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MEMC Electronic Materials Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 9, 2010 08:15AM
MEMC Electronic Materials Inc. (WFR) filed Quarterly Report for the period ended 2010-06-30. Memc Electronic Materials Inc. has a market cap of $2.27 billion; its shares were traded at around $9.98 with and P/S ratio of 1.95.WFR is in the portfolios of Arnold Van Den Berg of Century Management, Ronald Muhlenkamp of Muhlenkamp Fund, George Soros of Soros Fund Management LLC, Stanley Druckenmiller of Duquesne Capital Management, LLC, Louis Moore Bacon of Moore Capital Management, LP, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations:
In May 2010, SunEdison entered into an agreement with First Reserve Corporation (First Reserve) to establish an entity to provide for the purchase of current and future qualifying SunEdison solar photovoltaic energy projects (the First Reserve Partnership). SunEdison will hold a minority interest in the entity which will be accounted for under the equity method of investment for financial reporting purposes. The initial equity commitment of up to $167 million will be contributed by First Reserve and SunEdison over time in proportion to their percentage interests of 90.1% and 9.9%, respectively. When combined with contemplated additional debt financing, these equity commitments are expected to fund the acquisition of up to $825 million of solar power systems developed by SunEdison. First Reserve may raise up to $150 million in additional equity which, when coupled with a corresponding increase in solar project debt financing, could scale the entity up to an aggregate of $1.5 billion of solar projects developed by SunEdison. In addition, SunEdison may enter into separate operations and maintenance agreements with the entity related to the projects. SunEdison has invested $0.3 million in the entity as of June 30, 2010. During the second quarter of 2010, we executed three contracts to sell three projects to the entity which we expect will be completed in the third quarter of 2010.
Solar Materials net sales for the three months ended June 30, 2010 were $168.0 million compared to $137.3 million in the three months in 2009. Solar Materials net sales for the six months ended June 30, 2010 were $325.7 million compared to $292.6 million in the six months in 2009. While volumes for solar wafers increased in the second quarter and year-to-date periods of 2010 due to increased volumes with customers under long-term agreements and new customers, decreases in pricing partially offset the increases in volumes. In order to reduce our concentration of solar wafer customers, we continue to diversify our customer base by serving additional solar wafer customers beyond our long-term solar wafer supply agreements. The increase in sales compared to 2009 was also slightly offset by a decrease in polysilicon sales of $9.4 million in the quarter and $16.9 in the year to date periods. These decreases were attributable to decreased volumes and selling prices. Raw polysilicon sales are expected to remain low as our wafer sales grow and we continue to allocate the polysilicon for internal use. Polysilicon sales amounted to only 1% of total sales year to date, down from 5% in the same period of 2009. Our solar wafer average selling prices in the three and six months ended June 30, 2010 were approximately 27% and 35% lower, respectively, than the solar wafer average selling prices for the same period in 2009, and 9% higher than the first quarter of 2010.
The 2009 U.S. Plan actions are expected to affect approximately 540 employees in the United States. MEMC will provide severance benefits to those employees who will be terminated, and expects to incur total severance charges related to the terminations of approximately $21.0 million. We recorded $1.4 million and $2.7 million in the first three and six months of 2010, respectively, and expect to make the related severance payments at the time of the final production dates for the facilities through the second quarter of 2011. We also anticipate charges of approximately $30.1 million for other related move costs and contract terminations associated with the closings which will be expensed as incurred until the final production date in the respective U.S. facilities. In total, we have recorded charges of $18.8 million associated with these actions since inception and estimate we will incur approximately $51.1 million in cash costs classified as restructuring expenses. We estimate that the facility closings will result in an annualized savings beginning in the third quarter of 2010 of approximately $10 million, rising to approximately $55 million of annualized savings beginning in the second quarter of 2011. The timing of these facility closings and related cost savings may be delayed due to the current and anticipated strong demand in the semiconductor industry.
During the three and six months ended June 30, 2010, our consolidated operating income of approximately $3.3 million represented an improvement of $26.4 million from the comparable period in 2009. Our operating loss of $12.0 million for the six months ended June 30, 2010 was $37.5 million lower than the same period in the prior year. These improvements were the net results of the changes in gross profit dollars and operating costs discussed above.
The decrease in our Solar Materials segment income for the three months ended June 30, 2010 was primarily the result of pricing declines for solar wafers of $89.4 million, a reduction in polysilicon volumes of $7.8 million and higher wafering costs of $15.3 million. These decreases were slightly offset by increases in solar wafer volumes of $93.9 million. The decrease for the six months ended June 30, 2010 was primarily the result of pricing declines for solar wafers of $195.7 million, a reduction in polysilicon volumes of $12.5 million and higher wafering costs of $20.6 million. These were slightly offset by increases in solar wafer volumes of $211.7 million.
Corporate and other loss increased $6.6 million and $12.2 million for the three and six months ended June 30, 2010, respectively, compared to the same periods in 2009. The increase was mainly the result of the addition of expenses associated with the acquisition of SunEdison of $3.3 million and $6.5 million, respectively, in the three and six months ended June 30, 2010, as well as increased stock compensation expenses and increased general corporate overhead to support the segments.
Stocks Discussed: WFR,