MEMC Electronic Materials, Inc.(NYSE: WFR) has announced that its affiliate, MEMC Electronic Materials, SpA, and Evonik Industries, have agreed to settle and resolve disputes related to two long-term take-or-pay supply agreements for the supply of trichlorosilane (TCS) to MEMC's Merano, Italy polysilicon facility. Pursuant to the settlement agreements, MEMC will pay Evonik a total of 70 million Euro in full settlement of all obligations under the terminated supply agreements, with such payments to be made in installments over the next five quarters, including the payment of 10 million Euro in the current quarter.
As part of strategic restructuring initiatives announced in December 2011, MEMC indicated it would idle the Merano facility and would consider closing the facility unless dramatic feedstock, power and other cost reductions were achieved. As a result of this decision, MEMC terminated the two long-term supply agreements with Evonik. In connection with the restructuring, MEMC recorded significant restructuring accruals in the 2011 fourth quarter based on management's best estimates of the ultimate outcome of this and other loss contingencies at that time.
As part of the settlement agreements, MEMC will acquire the Evonik TCS production plant, which is located on MEMC's Merano site. At this time, a decision to restart the MEMC Merano facility has not been made, although the settlement of the supply agreements is a significant step toward achieving these cost reduction goals. Both plants will continue to be idle pending the resolution of a number of cost-related discussions with the Italian Government and other parties.
"We are pleased that we were able to work proactively and collaboratively with an important supplier like Evonik to reach an amicable settlement," commented Ahmad Chatila, MEMC's Chief Executive Officer. "Our partners at Evonik recognized the seismic shift in solar that occurred in 2011 and worked with us to find a solution that benefitted both parties."
As a result of these settlement agreements, MEMC expects to recognize a material benefit to operating income in the 2012 third quarter due to the favorable settlement of these agreements compared to previous management estimates. The third quarter installment payment will likely result in a reduction of our cash balance of 10 million Euro.