ST. PETERS, Mo., July 23 /PRNewswire-FirstCall/ -- MEMC Electronic Materials, Inc. (NYSE: WFR) today reported financial results for the quarter ended June 30, 2008.

    Highlights:
    -- Net sales of $531.4 million
    -- Gross margin of $282.8 million (53.2% of net sales)
    -- Operating income of $242.5 million (45.6% of net sales)
    -- Cash and investment balances grow to approximately $1.5 billion
    -- MEMC amends Conergy agreement and signs new wafer agreement with
       Tainergy
    -- Board authorizes $500 million increase in share repurchase program

The company reported second quarter 2008 net sales of $531.4 million, which represents an increase of 6.0% from first quarter 2008 net sales of $501.4 million, and an increase of 12.4% from second quarter 2007 net sales of $472.7 million. The increase in net sales was primarily the result of higher product volumes.

Gross margin in the quarter was $282.8 million, or 53.2% of net sales, compared to $259.3 million, or 51.7% of sales, in the 2008 first quarter and $245.6 million, or 52.0% of sales, in the 2007 second quarter. Compared to the 2008 first quarter, gross margin improved by 9.1% in dollar terms, and 150 basis points as a percentage of net sales. Compared to the 2007 second quarter, gross margin improved by 15.1% in dollar terms, and 126 basis points as a percentage of net sales.

The company reported operating income during the quarter of $242.5 million, or 45.6% of net sales. This compares to $218.4 million, or 43.6% of net sales, for the 2008 first quarter and $207.3 million, or 43.9% of net sales, for the 2007 second quarter. Operating expenses were $40.3 million, or 7.6% of sales, compared to $40.9 million, or 8.2% of sales, in the 2008 first quarter, and $38.3 million, or 8.1% of sales, in the 2007 second quarter.

Using an estimated effective cash tax rate of 15%, non-GAAP net income for the second quarter of 2008, excluding the non-cash effects of the quarterly valuation of the Suntech warrants, was $212.0 million and non-GAAP diluted EPS, excluding warrants, was $0.92 per share. See non-GAAP reconciliation information at the end of this press release following the financial statement tables. GAAP net income for the second quarter, using a GAAP tax rate of 25.6%, was $176.1 million or $0.76 per share, which includes a $0.05 per share non-cash impact relating to a decrease in the valuation of the Suntech warrants.

During the second quarter, the company generated operating cash flow of $205.0 million, or 38.6% of sales, compared to $197.2 million, or 39.3% of sales, in the 2008 first quarter. Capital expenditures for the second quarter totaled $87.3 million, or 16.4% of sales. Free cash flow (operating cash flow minus capital expenditures) was $117.7 million or 22.1% of sales. MEMC ended the second quarter with cash and investments of $1.5 billion, compared to $1.4 billion at the end of the 2008 first quarter.

'MEMC grew sales by 6% sequentially, expanded gross and operating margins by 150 and 200 basis points, respectively, continued to generate industry- leading levels of free cash flow at 22% of sales, and further expanded our cash and investment balances to approximately $1.5 billion,' said Nabeel Gareeb, MEMC's chief executive officer. 'However, our financial results were a bit below the bottom end of our targeted range as the company encountered unanticipated events towards the tail end of the quarter.'

The premature failure of a relatively new heat-exchanger at the company's Merano, Italy facility in June reduced the company's second quarter polysilicon output by just under five percent. The output from the company's Pasadena, Texas facility during the month of May and early part of June (shown on the attached silane and polysilicon output charts) had positioned the company on a trajectory to exceed the upper end of the company's targeted second quarter revenue range. Unfortunately, a loose pipe fitting caused a fire at the company's Pasadena facility that required a shut down of half the silane production commencing on Friday June 13. Even though the complications lasted for approximately a week, the Pasadena facility recovered and managed to produce enough silane and polysilicon during the remainder of the quarter to be in the middle of that facility's targeted range for second quarter production, but there was not enough Pasadena production to completely offset the Merano shortfall.

Continued Gareeb, 'While we are disappointed that we experienced an uncharacteristic event at our Merano facility, we are pleased that we were able to limit the impact to a few percent below the targeted revenue range. This was primarily a result of the accomplishments in the second quarter that helped to offset the Merano shortfall. Specifically, we:

    -- Achieved strong output from Unit 3 in Pasadena, overcoming most of the
       issues that held us back in the first quarter.  While output was
       limited by the fire incident and its associated complications, the unit
       has recovered well.
    -- Completed and ramped Unit 4 in Pasadena over a month prior to the end
       of the quarter, with the unit running at good rates save for the
       interruption of the fire incident.
    -- Completed this technically and operationally challenging phase of
       silane expansion and established a high level of confidence in the
       longer-term performance of Units 3 and 4 based on actual output. We
       expect that this should eliminate silane production as a constraining
       element for polysilicon production.

    In addition, so far in the third quarter we have:
    -- Mechanically completed two additional poly reactors in Pasadena, with
       ramps scheduled to begin next week.  As a result of these
       installations, the company is now at 7,500MT of annualized capacity and
       we have demonstrated good output in July as shown in the charts.
    -- Replaced and restarted the Merano heat exchanger and commenced the
       Merano expansion several weeks ago, which will get the company to the
       targeted level of 8,000MT of annualized polysilicon capacity before the
       end of the third quarter.'

'While the last six months of this expansion and ramp have been difficult, our accomplishments in the second quarter and early part of the third should allow us to demonstrate significant growth in the second half of the year compared to the first half, as mentioned in the April earnings call.'

Third Quarter 2008 Outlook

'Solar application demand continues to be strong, however, semiconductor application demand seems to be uncertain, primarily due to macroeconomic conditions. In addition, although we have made significant progress as a result of the accomplishments mentioned earlier, we did not achieve the targeted level of results for the second quarter, and that continues to warrant a degree of caution. Based on these considerations, we are targeting revenues of approximately $560 to $620 million for the third quarter. In addition, we are targeting gross margin of approximately 54%-55%, with operating expenses of approximately $41 million,' added Gareeb.

'Given the number of unanticipated events associated with our expansion and ramp during the last few quarters as well as our cautious view, we are planning on providing an interim update this quarter via a conference call on September 2.