25) $( 0.48) $( 0.70)
Weighted average
shares used in
computing basic income
(loss) per share 194,972,763 182,742,775 69,612,900 69,612,900
Weighted average
shares used in
computing diluted
income (loss)
per share 208,649,416 182,742,775 69,612,900 69,612,900
(1) Following the acquisition by the investor group led by TPG of E.ON's
equity and debt interests in MEMC, the Company's assets and
liabilities were adjusted to reflect a new basis resulting from push
down accounting as of November 13, 2001. The financial statements for
the period October 1 through November 13, 2001 were prepared using the
Company's historical basis of accounting. The comparability of the
Company's operating results for the periods following push down
accounting and prior periods is affected by the push down accounting
adjustments.
(2) Includes non-cash accretion of $53,382 for the 2002 third quarter, to
bring the 55 million Euro note to its full face value.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
November 14 January 1
Year Ended through through
December 31, December 31, November 13,
2002 2001 2001
(Successor) (Successor) (Predecessor)(1)
Net sales $687,180 $ 58,846 $ 559,007
Cost of goods sold 513,722 70,577 598,764
Gross margin 173,458 (11,731) (39,757)
Operating expenses:
Marketing and administration 65,786 7,973 61,747
Research and development 27,423 7,535 58,149
Restructuring costs 15,300 2,971 29,511
Operating income (loss ) 64,949 (30,210) (189,164)
Nonoperating (income) expense:
Interest expense 73,3562 3,599 78,449
Interest income (6,836) (1,516) (6,773)
Royalty income (3,195) (448) (2,978)
Other, net (17,943) 4,173 1,804
Total nonoperating expense 45,382 5,808 70,502
Income (loss) before income
taxes, equity in income
(loss) of joint ventures
and minority interests 19,567 (36,018) (259,666)
Income taxes 16,712 1,576 239,352
Income (loss) before equity
in income (loss) of joint
ventures and minority interests 2,855 (37,594) (499,018)
Equity in income (loss)
of joint ventures 1,239 (2,822) 441
Minority interests (9,164) 11,019 9,552
Net loss $(5,070) $( 29,397) $( 489,025)
Cumulative preferred
stock dividends $17,027 $ 4,247 --
Net loss allocable
to common stockholders $(22,097) $( 33,644) $( 489,025)
Basic and diluted loss per share $(0.17) $(0.48) $(7.03)
Weighted average shares used
in computing basic and
diluted loss per share 129,810,012 69,612,900 69,612,900
(1) Following the acquisition by the investor group led by TPG of E.ON's
equity and debt interests in MEMC, the Company's assets and
liabilities were adjusted to reflect a new basis resulting from push
down accounting as of November 13, 2001. The financial statements for
the period January 1 through November 13, 2001 were prepared using the
Company's historical basis of accounting. The comparability of the
Company's operating results for the periods following push down
accounting and prior periods is affected by the push down accounting
adjustments.
(2) Includes non-cash accretion of $54,021 for the year ended
December 31, 2002 to bring the 55 million Euro note to its full
face value.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, September 30, December 31,
2002 2002 2001
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 119,651 $ 98,370 $ 75,356
Short-term investments 45,995 38,941 31,803
Accounts receivable, net 95,022 99,938 67,420
Inventories 85,106 81,476 69,947
Deferred income taxes 476 717 --
Prepaid and other current assets 17,458 20,118 19,504
Total current assets 363,708 339,560 264,030
Property, plant
and equipment, net 184,875 181,928 200,705
Investments in joint ventures 16,820 17,552 15,581
Goodwill, net 3,761 3,761 3,761
Deferred tax assets, net 33,668 28,978 30,059
Other assets 28,850 30,130 35,198
Total assets $ 631,682 $ 601,909 $ 549,334
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and
current portion of
long-term debt $ 123,640 $ 106,695 $ 75,873
Accounts payable 68,014 60,911 52,079
Accrued liabilities 33,986 51,263 49,958
Customer deposits 15,055 16,062 19,370
Provision for restructuring costs 7,808 10,049 10,505
Income taxes 14,183 11,626 1,994
Deferred income taxes -- -- 345
Accrued wages and salaries 21,247 20,669 11,575
Total current liabilities 283,933 277,275 221,699
Long-term debt,
less current portion 160,998 173,291 144,743
Pension and similar liabilities 104,866 103,126 100,804
Customer deposits 19,617 22,197 25,373
Other liabilities 26,812 27,492 25,881
Total liabilities 596,226 603,381 518,500
Minority interests 57,996 53,671 51,083
Redeemable preferred stock -- -- 4,247
Commitments and contingencies
Stockholders' equity:
Preferred stock (see above) -- -- --
Common stock 1,965 1,965 705
Additional paid-in capital 29,105 29,253 8,081
Accumulated deficit (34,467) (70,202) (29,397)
Accumulated other
comprehensive income (loss) (7,329) (2,172) 835
Deferred compensation (7,094) (9,267) --
Treasury stock, 929,205 shares (4,720) (4,720) (4,720)
Total stockholders' equity (22,540) (55,143) (24,496)
Total liabilities and
stockholders' equity $ 631,682 $ 601,909 $ 549,334
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Three Months Ended
November 14 October 1
through through
December 31, September 30, December 31, November 13,
2002 2002 2001 2001
(Successor) (Successor) (Successor)(Predecessor)(1)
Cash flows from
operating activities:
Net income (loss) $ 35,735 $ (44,752) $(29,397) $(48,694)
Adjustments to
reconcile net income
(loss) to net cash
provided by
(used in) operating
activities:
Depreciation and
amortization 9,011 8,442 5,271 22,276
Interest accretion 696 54,154 502 --
Minority interests 4,325 2,982 (11,019) (1,060)
Deferred compensation 2,050 2,523 2,647 --
Equity in income
of joint ventures 732 (1,308) 2,822 16
(Gain) loss on sale
of property, plant
and equipment 92 (401) 233 10
Restructuring (2,241) 6,918 1,345 (616)
Working capital
and other (7,829) 7,936 22,685 19,197
Net cash provided by
(used in) operating
activities 42,571 36,494 (4,911) (8,871)
Cash flows from
investing activities:
Capital expenditures (9,627) (5,179) (6,995) (4,017)
Short-term
investments, net (7,054) (4,818) 1,043 (2,393)
Refund of
option payment (7,500) -- -- --
Proceeds from sale
of property, plant
and equipment 121 577 51 76
Net cash used in
investing activities (24,060) (9,420) (5,901) (6,334)
Cash flows from
financing activities:
Net short-term
borrowings 1,144 (3,622) (5,714) 3,959
Proceeds from issuance
of common stock 8 -- -- --
Dividend to
minority interest -- -- -- --
Proceeds from issuance
of long-term debt -- 35,000 32,172 22,466
Principal payments
on long-term debt (2,572) (35,267) (19,255) (39,854)
Capital contributions
from E.ON AG -- -- 37,000 --
Expenses related
to recapitalization -- -- (24,220) --
Net cash provided by
(used in) financing
activities (1,420) (3,889) 19,983 (13,429)
Effect of exchange rates
changes on cash
and cash equivalents 4,190 (1,784) (1,901) 1,406
Net increase in cash
and cash equivalents 21,281 21,401 7,270 (27,228)
Cash and cash
equivalents at
beginning of period 98,370 76,969 68,086 95,314
Cash and cash
equivalents at
end of period $ 119,651 $ 98,370 $ 75,356 $68,086
(1) Following the acquisition by the investor group led by TPG of E.ON's
equity and debt interests in MEMC, the Company's assets and
liabilities were adjusted to reflect a new basis resulting from push
down accounting as of November 13, 2001. The financial statements for
the period October 1 through November 13, 2001 were prepared using the
Company's historical basis of accounting. The comparability of the
Company's operating results for the periods following push down
accounting and prior periods is affected by the push down accounting
adjustments.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
November 14 January 1
Year Ended through through
December 31, December 31, November 13,
2002 2001 2001
(Successor) (Successor) (Predecessor)(1)
Cash flows from
operating activities:
Net loss $ (5,070) $(29,397) $(489,025)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 34,160 5,271 169,341
Interest accretion 57,252 502 --
Minority interests 9,164 (11,019) (9,552)
Deferred compensation 8,732 2,647 --
Equity in income
of joint ventures (1,239) 2,822 (441)
(Gain) loss on sale of
property, plant and equipment (505) 233 377
Restructuring 3,764 1,345 16,179
Working capital and other (19,569) 22,685 293,446
Net cash provided by
(used in) operating activities 86,689 (4,911) (19,675)
Cash flows from
investing activities:
Capital expenditures (21,952) (6,995) (42,842)
Short-term investments, net (14,192) 1,043 (8,627)
Refund of option payment (7,500) -- --
Proceeds from sale of
property, plant and equipment 1,032 51 94
Net cash used in
investing activities (42,612) (5,901) (51,375)
Cash flows from
financing activities:
Net short-term borrowings 11,094 (5,714) 42,605
Proceeds from issuance
of common stock 703 -- --
Dividend to minority interest (2,251) -- (2,759)
Proceeds from issuance
of long-term debt 40,243 32,172 93,015
Principal payments
on long-term debt (60,317) (19,255) (61,830)
Capital contributions
from E.ON AG -- 37,000 --
Expenses related
to recapitalization -- (24,220) --
Net cash provided by (used in)
financing activities (10,528) 19,983 71,031
Effect of exchange rates
changes on cash and
cash equivalents 10,746 (1,901) (2,435)
Net increase in cash
and cash equivalents 44,295 7,270 (2,454)
Cash and cash equivalents
at beginning of period 75,356 68,086 70,540
Cash and cash equivalents
at end of period $ 119,651 $75,356 $68,086
(1) Following the acquisition by the investor group led by TPG of E.ON's
equity and debt interests in MEMC, the Company's assets and
liabilities were adjusted to reflect a new basis resulting from push
down accounting as of November 13, 2001. The financial statements for
the period October 1 through November 13, 2001 were prepared using the
Company's historical basis of accounting. The comparability of the
Company's operating results for the periods following push down
accounting and prior periods is affected by the push down accounting
adjustments.
--------------------------------------------------------------------------------
Source: MEMC Electronic Materials, Inc.
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