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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

(Mark One) 
x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE

For the fiscal year ended December 31, 2004 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to                          to                  

Commission file number 1-13828

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                        MEMC Electronic Materials, Inc.                        

(Exact name of registrant as specified in its charter)

               Delaware                                 56-1505767             
   (State or other jurisdiction of                   (I.R.S. Employer          

incorporation or organization)                 Identification No.) 
501 Pearl Drive (City of O Fallon)                      63376 

         St. Peters, Missouri                                                  
   (Address of principal executive                      (Zip Code)             
               offices)                                                        

Registrant s telephone number, including area code 

(636) 474-5000 

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Securities registered pursuant to Section 12(b) of the Act: 

         Title of Each Class                  Name of Each Exchange on Which   
             ------------                              Registered:             
                                           ------------------------------------
     $.01 Par Value Common Stock                 New York Stock Exchange       

Securities Registered Pursuant to Section 12(g) of the Act: 

                                     None                                      

(Title of Class) 

                    ----------------                   

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.    Yes  x    No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)    Yes  x    No 

The aggregate market value of the voting stock held by nonaffiliates of the registrant, based upon the closing price of such stock on June 30, 2004, as reported by the New York Stock Exchange, was approximately $815,357,601. 

The number of shares outstanding of the registrant s Common Stock as of March 1, 2005, was 208,892,494 shares. 

                      DOCUMENTS INCORPORATED BY REFERENCE                      

1. Portions of the registrant s 2004 Annual Report to Stockholders (Part II) 

2. Portions of the registrant s 2005 Proxy Statement (Part III) 

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                                    PART I                                     

Item 1. Business                                                               

Overview

We are a leading worldwide producer of wafers for the semiconductor industry. We are one of the top three wafer suppliers in the world. We are one of four wafer suppliers having more than a 10% share of the overall market. 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, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world s largest foundries. 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. 

We were formed in 1984 as a Delaware corporation and completed our initial public stock offering in 1995. Our corporate structure includes, in addition to our wholly owned subsidiaries, an 80%-owned consolidated joint venture in South Korea (MEMC Korea Company or MKC). In February 2004, we acquired approximately 100% ownership of Taisil Electronic Materials Corporation (Taisil) in Taiwan. Prior to February 2004, Taisil was a 45%-owned unconsolidated joint venture. In addition, in August 2004, we acquired 100% ownership of MEMC Southwest Inc. in Sherman, Texas. Prior to August 2004, MEMC Southwest Inc. was an 80%-owned consolidated joint venture. 

On November 13, 2001, an investor group led by Texas Pacific Group and including TPG Wafer Holdings LLC and funds managed by Leonard Green & Partners, L.P. and TCW/Crescent Mezzanine Management LLC (collectively, TPG) acquired beneficial ownership of approximately 72% of our outstanding common stock and approximately $910 million of our debt from E.ON AG. All of the debt acquired by TPG from E.ON has been restructured or repaid. As part of the restructuring, TPG received shares of our Series A Cumulative Convertible Preferred Stock. On July 10, 2002, TPG converted all of the outstanding shares of Series A Cumulative Convertible Preferred Stock and the related accumulated but unpaid dividends into 125,010,556 shares of MEMC common stock. TPG sold approximately 15 million, 34 million and 66 million shares of our common stock in public offerings in May 2003, February 2004 and February 2005, respectively. TPG currently beneficially owns approximately 34% of our outstanding common stock. 

We are engaged in one reportable industry segment-the design, manufacture and sale of electronic grade wafers for the semiconductor industry. Financial information regarding this industry segment is contained in our 2004 Annual Report, which information is incorporated herein by reference. 

Industry Background

Almost all semiconductors are manufactured from wafers, and thus the performance of the wafer industry is highly correlated to the unit shipments of the semiconductor device industry. The worldwide semiconductor device industry grew at a compound annual growth rate of 10% from 73 billion units in 1985 to 433 billion units in 2004, according to SIA & WSTS. In 2004, semiconductor device units increased 19% from 2003, according to SIA & WSTS. 

The silicon wafer industry grew at a compound annual growth rate of 9% from 1,118 million square inches in 1985 to 6,262 million square inches in 2004, according to SIA/SEMI. In 2004, silicon wafer volumes grew 22%, according to SEMI. 

The fabrication of semiconductor devices requires a large number of complex and repetitive processing steps to layer different materials and imprint various features on a single wafer. Wafers are becoming 

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increasingly differentiated by specific physical and electrical characteristics such as flatness, silicon purity and uniform crystal structures. As markets for semiconductor devices continue to evolve and become more specialized, we believe device manufacturers recognize the enhanced role that wafers and other materials play in improving device performance and reducing their production costs. 

Semiconductor device manufacturers continue to move towards devices with shrinking device geometrics (i.e., the distance between the electrical contacts on the device) and more stringent technical specifications. The wafers required to produce these next-generation devices are being developed in larger diameters. Thus, semiconductor device manufacturers continue to move to larger diameter wafers, with the 200 millimeter wafer being the primary wafer used today. Though semiconductor manufacturers are using 300 millimeter wafers for volume production, the 200 millimeter wafer is expected to be the primary wafer size through 2008 or 2009, according to Gartner Dataquest estimates (Source: Silicon Wafer Market Outlook: The Pendulum Swings to Supply Tightness, Takashi Ogawa, July 2004). 

Over the past decade, we believe the wafer industry has consolidated, with only four suppliers now having more than a 10% share of the overall market. We believe this change in the competitive landscape is causing segmentation between larger and smaller producers with larger manufacturers gaining an increasing share of the overall wafer market. Semiconductor device manufacturers seek suppliers with whom they can better align wafer technology development with their own product development efforts. We believe these manufacturers will continue to select wafer suppliers that offer advanced technology capabilities, a broad product portfolio and superior service to satisfy their exacting device requirements. 

Strategy

Our objective is to maintain and enhance our position as a leading worldwide producer of wafers for the semiconductor device industry. Our strategies to achieve this objective include: 

Focus solely on providing wafers 

Throughout our history, we have focused on developing innovative products and process technologies within the wafer industry. Because we are focused exclusively on wafers, we have the ability to respond rapidly to changing technology requirements and to develop close relationships with our customers. Our customers, who represent the leading semiconductor device manufacturers in the world, are the primary source in determining where we channel our financial and human resources and focus our technological efforts. A key component of our customers  requirements is the continual development of new products and refinement of existing products to meet their needs. We offer a broad range of high-quality wafers and give our customers choices from thousands of unique combinations of wafer specifications. 

Maintain and enhance our technology leadership position 

We have been a pioneer in the design and development of wafer technologies over the past four decades. The model for our research and development group combines engineering innovation with specific commercialization strategies. We will continue to use and develop our portfolio of technologies to provide a combination of product features that fulfills the exacting specifications of our customers  manufacturing requirements for increasingly complex wafers. Two of our more recent innovations are Magic Denuded Zone , or MDZ , wafer technology and crystalline defect-free crystal, both of which we have incorporated in our OPTIA  product. These two innovations are designed to help our customers improve the yield and capability of their semiconductor fabrication processes. We have also entered into a license agreement for certain layer-transfer wafer technology and we are in the process of establishing production capability for 200mm and 300mm silicon-on-insulator (SOI) wafers. 

Focus on continuous cost reduction and return on invested capital 

Continuous cost reduction and a disciplined capital expenditure program are key components of our long-term financial strategy. During the past few years, we have taken significant steps to reduce our cost structure 

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and improve the efficiency of our global manufacturing processes. These steps have included headcount reductions, process improvements, streamlining of material flows and working with our suppliers to reduce the total cost of ownership of our materials and supplies. With our reduced cost structure, we believe we have substantially reduced the minimum annual sales level we need to achieve positive operating income. 

Products

We offer wafers with a wide variety of features satisfying numerous product specifications to meet our customers  exacting requirements. Our wafers vary in diameter, surface features, composition, purity levels, crystal properties and electrical properties. We provide our customers with a reliable supply of high-quality wafers with consistent characteristics. These wafers range from 100 millimeter to 300 millimeter in diameter. Our wafers are used as a starting material for the manufacture of various types of semiconductor devices, including microprocessor, memory, logic and power devices. In turn, these semiconductor devices are used in computers, cellular phones and other mobile electronic devices, automobiles and other consumer and industrial products. 

We are continually advancing our products  capabilities. In addition to other new product offerings, we offer wafers with the Magic Denuded Zone , or MDZ , product feature. As compared to traditional techniques, this patented product feature can increase our customers  yields in both prime polished and epitaxial wafers by drawing impurities away from the surface of the wafer in a manner that is efficient and reliable, with results that are reproducible. 

Our products include three general categories of wafers: 

Prime Polished Wafers

Our prime polished wafer is a highly refined, pure wafer with an ultraflat and ultraclean surface. Our prime polished wafers are manufactured with a sophisticated chemical-mechanical polishing process that removes defects and leaves an extremely smooth surface. As devices become more complex, wafer flatness and cleanliness requirements, along with crystal perfection, become increasingly important because these properties have a significant impact on our customers  processes and yields. 

Our OPTIA  wafer is a 100% defect-free crystalline structure based on our patented technologies and processes, including MDZ . We believe the OPTIA wafer is the most technically advanced polished wafer available today. We are shipping significant volumes of OPTIA  wafers to some customers for use in commercial production, and we are in the process of qualifying OPTIA  wafers with other customers. 

Our annealed wafer is a prime polished wafer with near surface crystalline defects dissolved during a high-temperature thermal treatment. We expect that our sales of annealed wafers will continue to increase in the future. 

Epitaxial Wafers

Our epitaxial, or EPI, wafers consist of a thin silicon layer grown on the polished surface of the wafer. Typically, the epitaxial layer has different electrical properties from the underlying wafer. This provides our customers with better isolation between circuit elements than a polished wafer, and the ability to tailor the wafer to the specific demands of the device. Without sufficient isolation of the various elements, the elements could communicate electrically with each other, which could render the device useless. Epitaxial wafers provide improved isolation, thereby allowing for increased reliability of the finished semiconductor device and greater efficiencies during the semiconductor manufacturing process, which ultimately allows for more complex semiconductor devices. 

Our AEGIS  product is designed for certain specialized applications requiring high resistivity epitaxial wafers and our MDZ  product feature. The AEGIS wafer includes a thin epitaxial layer grown on a standard 

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starting wafer. The AEGIS  wafer s thin epitaxial layer eliminates harmful defects on the surface of the wafer, thereby allowing device manufacturers to increase yields and improve process reliability. 

Test/Monitor Wafers

We supply test/monitor wafers to our customers for their use in testing semiconductor fabrication lines and processes. Although test/monitor wafers are substantially the same as prime polished wafers with respect to cleanliness, and in some cases flatness, other specifications are generally less rigorous. This allows us to produce test/monitor wafers from the portion of the silicon ingot that does not meet customer specifications for wafers to be used in the manufacture of semiconductors. Therefore, sales of test/monitor wafers allow us to experience a higher overall yield. 

Sales, Marketing and Customers

We market our products primarily through a global direct sales force. We have customer service and support centers globally, including in China, France, Germany, Italy, Japan, Malaysia, South Korea, Taiwan and the United States. A key element of our marketing strategy is establishing and maintaining close relationships with our customers. We accomplish this through multi-functional teams of technical, sales and marketing, and manufacturing personnel. These teams work closely with our customers to continually optimize our products for their production processes in their current and future facilities. We monitor changing customer needs and target our research and development and manufacturing to produce wafers adapted to each customer s process and requirements. We complete sales principally through indicative-only contracts of one year or less, which indicate expected volumes and specify price. 

We sell our products to virtually all major semiconductor device manufacturers, including the major memory, microprocessor and ASIC manufacturers as well as the world s largest foundries. We made approximately 60% of our sales to ten customers in 2004. Samsung accounted for more than 10% of our sales in 2004. No other customer represented 10% or more of our 2004 sales. 

We sell our products to certain customers under consignment arrangements. Generally, these consignment arrangements require us to maintain a certain quantity of product in inventory at the customer s facility or at a storage facility designated by the customer. Under these arrangements, we ship the wafers to the storage facility, but do not charge the customer or recognize revenue for those wafers until title passes to the customer. Title passes when the customer pulls the product from the MEMC storage facility or storage area or, if the customer does not pull the product within a stated period of time (generally 60 90 days), at the end of that period, or when the customer otherwise agrees to take title to the product. Until that time, the wafers are considered part of MEMC s inventory and are reflected on MEMC s books and records as inventory. As such, these consignment arrangements are essentially inventory transfer arrangements. At December 31, 2004, we had approximately $22 million of inventory held on consignment. 

Manufacturing

To meet our customers  needs worldwide, we have established a global manufacturing network consisting of nine manufacturing facilities. 

Our wafer manufacturing process begins with high purity semiconductor grade polysilicon. The polysilicon is melted in a quartz crucible along with minute amounts of electrically active elements such as arsenic, boron, phosphorous or antimony. We then lower a silicon seed crystal into the melt and slowly extract it from the melt. The resultant body of silicon is called an ingot. The temperature of the melt, speed of extraction and rotation of the crucible govern the diameter of the ingot, while the concentration of the electrically active element in the melt governs the electrical properties of the wafers to be made from the ingot. This is a complex, proprietary process requiring many control features on the crystal-growing equipment. 

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We then grind the ingots to the specified diameter and slice the ingots into thin wafers. Next, we prepare the wafers for surface polishing with a multi-step process using precision wafer planarization machines, edge contour machines and chemical etchers. Final polishing and cleaning processes give the wafers the clean and ultraflat mirror polished surfaces required for the fabrication of semiconductor devices. We further process some of our products into epitaxial wafers by utilizing a chemical vapor deposition process to deposit a single crystal silicon layer on the polished surface. 

In certain of our manufacturing facilities we have fully integrated manufacturing capabilities that encompass the full range of wafer manufacturing process steps, including ingot growth, wafer slicing, wafer polishing and epitaxial deposition. We conduct certain of our processes in state-of-the-art cleanroom environments. 

Raw Materials

We obtain our requirements for several raw materials, equipment, parts and supplies from sole suppliers. The main raw material in our production process is polysilicon. In 2004, we produced over 90% of our gross polysilicon requirements internally. We sell some polysilicon to third parties. We use two types of polysilicon: granular polysilicon and chunk polysilicon. We produce all of our requirements for granular polysilicon at our facility in Pasadena, Texas. We do not believe there are other sources of semiconductor grade granular polysilicon. Chunk polysilicon can be substituted for granular polysilicon, although our manufacturing throughput and yields could be adversely affected. We believe our ability to meet the majority of our polysilicon requirements through in-house capabilities provides us with a key cost advantage to compete more effectively in the wafer industry. 

Research and Development 

The wafer market is characterized by continuous technological development and product innovation. We believe that continued and timely development of new products and enhancements to existing products are necessary to maintain our competitive position. Our goal in research and development is to maintain a close working relationship with our customers to continually develop new products and refine existing products to meet the needs of the marketplace. Our research and development model combines engineering innovation with specific commercialization strategies. Our model closely aligns our technology efforts with our customers  requirements. We accomplish this through a better understanding of our customers  technology requirements and through targeted research and development projects aimed at developing products to meet those technology requirements. Some of these projects involve formal and informal joint development efforts with our customers. 

In addition, in order to strengthen our customer relationships and interaction and to better target our research and development efforts, we assign research and development engineers to key customers worldwide. We do this through our Applications Engineering Group, in four of our laboratories located in the United States, Italy, Japan and South Korea, as well as field and resident engineers located at strategic locations throughout the world. Certain resident engineers are dedicated to specific accounts. The primary purpose of the Applications Engineering Group is to establish a close, technical working relationship with our customers to obtain a better knowledge of our customers material requirements. 

We devote a portion of our research and development resources to enhance our position in the crystal technology area. We have dedicated engineers and scientists, located in our St. Peters, Missouri, Merano, Italy and Chonan, South Korea facilities, to further our understanding of defect control, cost reduction and the use of granular polysilicon. In conjunction with these efforts, we are developing wafering technologies to meet advanced flatness and particle requirements of our customers. In addition, we continue to focus on the development of our advanced epitaxial wafer technology with a dedicated staff of scientists located primarily in our St. Peters, Missouri, Novara, Italy and Utsunomiya, Japan facilities, who focus on the development of new epitaxial wafer products and cost reduction processes. 

In addition to our focus on advancements in wafer material properties, we also continue to invest in research and development associated with larger wafer diameters. We produced our first 300 millimeter diameter wafer in 

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1991 and continue to enhance our 300 millimeter technology program using our staff of research and development scientists, engineers and technicians located primarily in our St. Peters, Missouri and Utsunomiya, Japan facilities. In addition, we continue to focus on process design advancements to drive cost and productivity improvements. 

We have also entered into a license agreement for certain layer-transfer wafer technology and we are in the process of establishing production capability for 200mm and 300mm silicon-on-insulator (SOI) wafers using a dedicated group of engineers and scientists located in our St. Peters, Missouri facility. 

Research and development expenses were $38.0 million in 2004, $32.9 million in 2003 and $27.4 million in 2002 or, 3.7%, 4.2%, and 4.0% of our net sales for those periods, respectively. 

Competition

The market for wafers is highly competitive. We compete in all the major semiconductor-producing regions of the world and face intense competition from established manufacturers. We estimate there are fewer than ten major competitors in our industry; however, our major competitors are Shin-Etsu Handotai, Sumitomo Mitsubishi Silicon and Siltronic. Some of our competitors have substantial financial, technical, engineering and manufacturing resources. Our wafers compete with wafers manufactured by others on the basis of product quality, consistency, price, technical innovation, customer service and product availability. We believe we are competitive on the basis of these factors. 

Proprietary Information and Intellectual Property

We believe that the success of our business depends in part on our proprietary technology, information, processes and know how. We try to protect our intellectual property rights based on patents and trade secrets as part of our ongoing research, development and manufacturing activities. As of December 31, 2004, we owned of record or beneficially approximately 216 U.S. patents, of which approximately 16 will expire by 2009, approximately 33 will expire between 2010 and 2014 and approximately 167 will expire after 2014. As of December 31, 2004, we owned of record or beneficially approximately 314 foreign patents, of which approximately 55 will expire by 2009, approximately 26 will expire between 2010 and 2014 and approximately 233 will expire after 2014. These foreign patents are generally counterparts of our U.S. patents. As of December 31, 2004, we had approximately 53 pending U.S. patent applications and approximately 332 pending foreign patent applications. The patents we beneficially own relate to polysilicon technology. We exclusively licensed these patents from Albemarle Corporation in connection with our purchase of Albemarle s granular polysilicon business. We may request that these patents be assigned to us at any time in exchange for a nominal purchase price. 

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations and we do not have any pending indemnification claims. 

Employees

At December 31, 2004, we had approximately 5,000 full time employees and 500 temporary workers worldwide. We have approximately 2,000 unionized employees in our St. Peters, Missouri, Pasadena, Texas, South Korea and Italy facilities. We have not experienced any material work stoppages at any of our facilities during the last several years. 

Geographic Information

Information regarding our foreign and domestic operations is contained in Note 19 on pages 52 and 53 of our 2004 Annual Report, which information is incorporated herein by reference. 

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Risk Factors

This Annual Report on Form 10-K contains  forward-looking  statements within the meaning of the Private Securities Litigation Reform Act of 1995, including those set forth under  Item 1. Business  and  Item 3. Legal Proceedings  and those incorporated herein by reference from our 2004 Annual Report. In addition to the business risks and uncertainties discussed elsewhere in this Form 10-K, the following are important risk factors which could cause actual results and events to differ materially from those contained in any forward-looking statement made by us. 

Our business depends on the semiconductor device industry and if that industry experiences future downturns, our sales could decrease and we could be forced to reduce our prices while maintaining fixed costs, all of which could have significant negative effects on our operating results and financial condition. 

Our business depends in large part upon the market demand for our customers semiconductors and products utilizing semiconductors. The semiconductor device industry experiences: 

.     rapid technological change; 

.     product obsolescence; 

    .     changes in product mix;                                               

    .     price erosion; and                                                    

.     fluctuations in product supply and demand 

From time to time, the semiconductor device industry has experienced significant downturns. These downturns often occur in connection with declines in general economic conditions. Some of these downturns have lasted for more than a year and have resulted in a substantial decrease in demand for our products. For example, in 2001, the semiconductor industry experienced a significant downturn as a result of weakened demand and a broad-based inventory correction. The 2001 downturn continued into early 2003. In the second half of 2004, much of the semiconductor industry experienced a downturn related to product oversupply and a resulting inventory correction. These industry conditions have continued into 2005. If the semiconductor device industry experiences future downturns, we will face pressure to reduce prices and we may need to further rationalize capacity and reduce fixed costs. At the same time, our ability to reduce expenditures for capital, research and development and global infrastructure during an industry downturn is limited because of the need to maintain our competitive position. If we are unable to reduce our expenses sufficiently to offset reductions in price and volume, our operating results and financial condition could be materially adversely affected. 

Our dependence on single and limited source suppliers could require us to obtain new qualifications from customers and adversely affect our manufacturing throughput and yield. 

We obtain several raw materials, equipment, parts and supplies from sole suppliers. Likewise, we obtain all of our requirements for granular polysilicon from our facility in Pasadena, Texas. In the case of granular polysilicon, we believe that we could substitute chunk polysilicon for granular polysilicon. However, in either case, it may take us several months to transition to a new supplier and we may be required to obtain new qualifications from our customers in order to change or substitute materials or sources of supply. We cannot predict whether we would be successful or how long the qualification process would take. In addition, our manufacturing process could be interrupted and our manufacturing throughput and yields could be adversely affected. A failure to obtain a new qualification or a decrease in our manufacturing throughput or yields could have a material adverse effect on our operating results. 

From time to time we have experienced limited supplies of certain raw materials, equipment, parts and supplies, particularly polysilicon. Because of the cyclical nature of our industry, we may experience shortages of our key raw materials, equipment, parts and supplies in the future. A prolonged inability to obtain raw materials, equipment, parts or supplies, or increases in prices resulting from these shortages could have a material adverse effect on our operating results. 

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We are subject to periodic fluctuations in foreign currency exchange rates which can cause reported financial results to vary significantly from period to period. 

Approximately 72% of our sales in 2004 were made outside North America. We expect that international sales will continue to represent a significant percentage of our total sales. In addition, a significant portion of our manufacturing operations is located outside of the United States. Sales outside of the United States expose us to currency exchange rate fluctuations. Our risk exposure from these sales is primarily related to Euro, Japanese Yen, Korean Won and New Taiwanese Dollar. Our risk exposure from expenses at international manufacturing facilities is concentrated in Euro, Japanese Yen, Korean Won, Malaysian Ringgit and New Taiwanese Dollar. To the extent that our sales in foreign currencies occur at foreign sites which incur expenses in those currencies, our net exposure is reduced. We generally hedge receivables denominated in foreign currencies at the time of sale. 

Our foreign subsidiaries have debt denominated in Euro, Japanese Yen, New Taiwanese Dollars and U.S. Dollars. We generally do not hedge these net foreign currency exposures. 

We recognized net current losses totaling approximately $2 million in 2004 and net currency gains totaling approximately $14 million and $11 million in 2003 and 2002, respectively. We cannot predict whether these foreign currency exchange risks inherent in doing business in foreign countries will have a material adverse effect on our operations and financial results in the future. 

We experience intense competition in the wafer industry which could force us to reduce our prices to retain market share or face losing market share and revenues. 

We face intense competition in the wafer industry from established manufacturers throughout the world. If we cannot compete effectively with other wafer manufacturers, our operating results could be materially adversely affected. Some of our competitors have substantial financial, technical, engineering and manufacturing resources to develop products that currently, and may in the future, compete favorably against our products. 

We compete on the basis of product quality, consistency, price, technical innovation, customer service and product availability. We expect that our competitors will continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. We may need to reduce our prices to retain market share, which could have a material adverse effect on our operating results. 

If we fail to meet changing customer demands, we may lose customers and our sales could suffer. 

The wafer industry changes rapidly. Changes in our customers  requirements result in new and more demanding technology, product specifications and diameters, and manufacturing processes. Our ability to remain competitive will depend upon our ability to develop technologically advanced products and processes. We must continue to meet the increasingly demanding requirements of our customers on a cost-effective basis. As a result, we expect to continue to make significant investments in research and development and equipment. We cannot be certain that we will be able to successfully introduce, market and cost effectively manufacture any new products, or that we will be able to develop new or enhanced products and processes that satisfy customer needs or achieve market acceptance. 

Because we cannot easily transfer production of specific products from one of our manufacturing facilities to another, manufacturing delays at a single facility could result in a loss of product volume. 

It typically takes three to six months for our customers to qualify a manufacturing facility to produce a specific product, but it can take longer depending upon a customer s requirements and market conditions. Interruption of operations at any of our primary wafer manufacturing facilities could result in delays or cancellations of shipments of wafers and a loss of product volume. Likewise, interruption of operations at our granular polysilicon manufacturing facility could adversely affect our wafer manufacturing throughput and yields and could result in our inability to produce certain qualified wafer products, delays or cancellations of shipments of wafers and a loss of product volume. A number of factors could cause interruptions, including labor disputes, 

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equipment failures, or shortages of raw materials or supplies. Unions represent employees at our wafer facilities in St. Peters, Missouri, Italy and South Korea and our granular polysilicon facility in Pasadena, Texas. A strike at any of these facilities could cause interruptions in manufacturing. We cannot be certain that alternate qualified capacity would be available on a timely basis or at all. 

If we do not continue to reduce our manufacturing costs and operating expenses, we may not be able to compete effectively in our industry. 

The success of our business depends, in part, on our continuous reduction of manufacturing costs and operating expenses. The wafer industry has historically experienced price erosion and will likely continue to experience such price erosion. If we are not able to reduce our manufacturing costs and operating expenses sufficiently to offset future price erosion, our operating results will be adversely affected. During the past few years, we have engaged in various cost-cutting and other initiatives intended to reduce costs and increase productivity. These activities have included reduction of headcount, refinement of our processes and efforts to increase yields and reduce cycle time. In addition, our 2001 financial restructuring resulted in substantially reduced depreciation expense. We cannot assure you that we will be able to continue to reduce our manufacturing costs and operating expenses. Moreover, any future closure of facilities or reduction of headcount may adversely affect our ability to manufacture wafers in required volumes to meet customer demand and may result in other production disruptions. 

We may acquire other businesses, products or technologies; if we do, we may be unable to integrate them with our business, which may impair our financial performance. 

If we find appropriate opportunities, we may acquire businesses, products or technologies that we believe are strategic. If we acquire a business, product or technology, the process of integration may produce unforeseen operating difficulties and expenditures and may absorb significant attention of our management that would otherwise be available for the ongoing development of our business. If we make future acquisitions, we may issue shares of stock that dilute other stockholders, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing other intangible assets with estimated useful lives, any of which might harm our business, financial condition or results of operations. 

Our business may be harmed if we fail to properly protect our intellectual property. 

We believe that the success of our business depends in part on our proprietary technology, information, processes and know how. We try to protect our intellectual property rights based on trade secrets and patents as part of our ongoing research, development and manufacturing activities. However, we cannot be certain that we have adequately protected or will be able to adequately protect our technology, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect our intellectual property rights. Moreover, we cannot be certain that our patents do or will provide us with a competitive advantage. 

The protection of our intellectual property rights and the defense of claims of infringement against us by third parties may subject us to costly patent litigation. 

Any litigation in the future to enforce patents issued to us, to protect trade secrets or know how possessed by us or to defend us or indemnify others against claimed infringement of the rights of others could have a material adverse effect on our financial condition and operating results. From time to time, we receive notices from other companies that we may be infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation, which could have a material adverse effect on us. In fact, we are presently involved in pending litigation involving allegations of patent infringement. Regardless of the validity or successful outcome of any such intellectual property claims, we may need to expend significant time and expense to protect our intellectual property rights or to defend against 

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claims of infringement by third parties, which could have a material adverse effect on us. If we lose any such litigation, we may be required to: 

.     pay substantial damages; 

.     seek licenses from others; or 

.     change, or stop manufacturing or selling, some of our products. 

Any of these outcomes could have a material adverse effect on our business, results of operations or financial condition. 

We have a limited number of principal customers and a loss of one or several of those customers would hurt our business. 

Our operating results could materially suffer if we experience a significant reduction in, or loss of, purchases by one or more of our top customers. We made approximately 60% of our sales to ten customers in 2004. Samsung accounted for more than 10% of our sales in that period. 

We are subject to periodic foreign economic downturns and political instability, which may adversely affect our sales and cost of doing business in those regions of the world. 

Economic downturns in the Asia Pacific region and Japan have affected our operating results in the past, and economic downturns in those and other regions in which we operate could affect our operating results in the future. Additionally, other factors may have a material adverse effect on our operations in the future, including: 

.     the imposition of governmental controls or changes in government regulation; 

.     export license requirements; 

.     restrictions on the export of technology; 

.     geo-political instability; and 

.     trade restrictions and changes in tariffs. 

We cannot predict whether these economic risks inherent in doing business in foreign countries will have a material adverse effect on our operations and financial results in the future. 

We are required to evaluate our internal control under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price. 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with this annual report on Form 10-K, we are required to furnish a report by our management on our internal control over financial reporting. Such report contains among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Such report must also contain a statement that our auditors have issued an attestation report on management s assessment of such internal controls. Public Company Oversight Board Auditing Standard No. 2 provides the professional standards and related performance guidance for auditors to attest to, and report on, management s assessment of the effectiveness of internal control over financial reporting under Section 404. 

Each year we must perform the system and process documentation and evaluation needed to comply with Section 404, which is both costly and challenging. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective (or if 

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our auditors are unable to attest that our management s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price. In 2004, we determined that our internal control over financial reporting was not effective as there was more than a remote likelihood that a material misstatement of our annual or interim financial statements with respect to income taxes would not be prevented or detected, on a timely basis, by our employees in the normal course of performing their assigned functions. See Item 9A. 

If we are not able to comply with the requirements of Section 404 in a timely manner or if our auditors are not able to complete the procedures required by Auditing Standard No. 2 to support their attestation report, we would likely lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price. 

We are subject to numerous environmental laws and regulations, which could require us to discharge environmental liabilities, increase our manufacturing and related compliance costs or otherwise adversely affect our business. 

We are subject to a variety of foreign, federal, state and local laws and regulations governing the protection of the environment. These environmental laws and regulations include those relating to the use, storage, handling, discharge, emission, disposal and reporting of toxic, volatile or otherwise hazardous materials used in our manufacturing processes. These materials may have been or could be released to the environment at properties currently or previously owned or operated by us, at other locations during the transport of the materials, or at properties to which we send substances for treatment or disposal. If we were to violate or become liable under environmental laws and regulations or become non-compliant with permits required at some of our facilities, we could be held financially responsible and incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims. Groundwater and/or soil contamination has been detected at four of our facilities. We believe we are taking all necessary remedial steps at these facilities. As of December 31, 2004, the aggregate remediation cost for these facilities was expected to be approximately $5.2 million over the next 30 years. As a result, we do not expect these known conditions to have a material impact on our business. However, environmental issues relating to presently known or unknown matters could require additional investigation, assessment or expenditures. In addition, new laws and regulations or stricter enforcement of existing laws and regulations could give rise to additional compliance costs and liabilities. 

Our loan instruments contain highly restrictive covenants, any of which, if violated, would upon election of the lenders cause outstanding amounts under each of our loan instruments to become immediately due and payable, and we might not have sufficient funds and assets to pay such loans. 

We are party to a $150 million revolving credit facility with Citibank/UBS and a $35 million revolving credit facility with TPG. These loan instruments contain certain highly restrictive covenants, including covenants to maintain minimum quarterly consolidated Earnings Before Interest, Taxes, Depreciation and Amortization, as defined, minimum monthly consolidated backlog, minimum monthly consolidated revenues, maximum annual capital expenditures and other covenants customary for revolving loans of this type and size. A continuing violation of any of these covenants, which in our industry could occur in a sudden or sustained downturn, would be deemed an event of default under all of these loan instruments. In such event, upon election of the lenders, the loan commitments under the revolving credit facilities would terminate and the loans and accrued interest then outstanding under the credit facilities would be due and payable immediately. We may not have sufficient funds and assets to cover any such required payments and may not be able to obtain replacement financing on a timely basis or at all. This would have a material adverse effect on us. 

In the event TPG does not continue to own a substantial portion of our stock, we would be required to immediately repay outstanding loans and accrued interest under our credit facilities upon election of the lenders and we may not have the funds or assets to meet those obligations. 

TPG currently beneficially owns 34% of our outstanding common stock. If (1) TPG s ownership interest in us is reduced below 15% of our total outstanding equity interests, (2) another person or group acquires ownership 

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of a greater percentage of our outstanding equity than TPG, or (3) a majority of our Board of Directors is neither nominated by our Board of Directors nor appointed by directors so nominated, then, upon election of the lenders: 

.     the loan commitments under the $150 million Citibank/UBS revolving credit facility and the $35 million TPG revolving credit facility would terminate; and 

.     the loans and accrued interest then outstanding would become immediately due and payable. 

We may not have sufficient funds to make the required payments and may not be able to obtain replacement financing on a timely basis or at all. This would have a material adverse effect on us. 

Outstanding borrowings under the $150 million Citibank/UBS revolving credit facility would become immediately due and payable upon election of the lenders in the event any guarantor does not renew its guaranty, terminates its guaranty or defaults under its guaranty. 

The $150 million Citibank/UBS revolving credit facility is guaranteed by certain of the TPG entities. The terms of the guaranties are shorter than the term of the revolving credit facility, and each guarantor may terminate its guaranty. In the event a guarantor does not renew its guaranty through the term of the revolving credit facility and the lenders have not received cash collateral or a replacement guaranty executed by a replacement guarantor satisfactory to the lenders, a guarantor terminates its guaranty, or a guarantor defaults under its guaranty, then, upon election of the lenders, the loan commitments under the revolving credit facility would terminate and the loans and accrued interest under the facility would be due and payable immediately. In any of these events, the guarantors have severally agreed to make new revolving credit loans available to us on terms and conditions substantially similar to the $150 million Citibank/UBS revolving credit facility except with 2% higher interest rates. The guarantors may not have sufficient funds and assets to provide this replacement financing, and we may not be able to obtain the replacement financing on a timely basis or at all. If this happened, the lenders could foreclose on the assets pledged as collateral under this loan. 

Our loan instruments restrict our borrowings and use of proceeds, thereby limiting our ability to raise capital and obtain alternate funding sources. 

Under the terms of the $150 million Citibank/UBS revolving credit facility and the $35 million TPG revolving credit facility, we generally cannot borrow from third parties or pledge assets without the consent of the lenders. Under these instruments, we are also generally required to use 75% of the net proceeds from the issuance of debt or equity as follows: 

.     first, to repay outstanding borrowings under the $150 million Citibank /UBS revolving credit facility; and 

.     second, if such borrowings are repaid in full, to repay outstanding borrowings under the $35 million TPG revolving credit facility. 

These restrictions limit not only our ability to raise capital but our ability to obtain alternate funding sources. 

We have had significant operating and net losses, and we may have future losses. 

Prior to 2002, we had not reported an annual operating profit since 1996. Until 2003, we had not reported annual net earnings since 1996. Our cumulative losses allocable to common stockholders from 1997 to 2001 totaled approximately $1 billion. In 2002, we had operating income of $65 million and a net loss allocable to common stockholders of $22 million. We cannot predict whether we will experience operating losses and net losses in the future. 

Future sales of shares of our common stock may depress the price of our common stock. 

If we or our stockholders sell a substantial number of shares of our common stock in the public market, or investors become concerned that substantial sales might occur, the market price of our common stock could 

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decrease. We have granted TPG registration rights with respect to a substantial number of shares of our common stock and warrants to purchase common stock. Future sales of our common stock or warrants to purchase our common stock by TPG in the public market, or the perception that such sales might occur, could cause such a decrease in the price of our common stock. 

The market price of our common stock has fluctuated significantly and may continue to do so. 

The market price of our common stock may be affected by various factors, including: 

.     quarterly fluctuations in our operating results resulting from factors such as timing of orders from and shipments to major customers, product mix and competitive pricing pressures; 

.     announcements of technological innovations, new products or upgrades to existing products by us or our competitors; 

.     market conditions in the semiconductor device and wafer industries; 

.     developments in patent or other proprietary rights; 

.     changes in our relationships with our customers; 

.     interruption of operations at our manufacturing facilities; 

.     actual or perceived changes in our relationship with our majority owners; 

.     the size of the public float of our common stock; 

.     announcements of operating results that are not aligned with the expectations of investors; and 

.     general stock market trends. 

Technology company stocks in general have experienced extreme price and trading volume fluctuations that often have been unrelated to the operating performance of these companies. This market volatility may adversely affect the market price of our common stock. 

TPG has significant voting power to influence our direction and policies, which could prevent a favorable acquisition of us and create other conflicts of interest between us and TPG. 

TPG, through its approximate 34% beneficial ownership interest of our common stock, has significant voting power to influence our direction and policies, including any merger, consolidation or sale of all or substantially all of our assets. For example, under our restructuring agreement with TPG, we must either obtain the consent of TPG or give TPG a right of first refusal over any issuances of our equity securities to any person or group to the extent that the equity securities would have 10% or more of the voting power of all of our then outstanding voting securities. As a practical matter, TPG has significant influence over the election and composition of our Board of Directors as a result of its share ownership. Two of the six members of our current Board of Directors are partners of certain TPG entities. In addition, certain TPG entities have provided us with a $35 million revolving credit facility and guarantees of the $150 million Citibank/UBS revolving credit facility. We pay fees to TPG and its affiliates in connection with the $35 million revolving credit facility and a management advisory agreement. These arrangements may also create conflicts of interest between us and TPG. 

Certain provisions of our Restated Certificate of Incorporation and Restated By-Laws could delay or make more difficult a change of control or change in management that would benefit our stockholders. 

Certain provisions of our Restated Certificate of Incorporation, as amended, and Restated By-Laws may delay, defer or make more difficult: 

.     a merger, tender offer or proxy contest; 

.     the assumption of control by a holder of a large block of our securities; and 

.     the replacement or removal of current management by our stockholders. 

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For example, our Restated Certificate of Incorporation, as amended, divides the Board of Directors into three classes, with members of each class to be elected for staggered three-year terms. This provision may make it more difficult for stockholders to change the majority of directors and may frustrate accumulations of large blocks of common stock by limiting the voting power of such blocks. This may further discourage a change of control or change in current management. 

These provisions may limit participation by our stockholders in any merger or other change of control transaction, whether or not the transaction is favored by current management or would be favorable to our stockholders. These provisions may also make removal of current management by our stockholders more difficult, even if such removal would be beneficial to the stockholders generally. 

In addition, our Board of Directors is authorized to issue up to 50,000,000 shares of preferred stock without the vote of our holders of common stock, subject to certain restrictions on the issuance of preferred stock contained in the $150 million Citibank/UBS revolving credit facility, the $35 million TPG revolving credit facility and our restructuring agreement with TPG. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of our common stock and could have the effect of delaying, deferring or impeding a change in control of us. 

Limited trading volume of our common stock may contribute to its price volatility. 

Our common stock is traded on the New York Stock Exchange. During the twelve months ended December 31, 2004, the average daily trading volume for our common stock as reported by the NYSE was 687,071 shares. We are uncertain as to whether a more active trading market in our common stock will develop. As a result, relatively small trades may have a significant impact on the price of our common stock. 

Cautionary Statement Regarding Forward-Looking Statements

The following statements are or may constitute forward-looking statements: 

.     statements set forth in this Form 10-K or statements incorporated by reference from documents we have filed with the Securities and Exchange Commission, including possible or assumed future results of our operations, including but not limited to any statements contained herein or therein concerning: 

.      our belief that it is more likely than not that certain deferred tax assets will be realized; 

.      our intention to seek the consent of our lenders to increase the 2005 covenant for maximum annual capital expenditures; 

.      our expectation that pension expense will increase, primarily as a result of the general economic environment and the prevailing low interest rates; 

.      Our expectation that contributions to our pension plans for the next ten years will be approximately $51 million; 

.      our expectation that benefits payable from our pension plans and healthcare plan for the next ten years will be approximately $107 million and $44 million, respectively; 

.      our belief that we have the financial resources needed to meet business requirements, including capital expenditures and working capital requirements; 

      .      the impact of the implementation of SFAS No. 123R, SFAS No. 150,   
            SFAS No. 151, SFAS No. 153, FSP 106-2 and FSP 109-2;               

.      the impact of an adverse change in interest and currency exchange rates; 

.      the expectation that we will not pay dividends on our common stock in the foreseeable future; 

.      our expected timing for completing our evaluation of the effects of the repatriation provision of the American Jobs Creation Act an the range of possible amounts that the Company is considering for repatriation under this provision; 

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------------------------------------------------------------------------------- .      our belief that as markets for semiconductors continue to evolve 
  and become more specialized, device manufacturers recognize the enhanced role that wafers and other materials play in improving device performance and reducing their production costs; 

.      the expectation that the 200 millimeter wafer will be the primary wafer size until 2008 or 2009; 

.      our belief that the change in the competitive landscape is causing separation between larger and smaller wafer producers with larger manufacturers gaining an increasing share of the overall wafer market; 

.      our belief that semiconductor device manufacturers will continue to select wafer supplies that offer advanced technology capabilities, a broad product portfolio and superior service to satisfy their exacting device requirements; 

.      our intention to continue to use and develop our portfolio of technologies to provide a combination of product features that fulfills the exacting specifications of our customers manufacturing requirements for increasingly complex wafers; 

.      our belief that we have substantially reduced the minimum annual sales level we need to achieve positive operating income; 

.      our belief that, in the near term, we can obtain additional production capacity incrementally with capital expenditures consisting primarily of equipment purchases and installation; 

.      our expectation that sales of annealed wafers will continue to increase in the future; 

.      our belief that our ability to met the majority of our polysilicon requirements through in-house capabilities provides us with a key cost advantage to compete more effectively in the wafer industry; 

.      our belief that we could substitute chunk polysilicon for granular polysilicon; 

.      our expectation that international sales will continue to represent a significant percentage of our total sales; 

.      our expectation that our competitors will continue to improve their products and to introduce new products with competitive price and performance characteristics; 

.      our expectation that we will continue to make significant investments in research and development and equipment; 

.      our belief that the wafer industry will likely continue to experience price erosion; 

.      our belief that the success of our business depends in part on our proprietary technology, information processes and know how; 

.      our expected environmental remediation costs; 

.      the expected impact of groundwater and/or soil contamination at some of our facilities; 

      .      the impact of litigation on us;                                    

.      other statements contained or incorporated by reference in this Form 10-K regarding matters that are not historical facts; and 

      .      any statements preceded by, followed by or that include the words  
            believes,   expects,   predicts,   anticipates,   intends,         
            estimates,   should,   may  or similar expressions.                

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially are set forth under  Risk Factors. 

You should not place undue reliance on such statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions 

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to such forward-looking statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events. 

Executive Officers of the Registrant 

The following is information concerning our executive officers as of March 1, 2005. Mr. Gareeb has entered into an employment agreement with us. Mr. Gareeb s employment agreement provides that he will be employed as our President and Chief Executive Officer through April 2006. There are no family relationships between or among any of the named persons and the directors. 

              Name                  Age      All Positions and Offices Held    
              -----                 ---        --------------------------      
Nabeel Gareeb                        40   President, Chief Executive Officer   
                                          and Director                         
Thomas E. Linnen                     58   Senior Vice President and Chief      
                                          Financial Officer                    
John A. Kauffmann                    48   Senior Vice President                

Sylvia Roberts-Toomer                51   Senior Vice President                

Shaker Sadasivam                     45   Senior Vice President                

David L. Fleisher                    43   Vice President, General Counsel and  
                                          Corporate Secretary                  

Mr. Gareeb has been our President and Chief Executive Officer since April 2002 and has been a Director since that time. Prior to joining MEMC, Mr. Gareeb was Chief Operating Officer of International Rectifier Corporation, a leading supplier of power semiconductors. Mr. Gareeb joined International Rectifier in 1992 as Vice President of Manufacturing and subsequently held other senior management positions. 

Mr. Linnen joined us as Senior Vice President in December 2003 and became our Chief Financial Officer in January 2004. Prior to joining MEMC, Mr. Linnen was Senior Vice President and Chief Financial Officer of Trend Technologies, LLC from 2002 to December 2003. Trend Technologies is a privately owned manufacturer of enclosures for electronic products such as computers, telecommunications equipment and information appliances. Trend Technologies filed for protection under Chapter 11 of the Bankruptcy Code in November 2002 and emerged from these bankruptcy proceedings in January 2003. From 1999 to 2002, Mr. Linnen served as Executive Vice President and Chief Financial Officer of Sensory Science/Go-Video, a consumer electronics company. From 1996 to 1999, Mr. Linnen served as Chief Financial Officer of Hypercom Corporation, a point of sale terminal manufacturer. From 1987 to 1996, Mr. Linnen served as Vice President Finance, Secretary and Treasurer of Continental Circuits Corp., a circuit board manufacturer. 

Mr. Kauffmann has been our Senior Vice President, Sales and Marketing since October 2004. Mr. Kauffmann served as Vice President, Marketing from August 2003 to October 2004 and Acting Vice President, Sales and Marketing from March 2003 to August 2003. Mr. Kauffmann served as our Director, Segment Marketing from August 2002 to February 2003 and as the Commercial Manager for our 300 millimeter business unit from June 2000 to July 2002. From September 1994 to May 2000, Mr. Kauffmann held various positions with MEMC in Taiwan including Technical Director from September 1994 to December 1997, Director of Operations from December 1997 to April 1999, and Director, Foundry Marketing from April 1999 to May 2000. From February 1980 to August 1994, Mr. Kauffmann held manufacturing positions in one of our U.S. manufacturing plants. 

Ms. Roberts-Toomer joined MEMC in January 2003 and became Senior Vice President, Human Resources in January 2004. Prior to joining MEMC, Ms. Roberts-Toomer was Vice President, Human Resources of International Rectifier Corporation, a leading supplier of power semiconductors. Ms. Roberts-Toomer joined International Rectifier in 1992 and held a number of management positions in the human resources group. 

Dr. Sadasivam has been our Senior Vice President, Research and Development since July 2002. Dr. Sadasivam was President of MEMC Japan Ltd., our Japanese subsidiary, from April 2002 to June 2002. From July 2000 to March 2002, Dr. Sadasivam served as our Director, Worldwide Operations Technology. Dr. Sadasivam was Director, Technology for MEMC Korea Company, our South Korean subsidiary, from July 

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1999 to June 2000. From September 1997 to June 1999, Dr. Sadasivam held positions in the manufacturing technology group for our St. Peters facility. 

Mr. Fleisher has been our General Counsel and Corporate Secretary since October 2001 and has been a Vice President since July 2002. From March 1996 to September 2001, Mr. Fleisher was our Senior Attorney. 

Available Information

We make available free of charge through our Internet site (http:// www.memc.com) reports we file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 
(d) of the Securities Exchange Act of 1934, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. 

Item 2. Properties 

Our principal executive offices are located at 501 Pearl Drive (City of O Fallon), St. Peters, Missouri 63376, and our telephone number at that address is (636) 474-5000. Our principal manufacturing and administrative facilities comprised approximately 3.9 million square feet as of December 31, 2004 and were situated in the following locations: 

Location                                                        Square 
-------                                                         Footage
                                                                -------
St. Peters, MO, USA                                             744,000
Sherman, TX, USA                                                693,000
Hsinchu, Taiwan                                                 522,000
Chonan, South Korea                                             453,000
Pasadena, TX, USA                                               436,000
Utsunomiya, Japan                                               327,000
Merano, Italy                                                   327,000
Novara, Italy                                                   322,000
Kuala Lumpur, Malaysia                                           86,000

We lease a portion of our St. Peters facility pursuant to a lease agreement between us and the City of O Fallon, Missouri that was entered into in connection with an industrial revenue bond financing. The term of the St. Peters lease expires in 2011, and we have the option to purchase the leased portion of the St. Peters facility at the end of the lease. We also lease the land on which our Pasadena, Texas facility is located. The term of the Pasadena lease expires in 2030 and is extendable for four (4) additional renewal terms of five (5) years each. We lease the land on which our Hsinchu, Taiwan facility is located. This lease expires in 2014. We also lease our facility in Kuala Lumpur, Malaysia. This lease expires by its terms in March 2006. 

We believe that our existing facilities and equipment are well maintained, in good operating condition and are adequate to meet our current requirements. The extent of utilization of these facilities varies from plant to plant and from time to time during the year. 

Item 3. Legal Proceedings 

Albemarle Corporation et al. vs. MEMC Electronic Materials, Inc., et al.

In a case entitled Damewood vs. Ethyl Corporation, et al. (Cause No. 96-38521), filed on August 1, 1996, three employees of the former operator of MEMC Pasadena s plant, Albemarle Corporation, filed suit against us and others in the 189th Judicial District Court, Harris County, Texas. The employees alleged that they sustained injuries during an explosion at that plant on January 27, 1996. We settled this matter with the plaintiffs and were dismissed as a party. One of the other defendants, Ethyl Corporation, was the only defendant in this case at the 

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time of trial in October 1998. A jury awarded a verdict in favor of the plaintiffs that resulted in a judgment against Ethyl Corporation in the amount of $6.8 million. Ethyl Corporation appealed this judgment. Ethyl Corporation and the plaintiffs subsequently settled this matter for $5.2 million. 

On September 29, 1998, Albemarle Corporation made a demand against us for defense and indemnity in this case on behalf of Ethyl Corporation. Albemarle Corporation assumed the obligation to defend and indemnify Ethyl Corporation under an agreement in which Ethyl Corporation transferred ownership of the plant where the injury took place to Albemarle Corporation. In November 1998, we made a demand for indemnity in this case against Albemarle Corporation. Demands for indemnity made by Albemarle Corporation on behalf of Ethyl Corporation and by us are both based on contractual indemnity language contained in the contract for the sale of the MEMC Pasadena plant from Albemarle Corporation to us. 

In a case entitled Albemarle Corporation et al. vs. MEMC Electronic Materials, Inc., et al. (Cause No. 2002-59930), filed on November 20, 2002 in the 55th Judicial District Court, Harris County, Texas, Albemarle and its insurers filed suit against us and MEMC Pasadena seeking indemnification and costs of defense in the above matter. On February 14, 2003, we filed an answer denying the allegations by Albemarle Corporation and its insurers. On March 17, 2003, we filed a counterclaim against Albemarle Corporation seeking indemnification, costs of defense and payment of certain funds recovered by Albemarle Corporation s workers  compensation carrier in connection with the above matter. On October 22, 2004, the court entered an order granting Albemarle s motion for summary judgment and denying our motion for summary judgment. The court did not consider the issue of damages. We disagree with the court s ruling and intend to pursue an appeal or rehearing on the indemnification issue. 

We do not believe that this matter will have a material adverse effect on us. However, due to uncertainty regarding the litigation process, the scope and interpretation of contractual indemnity provisions and the status of any insurance coverage, the outcome of this matter could be unfavorable, in which event we might be required to pay damages and other expenses. 

Lemelson Medical, Education and Research Foundation, Limited Partnership vs.
ESCO Electronics Corporation, et al.

In a case entitled Lemelson Medical, Education and Research Partnership vs. ESCO Electronics Corporation, et al. (Civil Action No. 00-0660-PHX-ROS) filed on April 14, 2000, the Lemelson Medical, Education and Research Foundation, Limited Partnership filed suit against us and approximately 90 other companies in the United States District Court for the District of Arizona. The Lemelson Foundation alleges that we infringe on certain patents owned by the Lemelson Foundation related to bar coding and machine vision reading systems. The Lemelson Foundation seeks damages against us in an unstated amount, attorneys fees and an order enjoining us from further infringement of the unexpired patents. On March 29, 2001, the court issued an order to stay this litigation pending the entry of a final non-appealable judgment in earlier-filed actions involving the same patents. In January 2004, the court in these earlier-filed actions ruled that the patents at issue were invalid, unenforceable and not infringed by bar code scanners and machine vision reading systems very similar to the bar code scanners and machine vision reading systems used by us. The Lemelson Foundation has appealed this decision. We continue to believe there are substantial reasons why the asserted patents are invalid, unenforceable and not infringed by our processes. We do not believe that this matter will have a material adverse effect on us. However, due to the uncertainty of the litigation process, the outcome of this action could be unfavorable, in which event we might be required to obtain a license and pay damages and other expenses. 

Sumitomo Mitsubishi Silicon Corporation et al. vs. MEMC Electronic Materials, Inc. 

On December 14, 2001, MEMC filed a lawsuit against Sumitomo Mitsubishi Silicon Corporation ( SUMCO ) and several of its affiliates in the Northern District of California alleging infringement of one of MEMC s U.S. patents. On March 16, 2004, the court entered summary judgment against MEMC. We have appealed this decision to the Federal Circuit Court of Appeals. On July 13, 2004, however, SUMCO and certain 

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of its affiliates filed a lawsuit against MEMC in Delaware District Court in a case captioned Sumitomo Mitsubishi Silicon Corporation, aka SUMCO, a corporation of Japan and SUMCO USA Corporation, a Delaware corporation, v. MEMC Electronic Materials, Inc., a Delaware corporation, Civil Action No. 04-852-SLR. In the Delaware lawsuit, plaintiffs allege that MEMC violated the antitrust laws by attempting to control sales of low defect silicon wafers in the United States through its patent policies and enforcement of its patents related to low defect silicon wafers. Plaintiffs also seek a declaratory judgment that plaintiffs  wafers do not infringe the claims of two MEMC patents and that these MEMC patents are invalid and unenforceable. Finally, plaintiffs allege that these two MEMC patents are void and unenforceable because of MEMC s alleged patent misuse. Plaintiffs seek treble damages in an unspecified amount, and attorneys  fees and costs incurred by plaintiffs in the Delaware lawsuit and in the California lawsuit. 

MEMC believes the Delaware lawsuit has no merit and is asserting a vigorous defense. 

Item 4. Submission of Matters to a Vote of Security Holders 

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 

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                                    PART II                                    

Item 5. Market for Registrant s Common Equity and Related Stockholder Matters 

The narrative and tabular information regarding the market for our common equity and related stockholder matters required by this item is set forth under Note 20,  Unaudited Quarterly Financial Information , on pages 53 and 54 of our 
 2004 Annual Report and under  Stockholders  Information  on page 59 of our 2004 Annual Report, which information is incorporated herein by reference. We have not paid any dividends on our common stock for the last two fiscal years. Under the terms of our $150 million Citibank/UBS revolving credit facility and the $35 million TPG revolving credit facility, we are prohibited from paying cash dividends on our common stock. Likewise, under the restructuring agreement between us and TPG, we cannot pay cash dividends on our common stock without the consent of TPG. 

See other equity compensation plan information in Item 12 below. 

Item 6. Selected Financial Data 

The tabular information (including the footnotes thereto) required by this item is set forth under  Five Year Selected Financial Highlights  on page 10 of our 2004 Annual Report, which information is incorporated herein by reference. 

Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations 

The information required by this item is set forth on pages 11 through 24 of our 2004 Annual Report, which information is incorporated herein by reference. 

Item    Quantitative and Qualitative Disclosures About Market Risk             
7A.                                                                            

The information required by this item is set forth under  Market Risk  on page 22 of our 2004 Annual Report, which information is incorporated herein by reference. 

Item 8. Financial Statements and Supplementary Data 

Our consolidated financial statements appearing on pages 25 through 54, the Reports of the Independent Registered Public Accounting Firm of KPMG LLP appearing on pages 55 and 56 and Management s Report on Internal Control Over Financial Reporting appearing on page 57 of our 2004 Annual Report, are incorporated herein by reference. 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 

None.

Item    Controls and Procedures                                                
9A.                                                                            

Evaluation of Disclosure Controls and Procedures 

We carried out an evaluation as of December 31, 2004, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the  Exchange Act ). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2004, based on the material weakness discussed below. 

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Management s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 

As of December 31, 2004, management conducted an assessment of the effectiveness of the Company s internal control over financial reporting based upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based upon this assessment, management concluded that, as of December 31, 2004, the Company did not maintain effective internal control over financial reporting as there was more than a remote likelihood that a material misstatement of the Company s annual or interim financial statements with respect to income taxes would not be prevented or detected, on a timely basis, by Company employees in the normal course of performing their assigned functions. 

The aforementioned material weakness identified by management relates to the Company not employing resources with adequate expertise in matters related to the accounting for income taxes. As a result of this deficiency in the Company s internal control over financial reporting, management did not detect errors in the accounting for income tax amounts and disclosures in a timely manner as of and for the year ended December 31, 2004. Specifically, errors were detected that resulted in a net understatement of current tax expense and an additional error was detected that resulted in an understatement of deferred tax benefit. In addition, errors were identified in the Company s initial income tax footnote disclosures. These errors were corrected, and the corrections were reflected in the audited financial statements as of and for the year ended December 31, 2004. 

KPMG LLP, an independent registered public accounting firm, has issued an attestation report on management s assessment of the company s internal control over financial reporting. Their report appears below. 

Report of Independent Registered Public Accounting Firm

The Board of Directors

MEMC Electronic Materials, Inc.:

We have audited management s assessment, included in the accompanying Management s Report on Internal Control Over Financial Reporting, that MEMC Electronic Materials, Inc. and subsidiaries (the Company) did not maintain effective internal control over financial reporting as of December 31, 2004, because the Company did not employ personnel with adequate expertise in matters related to the accounting for income taxes, based on criteria established in Internal Control   Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management s assessment and an opinion on the effectiveness of the Company s internal control over financial reporting based on our audit. 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 

	<original-page 21 >

-------------------------------------------------------------------------------

A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company s assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management s assessment as of December 31, 2004: The Company did not employ personnel with adequate expertise in matters related to the accounting for income taxes. As a result of this deficiency in the Company s internal control over financial reporting, management did not detect errors in the accounting for income tax amounts and disclosures in a timely manner as of and for the year ended December 31, 2004. Specifically, errors were detected that resulted in a net understatement of current tax expense and an additional error was detected that resulted in an understatement of deferred tax benefit. In addition, errors were identified in the Company s initial income tax footnote disclosures. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2004. The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated March 16, 2005, which expressed an unqualified opinion on those consolidated financial statements. 

In our opinion, management s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control   Integrated Framework issued by COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control   Integrated Framework issued by COSO. 

	<original-page KPMG LLP >

St. Louis, Missouri

March 16, 2005 

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2004 that have materially 

	<original-page 22 >

-------------------------------------------------------------------------------

affected, or are reasonably likely to materially affect, the Company s internal control over financial reporting. During the fiscal quarter ending March 31, 2005, the Company s management has initiated steps to hire additional specialized accounting personnel and engage outside tax and accounting professionals, as needed, to ensure the Company has appropriate resources to conduct timely reviews and evaluations of the Company s current and deferred tax provisions and related complex tax issues. 

Item    Other Information                                                      
9B.                                                                            

None.

                                   PART III                                    

Item    Directors and Executive Officers of the Registrant 10. 

The information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth in the 2005 Proxy Statement under Section 16(a) Beneficial Ownership Reporting Compliance  and is incorporated herein by reference. The remaining information required by this item with respect to directors will be set forth in the 2005 Proxy Statement under INFORMATION ABOUT NOMINEES AND CONTINUING DIRECTORS  and is incorporated herein by reference. The remaining information required by this item with respect to executive officers is set forth in Part I of this Annual Report on Form 10-K under  Executive Officers of the Registrant. 

Item    Executive Compensation                                                 
11.                                                                            

Information appearing under (i)  BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD -Director Compensation ; (ii)  BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD- Corporate Governance ; (iii)  REPORT OF THE COMPENSATION COMMITTEE ; (iv) SUMMARY COMPENSATION TABLE  and related footnotes; (v)  OPTION GRANTS IN LAST FISCAL YEAR  and related footnotes; (vi)  AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES ; (vii)  Pension Plan ; (viii) Employment and Separation Agreements ; (ix)  Change in Control ; (x) Compensation Committee Interlocks and Insider Participation ; and (xi)  STOCK PRICE PERFORMANCE GRAPH  of the 2005 Proxy Statement is incorporated herein by reference. 

Item    Security Ownership of Certain Beneficial Owners and Management         
12.                                                                            

Information appearing under  BENEFICIAL OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS  and related footnotes, and  OWNERSHIP OF MEMC EQUITY SECURITIES BY CERTAIN BENEFICIAL OWNERS  and related footnotes of the 2005 Proxy Statement is incorporated herein by reference. 

The following table summarizes certain information regarding MEMC securities that have been and may be issued pursuant to our equity compensation plans as of December 31, 2004. 

                                  (a)               (b)                (c)     
                              -----------     ----------------     ------------
      Plan Category           Number of       Weighted-average      Number of  
       -----------            securities       exercise price       securities 
                                to be                of             remaining  
                              issued upon       outstanding         available  
                                exercise          options,         for future  
                                  of            warrants and        issuance   
                              outstanding          rights             under    
                               options,       ----------------       equity    
                               warrants                            compensation
                              and rights                               plans   
                                  (1)                               (excluding 
                              -----------                           securities 
                                                                   reflected in
                                                                   column (a)) 
                                                                       (1)     
                                                                   ------------
Equity compensation plans     8,714,123       $7.99                9,409,943   
approved by security          shares of                            shares of   
holders                       common                               common stock
                              stock                                            
Equity compensation plans     650,000         $1.50                0 shares of 
not approved by security      shares of                            common stock
holders(2)                    common                                           
                              stock                                            
Total                         9,364,123       $7.54                9,409,943   
                              shares of                            shares of   
                              common                               common stock
                              stock                                            

	<original-page 23 >

------------------------------------------------------------------------------- ------- 
 1.  Number of shares is subject to adjustment for changes in capitalization for stock splits, stock dividends and similar events. 
 2.  Represents a stock option grant agreement for a nonqualified stock option granted to Nabeel Gareeb to purchase 650,000 shares of common stock at an exercise price of $1.50 per share. The option vests in 25% increments on April 8, 2003, April 8, 2004, April 8, 2005 and April 8, 2006, respectively. These options expire on March 26, 2012. Under the stock option grant agreement, the vesting may be accelerated in the event of death, disability or, under certain circumstances, termination of employment. 

Item    Certain Relationships and Related Transactions                         
13.                                                                            

The information under  CERTAIN TRANSACTIONS  of the 2005 Proxy Statement is incorporated herein by reference. 

Item    Principal Accounting Fees and Services                                 
14.                                                                            

Information regarding our independent auditors, their fees and services, and our Audit Committee s pre-approval policy and procedures regarding such fees and services appearing under  PRINCIPAL ACCOUNTING FIRM SERVICES AND FEES  of the 2005 Proxy Statement is incorporated herein by reference. 

	<original-page 24 >

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                                    PART IV                                    

Item    Exhibits, Financial Statement Schedules                                
15.                                                                            

(a)  The following documents are filed as part of this report: 

1.  Financial Statements 

The following consolidated financial statements of us and our subsidiaries, included on pages 25 through 54 of the 2004 Annual Report, and the Reports of the Independent Registered Public Accounting Firm of KPMG LLP appearing on page 55 and 56 of such report and Management s Report on Internal Control Over Financial Reporting appearing on 57 of such report, are incorporated herein by reference: 

Consolidated Statements of Operations-Years Ended December 31, 2004, 2003 and
2002.

Consolidated Balance Sheets-December 31, 2004 and 2003. 

Consolidated Statements of Cash Flows-Years Ended December 31, 2004, 2003 and
2002.

Consolidated Statements of Stockholders  Equity (Deficiency)-Years Ended December 31, 2004, 2003 and 2002. 

Notes to Consolidated Financial Statements.

Reports of the Independent Registered Public Accounting Firm.

Management s Report on Internal Control over Financial Reporting. 

Separate financial statements for Taisil Electronic Materials Corporation (Taisil), our Taiwanese subsidiary, required by Rule 3-09 of Regulation S-X, will be filed as an amendment to this Form 10-K by June 30, 2005. Prior to February 2004, Taisil was a 45%-owned unconsolidated joint venture. 

2.  Financial Statement Schedules 

Report of Independent Registered Public Accounting Firm on Financial        F-1
Statement Schedule                                                             
Valuation and Qualifying Accounts                                           F-2

3.  Exhibits

Exhibit No.                                  Description 
 --------            --------------------------------------------------------- 2-a               Restructuring Agreement between TPG Wafer Holdings LLC 
  and the Company, dated as of November 13, 2001 (Incorporated by reference to Exhibit 2.1 of the Company s Current Report on Form 8-K dated November 28, 2001) 
 2-b               Merger Agreement between TPG Wafer Holdings LLC and the Company, dated as of November 13, 2001 (Incorporated by reference to Exhibit 2.2 of the Company s Current Report on Form 8-K dated November 28, 2001) 
 3-(i)             Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3-a of the Company s Form 10-Q for the Quarter ended June 30, 1995) 
 3-(i)(a)          Certificate of Amendment of Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on June 2, 2000 (Incorporated by reference to Exhibit 3-(i)(a) of the Company s Form 10-Q for the Quarter ended June 30, 2000) 
 3-(i)(b)          Certificate of Amendment of Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on July 10, 2002 (Incorporated by reference to Exhibit 3-(i)(b) of the Company s Form 10-Q for the Quarter ended September 30, 2002) 

	<original-page 25 >

------------------------------------------------------------------------------- Exhibit                                    Description 
  No.              ----------------------------------------------------------- 
 -------- 3-(ii)          Restated By-laws of the Company (Incorporated by reference 
  to Exhibit 3(ii) of the Company s Form 10-Q for the Quarter ended March 31, 2004) 
 4-b             Form of Warrant Certificate (Incorporated by reference to Exhibit 4.6 of the Company s Current Report on Form 8-K dated November 28, 2001) 
 10-a              Share Sale and Purchase Agreement dated January 16, 2004 by and among the Company, China Steel Corporation, China Development Industrial Bank and Chiao Tung Bank (Incorporated by reference to Exhibit 2.1 of the Company s Current Report on Form 8-K dated January 30, 2004) 
 10-b              Letter of Exercise of Call Option by Taisil Electronic Materials Corporation to Robina Finance & Leasing Corporation, Ltd. dated February 3, 2004 (Incorporated by reference to Exhibit 2.2 of the Company s Current Report on Form 8-K dated January 30, 2004) 
 10-c              Joint Venture Agreement dated August 28, 1990 among the Company, Pohang Iron and Steel Company, Ltd. ( POSCO ) and Samsung Electronics Company, Ltd. ( Samsung ) (Incorporated by reference to Exhibit 10-c of Amendment No. 1 to the Company s Form S-1 Registration Statement No. 33-92412) 
 10-c(1)           First Amendment to Joint Venture Agreement dated December 9, 1993 among the Company, POSCO and Samsung (Incorporated by reference to Exhibit 10-d of Amendment No. 1 to the Company s Form S-1 Registration Statement No. 33-92412) 
 10-c(2)           Second Amendment to Joint Venture Agreement dated December 30, 1994 among the Company, POSCO and Samsung (Incorporated by reference to Exhibit 10-e of Amendment No. 1 to the Company s Form S-1 Registration Statement No. 33-92412) 
 10-g              Share Transfer Agreement dated as of August 1, 2004 by and among Texas Instruments Incorporated, the Company, and MEMC Southwest Inc. (Incorporated by reference to Exhibit 10-g of the Company Form 10-Q for the Quarter ended June 30, 2004) 
 10-i              Registration Rights Agreement by and among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein, dated as of November 3, 2001 (Incorporated by reference to Exhibit 10.2 of the Company s Current Report on Form 8-K dated November 28, 2001) 
 10-i(1)           Amendment to Registration Rights Agreement dated July 15, 2002, among the Company, TPG Wafer Holdings LLC and Guarantors specified therein (Incorporated by reference to Exhibit 10-i(1) of the Company s Form 10-Q for the Quarter ended September 30, 2002) 
 10-i(2)           Amendment No. 2 to Registration Rights Agreement dated November 14, 2002, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(2) of the Company s Form 10-K for the Year ended December 31, 2002) 
 10-i(3)           Amendment No. 3 to Registration Rights Agreement dated February 17, 2003, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(3) of the Company s Form 10-Q for the Quarter ended March 31, 2003) 
 10-i(4)           Amendment No. 4 to Registration Rights Agreement dated August 31, 2003, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(4) of the Company s Form 10-Q for the Quarter ended September 30, 2003) 
 10-j              Form of Master Reserve Volume Agreement (Incorporated by reference to Exhibit 10-m of the Company s Form 10-K for the Year ended December 31, 1995) 

	<original-page 26 >

------------------------------------------------------------------------------- Exhibit                                   Description 
  No.           --------------------------------------------------------------- 
 ------- 10-k          Management Advisory Agreement between the Company and TPG 
  GenPar III, L.P., dated as of November 13, 2001 (Incorporated by reference to Exhibit 10.1 of the Company s Current Report on Form 8-K dated November 28, 2001) 
 10-m          MEMC Technology License Agreement dated as of July 31, 1995, between Albemarle Corporation and the Company (Incorporated by reference to Exhibit 10-tt of the Company s Form 10-K for the Year ended December 31, 1995) 
 *10-n           Seller Technology License Agreement dated as of July 31, 1995, among Albemarle Corporation, the Company, and MEMC Pasadena, Inc. (Incorporated by reference to Exhibit 10-ll of the Company s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) 
 *10-o           Technology Purchase Agreement dated as of July 31, 1995, among Albemarle Corporation and the Company (Incorporated by reference to Exhibit 10-mm of the Company s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) 
 10-p          Ground Lease Agreement dated as of July 31, 1995, between Albemarle Corporation and MEMC Pasadena, Inc. (Incorporated by reference to Exhibit 10-nn of the Company s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) 10-p          Amendment to Ground Lease Agreement dated as of May 31, 1997, 
 (1)             between the Company, MEMC Pasadena, Inc., and Albemarle Corporation (Incorporated by reference to Exhibit 10-nn(1) of the Company s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997) 
 10-aa          Consulting Agreement dated December 15, 2003 between the Company and Thomas P. Stiffler (Incorporated by reference to Exhibit 10-aa of the Company s Form 10-K for the Year ended December 31, 2003) 
 10-bb          Separation Agreement and General Release by and between the Company and Chandramohan Subramaniam (Incorporated herein by reference to Exhibit 10 of the Company s Form S-3 Registration Statement No. 333-122520) 
 10-cc          MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan as Amended and Restated on January 26, 2004 (Incorporated by reference to Exhibit 10-cc of the Company s Form 10-K for the Year ended December 31, 2003) 10-cc          Form of Restricted Stock Unit Award Agreement (Incorporated by 
 (1)             reference to Exhibit 10-cc(1) of the Company Form 10-Q for the Quarter ended June 30, 2004) 10-cc          Form of Stock Option and Restricted Stock Agreement 
 (2)             (Incorporated by reference to Exhibit 10-t(1) of the Company s Form 10-K for the Year ended December 31, 1995) 10-cc          Form of Stock Option and Performance Restricted Stock Agreement 
 (3)             (Incorporated by reference to Exhibit 10-yy of the Company s Form 10-K for the Year ended December 31, 1995) 10-cc          Form of Stock Option Agreement (Incorporated by reference to 
 (4)             Exhibit 10-zz of the Company s Form 10-K for the Year ended December 31, 1995) 10-cc          Form of Stock Option and Performance Restricted Stock Agreement 
 (5)             (Incorporated by reference to Exhibit 10-nnn of the Company s Form 10-Q for the Quarter ended March 31, 1997) 10-cc          Form of Stock Option Agreement (Incorporated by reference to 
 (6)             Exhibit 10-ooo of the Company s Form 10-Q for the Quarter ended March 31, 1997) 10-cc          Form of Stock Option Agreement (Non-employee Directors) 
 (7)             (Incorporated by reference to Exhibit 10-ppp of the Company s Form 10-Q for the Quarter ended March 31, 1997) 

	<original-page 27 >

------------------------------------------------------------------------------- Exhibit                                   Description 
  No.           --------------------------------------------------------------- 
 ------- 10-cc          Form of Stock Option Agreement (Incorporated by reference to 
 (8)             Exhibit 10-cc(7) of the Company s Form 10-K for the Year ended December 31, 1999) 10-cc          Form of Stock Option Agreement (4-year cliff vesting) 
 (9)             (Incorporated by reference to Exhibit 10-cc(9) of the Company s Form 10-Q for the Quarter ended March 31, 2002) 10-cc          Form of Stock Option Agreement (2-year cliff vesting) 
 (10)            (Incorporated by reference to Exhibit 10-cc(10) of the Company s Form 10-Q for the Quarter ended March 31, 2002) 10-cc          Form of Stock Option Agreement (7-year cliff vesting) 
 (11)            (Incorporated by reference to Exhibit 10-cc(11) of the Company s Form 10-Q for the Quarter ended March 31, 2002) 10-cc          Form of Stock Option Agreement (Outside Directors) 
 (12)            (Incorporated by reference to Exhibit 10-cc(12) of the Company s Form 10-K for the Year ended December 31, 2003) 
 10-dd          MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan as Restated on March 2, 2004 (Incorporated by reference to Exhibit 10-dd of the Company s Form 10-K for the Year ended December 31, 2003) 10-dd          Form of Stock Option Agreement (4 year vesting) (Incorporated 
 (1)             by reference to Exhibit 10-dd(1) of the Company s Form 10-Q for the Quarter ended March 31, 2002) 10-dd          Form of Stock Option Agreement (7 year cliff vesting) 
 (2)             (Incorporated by reference to Exhibit 10-dd(2) of the Company s Form 10-Q for the Quarter ended March 31, 2002) 10-dd          Form of Stock Option Agreement (end of contract vesting) 
 (3)             (Incorporated by reference to Exhibit 10-dd(3) of the Company s Form 10-K for the Year ended December 31, 2002) 
 10-ee          Retirement Agreement dated December 29, 2003 between the Company and James M. Stolze (Incorporated by reference to Exhibit 10-dd of the Company s Form 10-K for the Year ended December 31, 2003) 
 10-ff          Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.1 to the Company s Form S-8 Registration Statement filed March 1, 2002) 
 10-gg          Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.2 to the Company s Form S-8 Registration Statement filed March 1, 2002) 
 10-hh          Written Description of MEMC Electronic Materials, Inc. Cash Incentive Plan Covering Executive Officers (Incorporated by reference to Exhibit 10-hh of the Company s Form 10-Q for the Quarter ended September 30, 2004) 
 10-ii          Employment Agreement effective as of March 26, 2002 between the Company and Nabeel Gareeb (Incorporated by reference to Exhibit 10-ii of the Company s Form 10-Q for the Quarter ended June 30, 2002) 10-ii          Stock Option Grant Agreement (2002 Service Option) 
 (1)             (Incorporated by reference to Exhibit 10-ii(1) of the Company s Form 10-Q for the Quarter ended June 30, 2002) 10-ii          Stock Option Grant Agreement (Four Year Vesting) (Incorporated 
 (2)             by reference to Exhibit 10-ii(2) of the Company s Form 10-Q for the Quarter ended June 30, 2002) 10-ii          Stock Option Grant Agreement (Seven Year Vesting) (Incorporated 
 (3)             by reference to Exhibit 10-ii(3) of the Company s Form 10-Q for the Quarter ended June 30, 2002) 10-ii          Amendment to Stock Option Grant Agreement (2002 Service Option) 
 (4)             (Incorporated by reference to Exhibit 10-ii(4) of the Company Form 10-Q for the Quarter ended June 30, 2004) 
 10-jj          Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj of the Company s Form 10-Q for the Quarter ended September 30, 2002) 

	<original-page 28 >

------------------------------------------------------------------------------- Exhibit                                   Description 
  No.           --------------------------------------------------------------- 
 ------- 10-jj          Form of Indemnification Agreement (Incorporated by reference to 
 (1)             Exhibit 10-jj(1) of the Company s Form 10-Q for the Quarter ended March 31, 2003) 
 10-kk          Summary of Compensation Arrangements for Certain Named Executive Officers 10-ll          Summary of Director Compensation 
 10-mm          Agreement dated as of July 7, 2003 between the Company and Jonathon P. Jansky (Incorporated by reference to Exhibit 10-nn of the Company s Form 10-Q for the Quarter ended September 30, 2003) Revolving Credit Agreement, dated as of December 5, 2002, among 
 10-aaa          the Company, the lenders party thereto and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-aaa of the Company s Form 10-K for the Year ended December 31, 2002) Revolving Credit Agreement, dated as of December 21, 2001, 
 10-bbb          among the Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.7 of the Company s Current Report on Form 8-K dated January 14, 2002) Security Agreement, dated as of December 21, 2001, among the 10-bbb          Company, each subsidiary listed on Schedule I thereto, and 
 (1)             Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.8 of the Company s Current Report on Form 8-K dated January 14, 2002) Pledge Agreement, dated as of December 21, 2001, among the 10-bbb          Company, each subsidiary listed on Schedule I thereto, and 
 (2)             Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.9 of the Company s Current Report on Form 8-K dated January 14, 2002) Indemnity, Subrogation and Contribution Agreement, dated as of 10-bbb          December 21, 2001, among the Company, each subsidiary listed on 
 (3)             Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.10 of the Company s Current Report on Form 8-K dated January 14, 2002) Guarantee Agreement, dated as of December 21, 2001, among the 10-bbb          Company, each subsidiary listed on Schedule I thereto, and 
 (4)             Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.11 of the Company s Current Report on Form 8-K dated January 14, 2002) Amendment No. 1, dated as of March 21, 2002, to the Revolving 10-bbb          Credit Agreement, dated as of December 21, 2002, among the 
 (5)             Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(5) of the Company s Form 10-Q for the Quarter ended March 31, 2002) Omnibus Amendment Agreement dated January 25, 2002, among the 10-bbb          Company, Citicorp USA, Inc., and the other signatories thereto 
 (6)             (Incorporated by reference to Exhibit 10-www(6) of the Company s Form 10-Q for the Quarter ended March 31, 2002) Omnibus Amendment Agreement No. 2 dated March 27, 2002, among 10-bbb          the Company, Citicorp USA, Inc., and the other signatories 
 (7)             thereto (Incorporated by reference to Exhibit 10-www(7) of the Company s Form 10-Q for the Quarter ended March 31, 2002) Amendment No. 2, dated June 21, 2002, to the Revolving Credit 10-bbb          Agreement, dated December 21, 2001, among the Company, the 
 (8)             lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(8) of the Company s Form 10-Q for the Quarter ended June 30, 2002) Amendment No. 1, dated as of March 3, 2003, to the Security 10-bbb          Agreement, dated as of December 21, 2001, among the Company, 
 (9)             each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(9) of the Company s Form 10-K for the Year ended December 31, 2002) 

	<original-page 29 >

------------------------------------------------------------------------------- Exhibit                                   Description 
  No.           --------------------------------------------------------------- 
 ------- Amendment No. 1, dated as of March 3, 2003, to the Pledge 10-bbb          Agreement, dated as of December 21, 2001, among the Company, 
 (10)            each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(10) of the Company s Form 10-K for the Year ended December 31, 2002) Italian Supplement, dated as of March 3, 2003, to the Pledge 10-bbb          Agreement, dated as of December 21, 2001, among the Company, 
 (11)            each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(11) of the Company s Form 10-K for the Year ended December 31, 2002) Amendment No. 3 dated as of March 11, 2003, to the Revolving 10-bbb          Credit Agreement, dated as of December 21, 2001, among the 
 (12)            Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(12) of the Company s Form 10-K for the Year ended December 31, 2002) Amendment No. 4 dated as of June 13, 2003, to the Revolving 10-bbb          Credit Agreement, dated as of December 21, 2001, among the 
 (13)            Company, the lenders party thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-www(13) of the Company s Form 10-Q for the Quarter ended June 30, 2003) Reimbursement Agreement, dated as of December 21, 2001 by and 
 10-ccc          among the Company, TPG Partners III, L.P., TCW/Crescent Mezzanine Partners III, L.P, TCW/Crescent Mezzanine Trust III, Green Equity Investors III, L.P. and Green Equity Investors Side III, L.P, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.1 of the Company s Current Report on Form 8-K dated January 14, 2002) Amended and Restated Security Agreement, dated as of December 10-ccc          21, 2001, among the Company, each subsidiary listed on Schedule 
 (1)             I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.2 of the Company s Current Report on Form 8-K dated January 14, 2002) Amended and Restated Pledge Agreement, dated as of December 21, 10-ccc          2001, among the Company, each subsidiary listed on Schedule I 
 (2)             thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.3 of the Company s Current Report on Form 8-K dated January 14, 2002) Amended and Restated Indemnity, Subrogation and Contribution 10-ccc          Agreement, dated as of December 21, 2001, among the Company, 
 (3)             each subsidiary listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.4 of the Company s Current Report on Form 8-K dated January 14, 2002)` Amended and Restated Guarantee Agreement, dated as of December 10-ccc          21, 2001, among the Company, each subsidiary listed on Schedule 
 (4)             I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.5 of the Company s Current Report on Form 8-K dated January 14, 2002) Amendment No. 1, dated as of March 3, 2003, to the Amended and 10-ccc          Restated Security Agreement, dated as of December 21, 2001, 
 (5)             among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-xxx(5) of the Company s Form 10-K for the Year ended December 31, 2002) Amendment No. 1, dated as of March 3, 2003, to the Amended and 10-ccc          Restated Pledge Agreement, dated as of December 21, 2001, among 
 (6)             the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-xxx(6) of the Company s Form 10-K for the Year ended December 31, 2002) 

	<original-page 30 >

------------------------------------------------------------------------------- Exhibit                                   Description 
  No.           --------------------------------------------------------------- 
 ------- Italian Supplement, dated as of March 3, 2003, to the Amended 10-ccc          and Restated Pledge Agreement, dated as of December 21, 2001, 
 (7)             among the Company, each subsidiary of the Company listed on Schedule I thereto, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10-xxx(7) of the Company s Form 10-K for the Year ended December 31, 2002) Termination and Funding Agreement, dated as of December 21, 
 10-ddd          2001, by and among the Company, TPG Wafer Credit Partners LLC, T(3) Partners II, L.P., T(3) Parallel II, L.P., TCW/Crescent Mezzanine Partners III, L.P., TCW/Crescent Mezzanine Trust III, Green Equity Investors III, L.P., Green Equity Investors Side III, L.P., and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.6 of the Company s Current Report on Form 8-K dated January 14, 2002) 
 13            Pages 10 through 57 and page 59 of the Company s 2004 Annual Report 
 18            Preferability Letter of KPMG LLP (Incorporated by reference to Exhibit 18 of the Company s Form 10-Q for the Quarter ended March 31, 2003) 21            Subsidiaries of the Company 23            Consent of KPMG LLP 
 31.1          Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
 31.2          Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
 32            Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ------- 
 *   Confidential treatment of certain portions of these documents has been granted. These exhibits constitute management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. 

	<original-page 31 >

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                                  SIGNATURES                                   

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

                                                MEMC ELECTRONIC MATERIALS, INC.
                                                By:   /S/    NABEEL GAREEB     

                                                            Nabeel Gareeb      

                                                         President and Chief   
                                                          Executive Officer    

Date:  March 16, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant and in the capacities and on the dates indicated. 

          Signature                         Title                    Date      
           -------                           ---                     ---       
 /S/    NABEEL GAREEB             President, Chief Executive    March 16, 2005 
------------------------------    Officer and Director                         
                                  (Principal executive                         
        Nabeel Gareeb             officer)                                     
/S/    THOMAS E. LINNEN           Senior Vice President and     March 16, 2005 
                                  Chief Financial Officer                      
------------------------------    (Principal financial and                     
                                  accounting officer)                          
       Thomas E. Linnen                                                        
/S/    ROBERT J. BOEHLKE          Director                      March 15, 2005 

------------------------------ 

      Robert J. Boehlke                                                        
  /S/    JOHN MARREN              Chairman of the Board of      March 15, 2005 
------------------------------    Directors                                    

         John Marren                                                           
/S/    C. DOUGLAS MARSH           Director                      March 15, 2005 

------------------------------ 

       C. Douglas Marsh                                                        
/S/    WILLIAM E. STEVENS         Director                      March 16, 2005 

------------------------------ 

      William E. Stevens                                                       
/S/    JAMES B. WILLIAMS          Director                      March 15, 2005 

------------------------------ 

      James B. Williams                                                        

	<original-page 32 >

-------------------------------------------------------------------------------

                                 EXHIBIT INDEX                                 

The following exhibits are filed as part of this report. 

Summary of Compensation Arrangements for Certain Named Executive 
 10-kk     Officers Summary of Director Compensation 
 10-ll 13      Pages 10 through 57 and page 59 of the Company s 2004 Annual Report 21      Subsidiaries of the Company 
 23      Consent of KPMG LLP Certification by the Chief Executive Officer of the Company pursuant 
 31.1      to Section 302 of the Sarbanes-Oxley Act of 2002 Certification by the Chief Financial Officer of the Company pursuant 
 31.2      to Section 302 of the Sarbanes-Oxley Act of 2002. 32      Certification by the Chief Executive Officer and Chief Financial 
  Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

-------------------------------------------------------------------------------

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            

The Board of Directors

MEMC Electronic Materials, Inc.:

Under date of March 16, 2005, we reported on the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholder s equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2004 as contained in the 2004 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended December 31, 2004. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in item 15 of this Form 10-K. This financial statement schedule is the responsibility of the Company s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. 

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. 

As discussed in note 3 to the consolidated financial statements, MEMC changed its method of accounting for spare parts in 2003. 

St. Louis, Missouri

March 16, 2005 

-------------------------------------------------------------------------------

MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES 

SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS 

               Balance     Charged         Charged            Deductions        Balance
                  at          to                                                   at  
               Beginning    Costs          to Other            Describe         End of 
               of Period     and           Accounts           ----------        Period 
               ---------   Expenses                                             -------
                           --------                                                    
                                           Describe                                    
                                           --------                                    
                                        (Dollars in thousands)                         

Allowance for doubtful accounts: Year ended         3,341        597             328  (a)            (972 )(b)     3,294 December 31, 2002 Year ended         3,294        -               322  (a)          (1,208 )(b)     2,408 December 31, 2003 Year ended         2,408        -               131  (a)            (906 )(b)     1,633 December 31, 2004 Allowance for obsolescence /lower of cost or market/other impairments: Year ended        17,493      2,704  (c)       (615 )(a)(e)       (8,421 )(d)    11,161 December 31, 2002 Year ended        11,161      2,554  (c)      3,025  (a)(e)      (11,354 )(d)     5,386 December 31, 2003 Year ended         5,386     (2,535 )(c)      4,558  (a)(e)       (2,733 )(d)     4,676 December 31, 2004 Spare parts reserves: Year ended         8,220      3,449  (c)      1,603  (a)(e)       (3,099 )(d)    10,173 December 31, 2002 Year ended        10,173        -            (2,411 )(a)(e)       (2,248 )(d)     5,514 December 31, 2003 Year ended         5,514         10  (c)     (5,062 )(a)(e)         (427 )(d)        35 December 31, 2004 ------- 
(a) Currency fluctuations 
(b) Write-off of uncollectible accounts 
(c) Charged to cost of goods sold 
(d) Write-off of inventory 
(e) Includes transfers between inventory and spare parts reserve 

                                                                  Exhibit 10-kk

Summary of 

Compensation Arrangements for 

                       Certain Named Executive Officers                        

Set forth below is a summary of the compensation paid by MEMC Electronic Materials, Inc. (the  Company ) to the four executive officers to be named in the Company s 2005 annual proxy statement who are not covered by current employment agreements, as of the date of filing of the Company s Annual Report on Form 10-K for the year ended December 31, 2004 (the  Form 10-K ). Each of these executive officers is an employee at will whose compensation and employment status may be changed at any time in the discretion of the Company s Board of Directors. 

Base Salaries. Effective January 31, 2005, these executive officers will receive base salaries in the amounts indicated below: 

Name and Position                                     2005 Base
------------                                           Salary  
                                                       Amount  
                                                      ---------
Thomas E. Linnen, Senior Vice President and           $ 325,000
Chief Financial Officer                                        
John A. Kauffmann, Senior Vice President,             $ 300,000
Sales and Marketing                                            
Shaker Sadasivam, Senior Vice President,              $ 300,000
Research and Development                                       
David L. Fleisher, Vice President, General            $ 242,000
Counsel and Corporate Secretary                                

The Compensation Committee will adjust these base salaries from time to time as the Committee deems appropriate, generally annually. 

Incentive Awards. These executive officers are also eligible to participate in the Company s incentive compensation plans as provided in the terms of such plans. Such plans, and any forms of awards thereunder providing for material terms, are included as exhibits to the Form 10-K. 

Pension Plan. These executive officers are also eligible to participate in the MEMC Pension Plan on the same terms as the Company s other covered employees. Because he commenced employment after December 31, 2001, Mr. Linnen is not covered by the Pension Plan. 

Relocation Payments. From time to time the Company makes payments to executive officers to cover relocation expenses. 

                                                                  Exhibit 10-ll

Summary of 

Director Compensation 

Set forth below is a summary of the compensation paid by MEMC Electronic Materials, Inc. (the  Company ) to its directors. 

Fees. Outside directors receive the following fees for their services on the Board of Directors and its Committees: 

$12,000 annual Board retainer 

$10,000 additional retainer for Chairman of the Board 

$10,000 additional retainer for Chairman of the Audit Committee and $5,000 additional retainer for each member of the Audit Committee 

$5,000 additional retainer for Chairman of the Compensation Committee and for Chairman of the Nominating and Corporate Governance Committee 

$1,000 for each Board meeting and each Committee meeting attended 

Equity Compensation. Annual equity compensation is granted as follows: 

Upon initial election to the Board, outside directors who are not affiliated with Texas Pacific Group, Leonard Green & Partners and TCW/Crescent Mezzanine Management III LLC receive a grant of non-qualified stock options to purchase 30,000 shares of MEMC common stock at an exercise price per share equal to the fair market value per share on the date of grant. These options vest ratably over three years. The grant of these stock options in the initial year of service on the Board is in lieu of the award of restricted stock units (RSUs) described below. 

Each year outside directors are awarded RSUs for shares of our common stock. The RSUs vest ratably over two years. Each year, RSUs are awarded in an amount such that the number of underlying shares of MEMC common stock has a total value of between $55,000 and $60,000 on the date the award is granted. Notwithstanding the foregoing, in 2003 we did not have a plan from which the RSUs could be issued. As a result, at the 2004 annual stockholders  meeting, we sought and obtained stockholder approval to amend our equity incentive plans to provide for grants of RSUs. On April 27, 2004, following stockholder approval of these amendments, we awarded our outside directors who were serving on the Board in July 2003 RSUs to purchase 5,000 shares of common stock as compensation for service during 2003. Fifty percent (50%) of these RSUs vested in July 2004 and the remaining fifty percent (50%) will vest in July 2005. In addition, on July 26, 2004, we awarded our outside directors RSUs to purchase 6,800 shares of common stock. Fifty percent (50%) of these RSUs will vest in July 2005 and the remaining fifty percent (50%) will vest in July 2006. Mr. Chapus declined all RSUs awarded to him in 2004. 

                                                                     Exhibit 13

Five Year Selected Financial                 Dollars in thousands, except share
Highlights                                                                 data

                                               Successor                                               Predecessor            
                 ---------------------------------------------------------------------       -------------------------------  
                     Year                 Year            Year              Nov. 14             Jan. 1              Year      

                     ended                ended           ended             through            through             ended      

                   Dec. 31,             Dec. 31,        Dec. 31,            Dec. 31,           Nov. 13,           Dec. 31,    

                    2004(1)               2003            2002              2001(2)            2001(2)              2000      
                 -------------        -------------   -------------       ------------       ------------       ------------  
Statement of                                                                                                                  
Operations                                                                                                                    
Data:                                                                                                                         
Net sales        $   1,027,958        $     781,100   $     687,180       $     58,846       $    559,007       $    871,637  

Gross margin           369,415              232,756         173,458            (11,731 )          (39,757 )          128,975  

Marketing and           71,948               57,203          65,786              7,973             61,747             69,182 administration Research and            37,975               32,934          27,423              7,535             58,149             72,155 development Restructuring             (996 )(3)             -            15,300 (4)          2,971 (5)         29,511 (5)            - costs Operating              260,488              142,619          64,949            (30,210 )         (189,164 )          (12,362 ) income (loss) Net income             226,201              116,617         (22,097 )          (33,644 )         (489,025 )          (43,390 ) (loss) allocable to common stockholders Basic income              1.09                 0.58           (0.17 )            (0.48 )            (7.03 )            (0.62 ) (loss) per share Diluted income            1.02                 0.53           (0.17 )            (0.48 )            (7.03 )            (0.62 ) (loss) per share Shares used in     207,713,837          202,439,828     129,810,012         69,612,900         69,612,900         69,596,861 basic income (loss) per share computation Shares used in     221,047,946          218,719,459     129,810,012         69,612,900         69,612,900         69,596,861 diluted income (loss) per share computation Balance Sheet Data: Cash, cash              92,314              130,697         165,646            107,159                 NA             94,759 equivalents and short-term investments Working                174,706              121,291          77,635             42,331                 NA             54,280 capital Total assets         1,009,942              726,752         631,682            549,334                 NA          1,890,566 

Short-term               1,754               16,899          80,621             44,760                 NA             29,552 borrowings Long-term debt         138,727              114,193         204,017            175,856                 NA          1,041,202 (including current portion of long-term debt) Stockholders           442,898              193,623         (24,680 )          (24,496 )               NA            366,419 equity (deficiency) Other Data: 

Capital                149,811               85,227          21,952              6,995             42,842             57,812  
expenditures                                                                                                                  
Employment               5,500                4,900           4,700              4,700                 NA              7,000  

------ 
 (1) In the 2004 first quarter, we completed the acquisition of the remaining 55% interest in Taisil that we did not already own. As a result, the financial results of Taisil were consolidated with our results effective February 1, 2004. 
 (2) On November 13, 2001, an investor group led by Texas Pacific Group (TPG) purchased from E.ON AG and its affiliates (E.ON) all of E.ON s debt and equity holdings in MEMC. In addition, on that date, TPG and MEMC restructured MEMC s debt acquired by TPG from E.ON. As a result of the purchase of E.ON s equity interest by TPG and the rights possessed by TPG through its ownership of preferred stock, we applied purchase accounting and pushed down TPG s nominal basis in MEMC to our accounting records, reflected in our consolidated financial statements subsequent to November 13, 2001. 
 (3) During 2004, we reversed the remaining unused restructuring reserves of $1.0 million related to the 2002 restructuring charge. 
 (4) During 2002, we incurred charges of $15.3 million primarily in connection with restructuring plans affecting approximately 450 salaried, hourly and temporary employees. 
 (5) During 2001, we recorded restructuring costs totaling $32.5 million to close our small diameter wafer line at MEMC Southwest Inc. in Sherman, Texas and to reduce our workforce. 

MEMC 2004 Annual Report  10  Technology Is Built On Us 

-------------------------------------------------------------------------------
Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

COMPANY OVERVIEW

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, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world s largest foundries. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) in diameter. 

At December 31, 2003, we had a 45% interest in Taisil Electronic Materials Corporation (Taisil), which was accounted for using the equity method of accounting. On January 30 and on February 4, 2004, we completed the acquisition of the remaining interest of Taisil, increasing our ownership to approximately 100%. The purchase price of the additional 55% stake in Taisil was $57 million, net of cash acquired, and was financed by drawing on our $150 million revolving credit facility with Citibank and UBS. See Note 9 to the consolidated financial statements for further discussion and pro forma financial information. 

On December 30, 2004, we redeemed our outstanding senior subordinated secured notes in full for approximately $68 million. In order to redeem the notes at that time, it was necessary to amend the terms of the indenture for the notes. Accordingly, on December 29, 2004 we amended the terms of the indenture to allow for the early redemption of the notes without a premium. As a result of the amendment to the indenture, in the 2004 fourth quarter we recognized a debt extinguishment loss on a pretax basis of approximately $61 million. This pretax loss represented the difference between the face value of the notes plus accrued interest and the book value of the notes plus accrued interest on the effective date of the amendment. 

RESULTS OF OPERATIONS

Net Sales                                    2004       2003      2002   
------                                      -------     -----     -----  
Dollars in millions                                                      

Net Sales                                   $ 1,028     $ 781     $ 687  
Percentage Change                                32 %      14 %      11 %

Our net sales increased by 32% to $1,028 million in 2004 from $781 million in 2003, primarily as a result of a 37% increase in product volumes. While overall industry volumes, measured in millions of square inches of silicon, increased 22% in 2004 compared to 2003, our product volumes increased 37%. The increase in our product volumes was primarily due to increased industry demand, the Taisil acquisition and increased sales of 300 millimeter products. Our overall average selling prices declined by approximately 2% in 2004 compared to 2003. Overall average selling prices declined as a result of general price declines, partially offset by the favorable impact of currency fluctuations and a richer product mix. Our net sales increased in products of 150 millimeter or greater in diameter and in all geographic areas in 2004 compared to 2003. 

Our net sales increased by 14% to $781 million in 2003 from $687 million in 2002, primarily as a result of a 15% increase in product volumes. While overall industry volumes, measured in millions of square inches of silicon, increased 10% in 2003 compared to 2002, our product volumes increased 15% from both a continued gain in market share and from sales of new products. Our overall average selling prices declined by approximately 1% in 2003 compared to 2002. Overall average selling prices declined as a result of general price declines, almost entirely offset by the favorable impact of currency fluctuations and a richer product mix. Our net sales increased in products of 150mm or greater in diameter and in all geographic areas in 2003 compared to 2002. 

MEMC 2004 Annual Report  11  Technology Is Built On Us 

-------------------------------------------------------------------------------
Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

We operate in all the major semiconductor-producing regions of the world, with approximately 70% of our 2004 net sales to customers located outside North America. Net sales by geographic region for each of the last three years were as follows: 

Net Sales by Geographic Area:

Dollars in millions 

                                     LOGO                                      

Gross Margin                                          2004      2003      2002   
---------                                             -----     -----     -----  
Dollars in millions                                                              

Cost of Goods Sold                                    $ 659     $ 548     $ 514  

Gross Margin                                            369       233       173  

Gross Margin Percent                                     36 %      30 %      25 %

Our gross margin improved to $369 million, or 36% of net sales, in 2004 compared to $233 million, or 30% of net sales, in 2003. The improvement in gross margin as a percentage of net sales was primarily a result of increased product volumes, continued cost savings and productivity improvements which lowered unit costs. Headcount, excluding increases from the acquisition of Taisil, remained relatively flat despite the increased volumes. 

Our gross margin improved to $233 million in 2003 compared to $173 million in 2002. This improvement was primarily a result of the increased product volumes, as well as purchasing savings, productivity improvements, and lower depreciation and amortization. Our headcount increased 4% in 2003 over 2002 while product volumes increased 15%, resulting in a 12% increase in productivity. 

Depreciation and amortization included in cost of goods sold was approximately $40 million, $27 million and $29 million in 2004, 2003 and 2002, respectively. Depreciation and amortization in 2004 and 2003 is not comparable to 2002 because of a change in accounting for spare parts, a reevaluation of accounting estimates related to the useful lives for most of our property, plant and equipment, and an increase to property, plant and equipment caused by the TPG contingent purchase price payment, which together had a net $31 million and $11 million favorable impact on our 2004 and 2003 gross margin, respectively. See Note 3(f) of Notes to Consolidated Financial Statements herein. 

Marketing and Administration                            2004     2003     2002  
---------------------                                   ----     ----     ----  
Dollars in millions                                                             

Marketing and Administration                            $ 72     $ 57     $ 66  

As a Percentage of Net Sales                               7 %      7 %     10 %

MEMC 2004 Annual Report  12  Technology Is Built On Us 

-------------------------------------------------------------------------------
Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

Marketing and administration expenses increased to $72 million in 2004 compared to $57 million in 2003. The increase was primarily due to customer freight expenses, which were reclassified from net sales to administration expense in the fourth quarter of 2003, and the acquisition of Taisil in February 2004. The remainder of the increase was attributable to improvements in quality systems, increased efforts devoted to sales and customer service and professional fees associated with compliance with Sarbanes-Oxley. As a percentage of net sales, marketing and administration expenses in 2004 stayed consistent with 2003, at 7%. 

Marketing and administration expenses declined to $57 million in 2003 compared to $66 million in 2002, primarily as a result of continued controlled spending and the effect of headcount reductions. As a percentage of net sales, marketing and administration expenses decreased in 2003, from 10% to 7%. 

Research and Development                       2004     2003     2002  
-------------------                            ----     ----     ----  
Dollars in millions                                                    

Research and Development                       $ 38     $ 33     $ 27  

As a Percentage of Net Sales                      4 %      4 %      4 %

Our research and development expenses increased to $38 million in 2004 compared to $33 million in 2003 primarily due to the development of next-generation products and efforts to increase our capability in the areas of flatness, particles and crystal defectivity. 

Our research and development expenses increased to $33 million in 2003 compared to $27 million in 2002, as we continue to enhance our capability for next-generation products to accommodate flatness, particle, purity, and power dissipation requirements of our customers caused by their devices  smaller line widths. 

Restructuring Costs                               2004     2003    2002
--------------                                    ----     -----   ----
Dollars in millions                                                    

Restructuring Costs                               $ (1 )   $ -     $ 15

We recognized no restructuring costs in our Consolidated Statement of Operations in 2004 or 2003. In 2004, we reversed the remaining restructuring reserve of approximately $1 million related to our 2002 restructuring plan. Following the completion of the 2002 restructuring plan in 2004, it was determined that this remaining reserve would not be utilized. 

During 2003, we utilized $6 million of our provision for restructuring costs, primarily related to reductions in headcount of approximately 70 employees in 2003 and to write-downs associated with the sale of the Spartanburg facility on July 1, 2003. 

In 2002, as part of our continuing aggressive cost reductions, we recorded a restructuring charge of $15 million in connection with restructuring plans affecting approximately 450 salaried, hourly and temporary employees in the U.S., Italy, Korea, Malaysia, and Japan. We utilized $9 million of the restructuring provision in 2002 primarily related to a reduction in headcount of 460 employees. 

Nonoperating (Income) Expense and          2004       2003      2002   
Income Taxes                               -----      -----     -----  
------------------------------------                                   
Dollars in millions                                                    

Interest Expense                           $  14      $  13     $  73  
Book Value of Debt Outstanding at            140        131       285  
December 31                                                            
Interest Income                               (5 )       (7 )      (7 )
Royalty Income                               -           (4 )      (3 )
Currency (Gains) Losses                        2        (14 )     (11 )
Loss on the Extinguishment of Debt            61        -         -    
Other, Net                                   (10 )       (1 )      (7 )
Income Taxes                                 (40 )       37        17  
Income Tax Rate as a % of Income before      (20 )%      24 %      85 %
Income Taxes                                                           

MEMC 2004 Annual Report  13  Technology Is Built On Us 

-------------------------------------------------------------------------------
Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

Interest expense in 2004 remained consistent with 2003. An increase in interest expense in 2004 of approximately $3 million resulting from non-cash interest accretion on the senior subordinated secured notes payable to the investor group led by Texas Pacific Group (TPG) was substantially offset by lower interest expense from lower outstanding indebtedness at our foreign subsidiaries. During 2004, we borrowed $60 million to finance the acquisition of Taisil and paid down over $143 million of other debt using cash from operations and the liquidation of short-term investments. 

As a result of the restructuring of MEMC s debt in 2001, TPG retained a 55 million Euro denominated note due September 2002 issued by our Italian subsidiary. This note was recorded at its fair market value of one dollar. We accreted the 55 million Euro note up to its face value in 2002 using the effective interest method. Non-cash interest expense related to the accretion of this note was approximately $54 million in 2002. 

Our interest expense decreased $60 million to $13 million in 2003, compared to $73 million in 2002, primarily as a result of the non-cash interest accretion recognized in 2002, as noted above, as well as the reduced overall debt levels in 2003. 

Royalty income in 2003 and 2002 related to royalties received from Taisil, our previously unconsolidated joint venture in Taiwan. In February 2004, we completed the acquisition of the remaining 55% of Taisil that we did not already own. As a result, Taisil s operating results have been consolidated with MEMC s operating results effective February 1, 2004, and these royalties are no longer recognized in the Consolidated Statement of Operations. 

In 2004, we recognized currency losses of approximately $2 million, compared to currency gains of approximately $14 million in 2003 and $11 million in 2002. The large currency gains in 2003 and 2002 were primarily associated with the revaluation of a Yen-based intercompany loan. These currency gains resulted primarily from the significant strengthening of the Japanese Yen against the U.S. Dollar in 2003 and 2002. On July 1, 2004, we designated the Yen-based intercompany loan as a long-term investment with settlement not planned or anticipated in the foreseeable future. Since we no longer expect settlement of the intercompany loan, foreign currency gains and losses from this loan are no longer being recorded in the Consolidated Statement of Operations. 

On December 30, 2004, we redeemed in full our outstanding senior subordinated secured notes plus interest for $68 million. In order to redeem the notes, we negotiated an amendment to the note indenture to allow for this early redemption without a premium. As a result of this amendment, we recognized a non-operating debt extinguishment loss on a pretax basis of $61 million in the 2004 fourth quarter. 

Other nonoperating income, net was $10 million in 2004, compared to $1 million in 2003. The primary components of the other nonoperating income included in the 2004 period were the reversal into income of unused customer deposits following the expiration of contracts, a gain on the termination of a customer supply arrangement and a reimbursement recorded from a business interruption insurance recovery. Other nonoperating income in 2002 included an $8 million one-time gain on an option on MEMC Pasadena, Inc., which expired October 31, 2002. 

In 2004, we recognized an income tax benefit of $40 million primarily due to the reversal of $108 million in valuation allowances against deferred tax assets related to future earnings and $29 million related to current earnings in 2004. We reversed the valuation allowances related to future earnings because we believe that it is more likely than not that certain deferred tax assets will be realized taking into consideration all available evidence including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences by taxable jurisdiction. Primarily as a result of the total valuation allowance reversals of $137 million related to current and future earnings, we had an income tax benefit rate as a percentage of income before income taxes of (20%) in 2004. We also recorded a $27 million tax liability in 2004 for the potential non-deductibility of the payment to TPG for the redemption of the subordinated note. Our income tax rate as a percentage of income before income taxes was 24% in 2003. In 2003, we reversed a portion of the valuation allowance related to net operating loss carryforwards as a result of taxable income in certain tax jurisdictions. 

Equity in Income (Loss) of Joint Venture          2004      2003    2002
----------------------------                      ----      ----    ----
Dollars in millions                                                     

Equity in Income (Loss) of Joint Venture          $ (2 )    $  6    $  1

MEMC 2004 Annual Report  14  Technology Is Built On Us 

-------------------------------------------------------------------------------
Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

Equity in income (loss) of joint venture represents our interest in the net income (loss) of Taisil. In the first quarter of 2004, we completed the acquisition of the remaining 55% interest in Taisil that we did not already own. As a result, Taisil s operating results were consolidated with MEMC s operating results beginning February 1, 2004. 

Taisil contributed income of $6 million in 2003 compared to $1 million in 2002. The increased income was a result of a 12% increase in Taisil s product volumes, cost reductions and productivity improvements, partially offset by declines in Taisil s average selling prices. 

LIQUIDITY AND CAPITAL RESOURCES

                                                       2004      2003      2002   
                                                      ------     -----     -----  
Dollars in millions                                                               

Net Cash Provided by (Used in):                                                   

Operating Activities                                  $  283     $ 127     $  76  

Investing Activities                                    (207 )     (85 )     (28 )

Financing Activities                                     (83 )     (68 )     (11 )

In 2004, we generated $283 million of cash from operating activities, compared to $127 million in 2003 and $76 million in 2002. The year over year increases were primarily due to the improved operating results. 

Our principal sources and uses of cash during 2004 were as follows: 

Sources:

.     Generated $283 million from operations; 

.     Borrowed $60 million from long-term debt to finance the acquisition of Taisil; and 

.     Received almost $5 million from the exercise of stock options. 

Uses:

.     Invested almost $150 million in capital expenditures; 

.     Purchased the remaining 55% interest in Taisil for $57 million (net of cash acquired); 

.     Repaid over $143 million under debt agreements; and 

.     Paid a dividend to a minority interest of $5 million. 

Our short-term investments of $34 million at December 31, 2003 were liquidated throughout 2004 to pay down our South Korean debt. The reduction in debt is primarily reflected in short-term borrowings and current portion of long-term debt, which decreased by $48 million to $24 million at December 31, 2004 from $72 million at December 31, 2003. 

Our accounts receivable increased $38 million to $141 million at December 31, 2004, compared to $103 million at the end of 2003. The increase was primarily attributable to a 31% increase in fourth quarter net sales between the two years. Our days  sales outstanding were 48 days at December 31, 2004, compared to 46 days at the end of 2003 based on annualized fourth quarter sales for the respective years. 

MEMC 2004 Annual Report  15  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

Our inventories increased $18 million or 17% over the prior year. The increase was primarily due to the 32% increase in 2004 sales compared to 2003. Our annualized inventory turns, calculated as the ratio of annualized fourth quarter cost of goods sold divided by the year-end inventory balance, were approximately five at December 31, 2004 and 2003. We sell our products to certain customers under consignment arrangements. Generally, these consignment arrangements require us to maintain a certain quantity of product in inventory at the customer s facility or at a storage facility designated by the customer. We own the product until the title transfers to the customer. Transfer of title typically occurs upon the customer s use of the product or at such earlier time as may be specified in the consignment agreement. Upon transfer of title, we invoice the customer for the product and recognize revenue for the sale. Typically, so long as we do not exceed the agreed upon consignment inventory levels, the customer does not have the right to return the products held on consignment. At December 31, 2004, we had $22 million of inventory held on consignment, compared to $25 million at December 31, 2003. Inventory reserves for obsolescence, lower of cost or market issues, or other impairments were approximately $5 million at December 31, 2004 and 2003. In connection with a refinement to our existing obsolescence reserve analysis, inventory product obsolescence reserves were increased in 2004 for specific inventory items for which agings and usage analysis indicated risk of loss. 

At December 31, 2003, our investment in joint venture related to our 45% interest in Taisil. Effective February 1, 2004, we acquired the remaining interest and Taisil was consolidated with MEMC s financial results. 

Our net deferred tax assets totaled $128 million at December 31, 2004 (of which $8 million was included in prepaid and other assets at December 31, 2004) compared to $20 million at December 31, 2003. In 2004, we reversed $137 million in deferred tax valuation allowances as we believe that it is more likely than not that certain deferred tax assets will be realized. As of December 31, 2004, we have valuation allowances of $134 million reducing our net deferred tax assets to $128 million. Approximately one-half of the remaining valuation allowances will not be reversed to income tax expense on the consolidated statement of operations. The realization of deferred tax assets and reversal of valuation allowances will be offset by the recording of noncurrent liabilities to provide for the potential non-deductibility of these items. The company also has recorded net operating loss carryforwards related to stock option deductions that will be ultimately recorded to additional paid in capital. In 2001, push-down accounting created differences in the bases of certain assets and liabilities for financial statement accounting and for tax accounting. These differences resulted in the recognition of a net deferred tax asset. In 2001, we recognized a valuation allowance related to these deferred tax assets as it was determined more likely than not that we would be unable to realize a benefit from these assets. 

Our accounts payable increased $29 million to $124 million at December 31, 2004, compared to $95 million at the end of 2003. The increase was a result of increased payables at December 31, 2004 related to capital expenditures, tighter management of our payables in 2004 which increased our days payable outstanding and the higher cost of goods sold and inventory balances in the 2004 fourth quarter compared to the 2003 fourth quarter. 

In the 1990s and in 2000, we entered into customer deposit arrangements with certain customers to reserve capacity. These customer deposits, including both short-term and long-term portions, decreased to $2 million at December 31, 2004 from $19 million at the end of 2003, primarily as a result of purchases of wafers by these customers. We also reduced our customer deposits by $3 million and recognized nonoperating income in 2004 as a result of certain customer arrangements that expired in 2004. 

Pension and similar liabilities decreased $10 million to $116 million at December 31, 2004, compared to $126 million at the end of 2003, primarily reflecting the funding of $23 million of minimum required contributions to our domestic defined benefit pension plan for the 2003 plan year and part of the 2004 plan year. The decrease from the 2004 funding was partially offset by the increase in the benefit obligation. 

Our net cash used in investing activities increased $122 million in 2004 compared to 2003 primarily as a result of increased capital expenditures and the acquisition of Taisil. At December 31, 2004, we had approximately $52 million of committed capital expenditures. Capital expenditures and committed capital expenditures in 2004 primarily related to increasing our capacity and capability for our next generation products, including 300 millimeter, by making incremental changes to our existing manufacturing facilities and manufacturing lines. The existing facilities may be modified to permit the manufacture of greater quantities of current products. Alternatively, with incremental improvements, the existing facilities may be modified to become capable of manufacturing next generation products. 

MEMC 2004 Annual Report  16  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

In 2004, we used $83 million of cash for financing activities, compared to $68 million in 2003. Net activity under short-term borrowing arrangements resulted in the net payment of $30 million in 2004, compared to $65 million in 2003. Payments under long-term credit facilities in 2004 were $113 million, compared to $102 million in 2003. In 2003, we realized proceeds of $101 million on the issuance of our common stock related to a stock offering and the exercise of employee stock options. In 2004, we borrowed $60 million under long-term debt agreements to fund the acquisition of Taisil in the first quarter of 2004. 

As a result of the restructuring of MEMC s debt in 2001, TPG acquired $50 million in principal amount of our senior subordinated secured notes maturing in November 2007. TPG also retained a 55 million Euro denominated note issued by our Italian subsidiary. In September 2002, we amended the 55 million Euro note to provide for a 35 million Euro principal repayment on or before September 25, 2002 and a 20 million Euro principal repayment on or before April 15, 2003. Consistent with the terms of the amended Euro note, on September 24, 2002 and on April 15, 2003, we made 35 million Euro and 20 million Euro principal payments to TPG, respectively. 

We were accreting the senior subordinated secured notes up to their face value over their maturity using the effective interest method. Interest expense related to the accretion of these notes was $4 million in 2004 and $1 million in 2003. In December 2004, we negotiated an amendment to the note indenture to allow for the early redemption without a premium. As a result of the amendment, we recognized a non-operating debt extinguishment loss on a pretax basis of $61 million in the 2004 fourth quarter. The notes were redeemed in full on December 30, 2004 for $68 million. 

As part of the purchase and restructuring transactions in 2001, TPG committed to provide a five-year $150 million revolving credit facility to MEMC. That revolving credit facility was replaced with a five-year $150 million revolving credit facility from Citibank/UBS (the Citibank/UBS Facility), guaranteed by TPG. Loans under this facility bear interest at a rate of LIBOR plus 1.5% or an alternate base rate plus 0.5% per annum. In January 2004, we drew down $60 million on the Citibank/UBS Facility in connection with the purchase of the additional 55% interest in Taisil. Additionally, credit available under the facility has been reduced by $3 million related to the issuance of third party letters of credit. 

TPG has also provided us with a five-year $35 million revolving credit facility (the TPG Facility) bearing interest at a rate of LIBOR plus 10% or an alternate base rate plus 9%. As a condition to any borrowings under the TPG Facility, we must have borrowed all amounts available under the Citibank/UBS Facility. The commitments under the TPG Facility terminate and any outstanding loans under the facility, together with any accrued interest thereon, will become due and payable upon the closing and funding of a debt or equity financing in which the net proceeds to MEMC equal or exceed $100 million. 

The Citibank/UBS Facility and the TPG Facility contain certain highly restrictive covenants, including covenants to maintain minimum quarterly consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), as defined; minimum monthly consolidated backlog; minimum monthly consolidated revenues; maximum annual capital expenditures; and other covenants customary for revolving loans and indentures of this type and size. The minimum quarterly consolidated EBITDA covenant is $37 million, $40 million, $42 million, and $44 million in the first, second, third and fourth quarters of 2005, respectively. Thereafter, the minimum quarterly consolidated EBITDA covenant progressively increases to $52 million and $60 million in the last quarter of 2006 and 2007, respectively. The minimum monthly consolidated backlog covenant is 68 million square inches (msi) in January 2005, progressively increasing to 74 msi, 81 msi and 92 msi in the last month of 2005, 2006 and 2007, respectively. The minimum monthly consolidated revenues covenant is $70 million in January 2005, progressively increasing to $76 million, $84 million and $92 million in the last month of 2005, 2006 and 2007, respectively. Finally, the maximum annual capital expenditures covenant is $55 million for each of the years 2005 through 2007. In 2004, we obtained the consents of our lenders to increase the covenant for maximum annual capital expenditures to $150 million to accommodate our capital expenditures for calendar year 2004. In 2005, we also intend to seek the consent of our lenders to increase the covenant for maximum annual capital expenditures. In the event that we violate these covenants, which could occur in a sudden or sustained downturn, the loan commitments under the revolving credit facilities may terminate and the loans and accrued interest then outstanding under the facilities and related accrued interest may be due and payable immediately. At December 31, 2004, we were in compliance with all of these debt covenants. 

MEMC 2004 Annual Report  17  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

The Citibank/UBS Facility is guaranteed by TPG. The various guaranties terminate in November 2005, prior to the expiration of the Citibank/UBS Facility. In addition, each guarantor may terminate its guaranty for any reason. In the event that a guarantor terminates its guaranty, or does not renew its guaranty and in the case of a non-renewal the lenders have not received cash collateral or a replacement guaranty executed by a replacement guarantor satisfactory to the lenders, then the loan commitments under the revolving credit facility will terminate and we will be required to repay all outstanding loans and accrued interest under this facility. Likewise, if any guarantor defaults under its guaranty, then the guarantor s default will constitute an event of default under this revolving credit facility. In such event, the loan commitments under this revolving credit facility may terminate and the loans and accrued interest under the facility may be due and payable immediately. 

In any of these events, the guarantors and their affiliates have severally agreed to make new revolving credit loans available to us on terms and conditions no less favorable to us than provided in the original $150 million revolving credit facility between us and TPG. The original TPG $150 million revolving credit facility was substantially similar to the Citibank/UBS Facility except that the interest rates were 2% higher than the interest rates under the Citibank/UBS Facility. 

The Citibank/UBS Facility and the TPG Facility contain change in control provisions. Under these instruments, if (1) TPG s ownership interest in us is reduced below 15% of our total outstanding equity interests, (2) another person or group acquires ownership of a greater percentage of our outstanding equity than TPG, or (3) a majority of our Board of Directors is neither nominated by our Board of Directors nor appointed by directors so nominated, then an event of default shall be deemed to have occurred under the Citibank/UBS Facility and the TPG Facility in which event the loan commitments under these facilities may terminate and the loans and accrued interest then outstanding may become immediately due and payable. As part of the underwriters  agreement with TPG, TPG agreed to not sell any additional shares following the February 2005 stock offering for 180 days. There are no other restrictions preventing TPG from further reducing its ownership interest in the Company. 

Credit facilities and related borrowings outstanding at December 31, 2004 were as follows: 

                                      Committed     Outstanding
                                      ---------     -----------
Dollars in millions                                            

Long-term Debt                        $     264     $       138
Short-term Borrowings                        61               2
                                      -- ------     --- -------
Total                                 $     325     $       140
                                      -- ------     --- -------

Of the $264 million committed long-term credit facilities, $3 million is unavailable as it relates to the issuance of third party letters of credit. Our weighted average cost of borrowing, excluding accretion, was 2.9% and 4.1% at December 31, 2004 and December 31, 2003, respectively. Our total debt to total capital ratio at December 31, 2004 was 22%, compared to 34% at December 31, 
 2003. The improvement in this ratio is due primarily to the higher stockholders equity in 2004 as compared to 2003. 

MEMC 2004 Annual Report  18  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

Our contractual obligations as of December 31, 2004 were as follows: 

                                                   Payments Due By Period        
                                            -------------------------------------
Contractual Obligations                     Total   Less     1-3     4-5    After
-------------                               -----   than                      5  
                                                            Years   Years        
                                                      1     -----   -----   Years
                                                    Year                    -----
                                                    -----                        
Dollars in millions                                                              

Long-term Debt                              $ 138   $  23   $  79   $  12   $  24

Short-term Borrowings                           2       2     -       -       -  

Operating Leases                               35       8      11      10       6

Purchase Obligations                          181     181     -       -       -  

Committed Capital Expenditures                 52      52     -       -       -  

Pension Funding Obligation                     51      15      15       9      12

                                            - ---   - ---   - ---   - ---   - ---

Total Contractual Obligations               $ 459   $ 281   $ 105   $  31   $  42

                                            - ---   - ---   - ---   - ---   - ---

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. The terms of most of these indemnifications generally do not provide for a limitation of our liability. We have not had any claims related to these indemnifications. 

Pension expense related to our defined benefit plans was $8 million in 2004, compared to $7 million in 2003. Our pension expense and pension liability are actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on assets to estimate our pension costs and obligations. We determine the expected return on plan assets based on our pension plans  actual asset mix as of the beginning of the year. While the assumed expected rate of return on plan assets in 2004 was 
8.0%, the actual return experienced in our pension plan assets in the comparable period in 2004 was 6.3%. We use the Moody s AA long-term bond rate as a guideline in determining our discount rate assumption. Assuming a 100 basis point variation in these assumptions, our 2004 pension expense would have been approximately $1 million higher or lower. 

Our pension liability related to our defined benefit pension plans at December 31, 2004 totaled $40 million. In addition, as of December 31, 2004, we had an unrecognized net actuarial loss of $34 million, primarily due to a change in our discount rate. We also recorded an additional minimum pension liability of $25 million as of December 31, 2004. The non-cash adjustments to record the minimum pension liability do not impact our operating results. Our pension obligations are funded in accordance with provisions of federal law. Contributions to our pension plans in 2004 totaled approximately $25 million. We expect contributions to our pension plans in 2005 to be approximately $15 million. 

We believe that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures and working capital requirements. 

MEMC 2004 Annual Report  19  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

CRITICAL ACCOUNTING POLICIES AND ESTIMATES 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates of certain amounts included in the financial statements. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. MEMC s significant accounting policies are more fully described in Note 3 of Notes to Consolidated Financial Statements herein. 

Inventory

The valuation of inventory requires us to estimate excess and obsolete inventory. The determination of the value of excess and obsolete inventory is based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 

Property, Plant and Equipment

We depreciate our land improvements, building and building improvements, and machinery and equipment evenly over the assets  estimated useful lives. Changes in circumstances such as technological advances, changes in our business model, or changes in our capital strategy could result in the actual useful lives differing from our estimates. In those cases where we determine that the useful life of property, plant and equipment should be shortened or lengthened, we depreciate the net book value over its revised remaining useful life. 

Income Taxes

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items that we received a tax deduction for, but have not yet been recorded in the Consolidated Statement of Operations). We regularly review our deferred tax assets for realizability and adjust the valuation allowance based upon our judgement as to whether it is more likely than not that some items recorded as deferred tax assets will be realized, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgements, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified. 

We provide for U.S. income taxes, net of available foreign tax credits, on earnings of consolidated international subsidiaries that we plan to remit to the U.S. We do not provide for U.S. income taxes on the remaining earnings of these subsidiaries, as we expect to reinvest these earnings overseas or we expect the taxes to be minimal based upon available foreign tax credits. 

Section 382 of the Internal Revenue Code restricts the utilization of net operating losses and other carryover tax attributes upon the occurrence of an ownership change, as defined. Such an ownership change occurred during 2001 as a result of the acquisition by TPG. To the extent that any U.S. or foreign net operating loss carryforwards remain from the period prior to the TPG acquisition, we have recognized a valuation allowance to fully offset any associated deferred tax assets. 

Push-down accounting created differences in the bases of certain assets and liabilities for financial statement accounting and for tax accounting. These differences resulted in the recognition of a net deferred tax asset. We reviewed our total net deferred tax assets by taxable jurisdiction and recognized a valuation allowance where it was determined more likely than not that we would be unable to realize a benefit from these assets. 

MEMC 2004 Annual Report  20  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

Employee-Related Liabilities

We have a long-term liability for our defined benefit pension plans. Detailed information related to this liability is included in Note 16 of Notes to Consolidated Financial Statements herein. Our pension obligation is funded in accordance with provisions of federal law. 

Our pension liability is actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on assets, to estimate our costs and obligations. If our assumptions do not materialize as expected, expenditures and costs that we incur could differ from our current estimates. 

Revenue Recognition

We record revenue from product sales when the goods are shipped and title passes to the customer. Our wafers are generally made to customer specifications at plant sites that have been pre-qualified by the customer. We conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer s specifications before the product is shipped. 

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 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 the grant. Compensation expense equal to the intrinsic value of the options has been recognized for options granted at a price below the market price on the date of the grant and deferred compensation has been recorded for the unearned portion of the options as a separate component of stockholders  equity. 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS 

In December 2004, the Financial Accounting Standards Board ( FASB ) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment  ( SFAS 123R ), which replaces SFAS No. 123,  Accounting for Stock-Based Compensation  (SFAS 123) and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in our third quarter of fiscal 2005, beginning July 1, 2005. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. We are evaluating the requirements of SFAS 123R and expect that the adoption of SFAS 123R will have a material impact on our consolidated results of operations and earnings per share. We have not yet determined the method of adoption or the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123. 

MEMC 2004 Annual Report  21  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

See Note 3 of the Consolidated Financial Statements in item (o) for a description of other recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition. 

MARKET RISK

The overall objective of our financial risk management program is to reduce the potential negative earnings effects from changes in foreign exchange and interest rates arising in our business activities. We manage these financial exposures through operational means and by using various financial instruments. These practices may change as economic conditions change. 

To mitigate financial market risks of foreign currency exchange rates, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes. All of the potential changes noted below are based on sensitivity analyses performed on our financial positions at December 31, 2004 and 2003. Actual results may differ materially. 

We generally hedge transactional currency risks with currency forward contracts. Gains and losses on these foreign currency exposures are generally offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure to MEMC. 

Our debt obligations are primarily of a fixed-rate nature. An adverse change (defined as a 100 basis point change) in interest rates on our total debt outstanding would result in a decline in income before taxes of approximately $1 million and $2 million as of the end of 2004 and 2003, respectively. 

A substantial majority of our revenue and capital spending is transacted in U.S. Dollars. However, we do enter into these transactions in other currencies, primarily the Japanese Yen, the Euro, the Korean Won, and certain other Asian currencies. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. In addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign currency sales price as competitors  products become more or less attractive. 

Our Taiwan based subsidiary uses the U.S. Dollar as its functional currency for U.S. GAAP purposes and does not hedge New Taiwanese Dollar exposures. 

RISK FACTORS

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company s future prospects and make informed investment decisions. This annual report contains such forward-looking statements that set out anticipated results based on management s plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as  anticipates,   estimates, expects,   projects,   intends,   plans,   believes,  and words and terms of similar substance in connection with any discussion of future operating or financial performance. 

Forward-looking statements in this report include those concerning: 

.     Our belief that the semiconductor industry will continue to increase the functionality of their devices as the geometries shrink, and will thereby continue to consume the same or larger quantities of silicon and enhance the demand for wafers; 

.     Our belief that the factors that caused constraints in the supply stream for our customers in the first half of 2004 could lend further support to high utilization levels over the next few years; 

.     Our belief that the 300mm market appears to be in good balance and will likely stay that way for some time; 

.     Our belief that supply and demand dynamics should result in revenue and margin growth drivers for the industry that are different from the prior two decades; 

MEMC 2004 Annual Report  22  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

.     Our belief that 200mm and smaller diameter wafers should continue to grow to some degree due to upward ASP pressure as utilization gets tighter, should eventually plateau and start to decline in a few years as the very small diameters slowly phase out; 

.     Our expectation that the majority of unit growth for the industry for the next 3 to 5 years will come from 300mm, especially as customers continue to move to the 65 nanometer node; 

.     Our expectation that 300mm should act as a revenue and margin multiplier to the unit growth rate; 

.     Our belief that materials will be the enabling driver for device improvements in the latter half of this decade; 

.     Our belief that alternate materials such as silicon-on-insulator (SOI) and strained silicon will become important drivers of unit growth towards the end of this decade; 

.     Our expectation that these alternate materials should provide another multiplier on revenue and margins; 

.     Our expectation that the dynamics in 200mm, 300mm and alternate materials will provide  waves  of revenue and margin growth in the industry for years to come; 

.     Our belief that each of these waves of growth is going to be more capital intensive than the one before and that only the companies that are capable of generating cash through a self-funding business model will be able to ride these waves; 

.     Our belief that the industry will tier into strong and weak players, and then consolidate to where only a handful of suppliers are left that are capable of generating the cash and the appropriate returns to invest in future technologies; 

.     Our belief that only those companies that are fiscally disciplined, generate cash to self-fund, and focus on their core businesses will win; 

.     Our belief that our results, focus and disciplined execution will enable us to be a leading supplier of wafers and to thrive in this industry; 

.     Our belief that as the semiconductor industry continues to move towards shrinking device geometries and more stringent technical specifications, materials will become the enabling factor for next generation devices; 

.     Our expectation that different customers will take advantages of these evolutions at different speeds, allowing us to customize products for them; 

.     Our belief that our ability to continuously invest in capability and capacity through our self-funding model will be a big differentiator in our performance versus the competition; 

.     Our belief that our crystal and wafering roadmaps will provide intrinsic advantages to customers whether they are trying to improve performance in 300mm wafer fabs, or use upgraded 200mm fabs to provide similar capability and thereby be more asset efficient; 

.     Our belief that our derivatives of Silicon On Insulator (SOI) and Strained Silicon (sSi) technologies will allow for more rapid commercialization of these capabilities over the next several years, and have the potential to further separate the types of suppliers in this space; 

.     Our expectation that ongoing flatness and particle improvements in bulk silicon will increasingly be supplemented with mobility enhancing solutions and alternate materials; 

.     Our belief that the wafer industry will become an increasingly tiered market where a few top players gain strength and market share, while others fall further behind; 

.     Our intention to strive to maintain our track record of outperforming the industry; 

.     Our belief that it is more likely than not that certain deferred tax assets will be realized; 

.     Our intention to seek the consent of our lenders to increase the 2005 covenant for maximum annual capital expenditures; 

.     Our expectation that pension expense will increase, primarily as a result of the general economic environment and the prevailing low interest rates; 

.     Our expectation that contributions to our pension plans for the next ten years will be approximately $51 million; 

.     Our expectation that benefits payable from our pension plans and healthcare plan for the next ten years will be approximately $107 million and $44 million, respectively; 

.     Our belief that we have the financial resources needed to meet business requirements for the next 12 months, including capital expenditures and working capital requirements; 

.     The impact of the implementation of SFAS 123R, SFAS 150, SFAS 151, SFAS 153, FSP 106-2 and FSP 109-2; 

.     The impact of an adverse change in interest and currency exchange rates; 

.     The expectation that we will not pay dividends on our common stock in the foreseeable future; and 

.     Our expected timing for completing our evaluation of the effects of the repatriation provision of the American Jobs Creation Act and the range of possible amounts that the company is considering for repatriation under this provision. 

MEMC 2004 Annual Report  23  Technology Is Built On Us 

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Management s Discussion and Analysis         Dollars in thousands, except share
                                                                           data

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks and uncertainties, and actual results could vary materially from those anticipated, estimated or projected. Risks and uncertainties pertaining to MEMC include, but are not limited to: 

.     Market demand for wafers and semiconductors; 

.     Customer acceptance of our new products; 

.     Utilization of manufacturing capacity; 

.     Our ability to reduce manufacturing and operating costs; 

.     Inventory levels of our customers; 

.     The cyclicality of the semiconductor and wafer industries; 

.     Changes in the pricing environment; 

.     General economic conditions; 

.     Accuracy of our assumptions regarding future taxable income; 

.     Accuracy of our actuarial assumptions used to determine pension expense and contributions to our pension plan; 

.     Actions by competitors, customers and suppliers; 

.     The impact of competitive products and technologies; 

.     Technological changes; 

.     Financing for significant transactions; 

.     Changes in product specifications and manufacturing processes; 

.     Changes in financial market conditions; 

.     Changes in interest and foreign currency exchange rates; 

.     Changes in the plans and intentions of third parties, including TPG; and 

.     Other risks described in our filings with the Securities and Exchange Commission, including  Risk Factors  in our Form 10-K for the year ended December 31, 2004. 

The forward-looking statements represent our estimates and assumptions only as of the date of this report. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. 

MEMC 2004 Annual Report  24  Technology Is Built On Us 

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Consolidated Statements of Operations        Dollars in thousands, except share
                                                                           data

                                       For the year ended December 31,           
                              -------------------------------------------------  
                                  2004              2003              2002       
                              -------------     -------------     -------------  
Net sales                     $   1,027,958     $     781,100     $     687,180  

Cost of goods sold                  658,543           548,344           513,722  

                              - ----------- -   - ----------- -   - ----------- -

Gross margin                        369,415           232,756           173,458  

Operating expenses: 

Marketing and                        71,948            57,203            65,786  
administration                                                                   
Research and development             37,975            32,934            27,423  

Restructuring costs                    (996 )             -              15,300  

                              - ----------- -   - ----------- -   - ----------- -

Operating income                    260,488           142,619            64,949  

                              - ----------- -   - ----------- -   - ----------- -

Nonoperating (income) expense: Interest expense                     13,512            12,931            73,356 

Interest income                      (5,003 )          (7,290 )          (6,836 )

Royalty income                         (105 )          (4,056 )          (3,195 )

Currency (gains) losses               1,907           (13,928 )         (11,157 )

Loss on the extinguishment           61,403               -                 -    
of debt                                                                          
Other, net                           (9,757 )            (925 )          (6,786 )

                              - ----------- -   - ----------- -   - ----------- -

Total nonoperating (income)          61,957           (13,268 )          45,382  
expense                                                                          
                              - ----------- -   - ----------- -   - ----------- -

Income before income tax            198,531           155,887            19,567 expense (benefit), equity in income (loss) of joint venture and minority interests Income tax expense                  (40,119 )          36,864            16,712 
 (benefit) - ----------- -   - ----------- -   - ----------- - 

Income before equity in             238,650           119,023             2,855 income (loss) of joint venture and minority interests Equity in income (loss) of           (1,717 )           6,235             1,239 joint venture Minority interests                  (10,732 )          (8,641 )          (9,164 ) 

                              - ----------- -   - ----------- -   - ----------- -

Net income (loss)             $     226,201     $     116,617     $      (5,070 )

Cumulative preferred stock              -                 -              17,027  
dividends                                                                        
                              - ----------- -   - ----------- -   - ----------- -

Net income (loss) allocable   $     226,201     $     116,617     $     (22,097 )
to common stockholders                                                           
                              - ----------- -   - ----------- -   - ----------- -

Basic income (loss) per       $        1.09     $        0.58     $       (0.17 )
share                                                                            
                              - ----------- -   - ----------- -   - ----------- -

Diluted income (loss) per     $        1.02     $        0.53     $       (0.17 )
share                                                                            
                              - ----------- -   - ----------- -   - ----------- -

Weighted average shares         207,713,837       202,439,828       129,810,012 used in computing basic income (loss) per share Weighted average shares         221,047,946       218,719,459       129,810,012 used in computing diluted income (loss) per share 

See accompanying notes to consolidated financial statements. 

MEMC 2004 Annual Report  25  Technology Is Built On Us 

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Consolidated Balance Sheets                  Dollars in thousands, except share
                                                                           data

                                                        As of December 31,      
                                                     -------------------------  
                                                        2004           2003     
                                                     -----------     ---------  
Assets                                                                          

Current assets: 

Cash and cash equivalents                            $    92,314     $  96,859  

Short-term investments                                       -          33,838  

Accounts receivable, less allowance for doubtful         140,728       103,020 accounts of $1,633 and $2,408 in 2004 and 2003, respectively Inventories                                              127,564       109,488 

Prepaid and other current assets                          29,724        22,140  

                                                     - --------- -   - ------- -

Total current assets                                     390,330       365,345  

Property, plant and equipment, net                       444,670       270,367  

Investment in joint venture                                  -          24,155  

Deferred tax assets, net                                 119,835        20,248  

Other assets                                              55,107        46,637  

                                                     - --------- -   - ------- -

Total assets                                         $ 1,009,942     $ 726,752  

                                                     - --------- -   - ------- -

Liabilities and Stockholders  Equity                                            

Current liabilities: 

Short-term borrowings and current portion of         $    24,399     $  71,841  
long-term debt                                                                  
Accounts payable                                         124,083        95,178  

Accrued liabilities                                       35,980        35,537  

Accrued wages and salaries                                19,117        22,841  

Customer deposits                                          1,763        15,655  

Income taxes payable                                      10,282         3,002  

                                                     - --------- -   - ------- -

Total current liabilities                                215,624       244,054  

Long-term debt, less current portion                     116,082        59,251  

Pension and similar liabilities                          116,427       126,401  

Customer deposits                                            -           3,606  

Other liabilities                                         72,432        35,690  

                                                     - --------- -   - ------- -

Total liabilities                                        520,565       469,002  

                                                     - --------- -   - ------- -

Minority interests                                        46,479        64,127  

Commitments and contingencies 

Stockholders  equity: 

Preferred stock, $.01 par value, 50,000,000 shares           -             - authorized, none issued or outstanding at 2004 or 2003 Common stock, $.01 par value, 300,000,000 shares           2,091         2,079 authorized, 209,108,105 and 207,878,032 issued at December 31, 2004 and December 31, 2003, respectively Additional paid-in capital                               154,736       150,095 

Retained earnings                                        308,351        82,150  

Accumulated other comprehensive loss                     (17,389 )     (33,338 )

Deferred compensation                                     (1,263 )      (2,916 )

Treasury stock: 714,205 and 875,455 shares at 2004        (3,628 )      (4,447 )
and 2003, respectively                                                          
                                                     - --------- -   - ------- -

Total stockholders  equity                               442,898       193,623  

                                                     - --------- -   - ------- -

Total liabilities and stockholders  equity           $ 1,009,942     $ 726,752  

                                                     - --------- -   - ------- -

See accompanying notes to consolidated financial statements. 

MEMC 2004 Annual Report  26  Technology Is Built On Us 

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Consolidated Statements of Cash Flows                      Dollars in thousands

                                              For the year ended December 31,      
                                          ---------------------------------------  
                                             2004           2003          2002     
                                          ----------     ----------     ---------  
Cash flows from operating activities:                                              

Net income (loss)                         $  226,201     $  116,617     $  (5,070 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization                 44,135         31,049        34,160 

Interest accretion                             5,248          2,824        57,252  

Minority interests                            10,732          8,641         9,164  

Equity in (income) loss of joint               1,717         (6,235 )      (1,239 )
venture                                                                            
Currency (gains) losses                        1,907        (13,928 )     (11,157 )

Restructuring costs                             (996 )          488         3,764  

Stock compensation                             2,310          3,509         6,777  

Loss on the extinguishment of debt            61,403            -             -    

Deferred taxes                              (105,306 )       12,333             8  

Other                                         (4,467 )          104          (505 )

Changes in assets and liabilities: 

Short-term investments                        34,764         12,263       (10,455 )

Accounts receivable                          (27,036 )       (3,171 )     (21,719 )

Inventories                                  (14,035 )      (18,498 )     (10,739 )

Prepaid and other current assets               2,877         (1,714 )        (308 )

Accounts payable                              27,426         22,090        11,162  

Accrued liabilities                           (1,023 )       (7,576 )     (10,217 )

Accrued wages and salaries                    (4,710 )       (3,489 )      11,722  

Customer deposits                            (14,310 )      (15,412 )     (10,071 )

Income taxes                                   6,355        (12,161 )       8,956  

Pension and related liabilities              (18,423 )       10,184         7,358  

Other noncurrent assets and liabilities       48,275        (10,696 )       7,391  

                                          - -------- -   - -------- -   - ------- -

Net cash provided by operating               283,044        127,222        76,234  
activities                                                                         
                                          - -------- -   - -------- -   - ------- -

Cash flows from investing activities: 

Capital expenditures                        (149,811 )      (85,227 )     (21,952 )

Purchase of Taisil, net of cash              (57,226 )          -             -    
acquired                                                                           
Proceeds from sale of property, plant             91            200         1,032  
and equipment                                                                      
Refund of option payment                         -              -          (7,500 )

                                          - -------- -   - -------- -   - ------- -

Net cash used in investing activities       (206,946 )      (85,027 )     (28,420 )

                                          - -------- -   - -------- -   - ------- -

Cash flows from financing activities: 

Net short-term borrowings                    (29,811 )      (64,928 )     (23,322 )

Proceeds from issuance of long-term           60,014            -          40,243  
debt                                                                               
Principal payments on long-term debt        (113,407 )     (102,098 )     (25,901 )

Dividend to minority interest                 (4,765 )       (2,510 )      (2,251 )

Proceeds from issuance of common stock         4,826        101,076           703  

                                          - -------- -   - -------- -   - ------- -

Net cash provided by (used in)               (83,143 )      (68,460 )     (10,528 )
financing activities                                                               
                                          - -------- -   - -------- -   - ------- -

Effect of exchange rate changes on cash        2,500          3,473         7,009  
and cash equivalents                                                               
                                          - -------- -   - -------- -   - ------- -

Net increase (decrease) in cash and           (4,545 )      (22,792 )      44,295  
cash equivalents                                                                   
Cash and cash equivalents at beginning        96,859        119,651        75,356  
of period                                                                          
                                          - -------- -   - -------- -   - ------- -

Cash and cash equivalents at end of       $   92,314     $   96,859     $ 119,651  
period                                                                             
                                          - -------- -   - -------- -   - ------- -

Supplemental disclosures of cash flow information: Interest payments, net of amount          $   13,098     $   12,797     $  18,732 capitalized Income taxes paid                         $   14,567     $   32,076     $  11,648 

See accompanying notes to consolidated financial statements. 

MEMC 2004 Annual Report  27  Technology Is Built On Us 

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Consolidated Statements of                                 Dollars in thousands
Stockholders  Equity (Deficiency)                                              

Common    Additional     Retained       Accumulated        Deferred       Treasury         Total             Total Stock     Paid-in       Earnings          Other         Compensation      Stock       Stockholders      Comprehensive 
 -------    Capital       (Deficit)     Comprehensive     ------------     --------        Equity         Income (Loss) ----------     ---------         Loss                                        (Deficiency)      ------------- 
  -------------                                   ------------- Balance at      $   705   $    8,081     $ (29,397 )   $         835             -        $ (4,720 )   $     (24,496 ) December 31, 
 2001 - -----   - -------- -   - ------- -   -- ---------- -   -- --------- -   - ------ -   -- ---------- - Comprehensive loss: Net loss           -            -           (5,070 )            -                -            -               (5,070 )          (5,070 ) Net                -            -             -               (5,713 )           -            -               (5,713 )          (5,713 ) translation adjustment Minimum            -            -             -               (2,451 )           -            -               (2,451 )          (2,451 ) pension liability (net of $0 tax) Stock plans,         10       15,887          -                 -              (7,094 )       -                8,803              - net Conversion of     1,250       20,024          -                 -                -            -               21,274              - preferred stock Cumulative         -         (17,027 )        -                 -                -            -              (17,027 )            - preferred stock dividend 
  - -----   - -------- -   - ------- -   -- ---------- -   -- --------- -   - ------ -   -- ---------- -   -- ---------- - Total                                                                                                                    $     (13,234 ) comprehensive loss 
  -- ---------- - Balance at      $ 1,965   $   26,965     $ (34,467 )   $      (7,329 )   $     (7,094 )   $ (4,720 )   $     (24,680 ) December 31, 2002 Comprehensive income: Net income         -            -          116,617              -                -            -              116,617           116,617 Net                -            -             -              (10,228 )           -            -              (10,228 )         (10,228 ) translation adjustment Minimum            -            -             -              (15,781 )           -            -              (15,781 )         (15,781 ) pension liability (net of $0 tax) Stock plans,         14        5,738          -                 -               4,178          273            10,203              - net Contingent         -          23,476          -                 -                -            -               23,476              - performance purchase price Issuance of         100       93,916          -                 -                -            -               94,016              - common stock 
  - -----   - -------- -   - ------- -   -- ---------- -   -- --------- -   - ------ -   -- ---------- -   -- ---------- - Total                                                                                                                    $      90,608 comprehensive income 
  -- ---------- - Balance at      $ 2,079   $  150,095     $  82,150     $     (33,338 )   $     (2,916 )   $ (4,447 )   $     193,623 December 31, 2003 Comprehensive income: Net income         -            -          226,201              -                -            -              226,201           226,201 Net                -            -             -               22,308             -            -               22,308            22,308 translation adjustment Minimum            -            -             -               (6,359 )           -            -               (6,359 )          (6,359 ) pension liability- (net of $0 tax) Stock plans,         12        4,641          -                 -               1,653          819             7,125              - net 
  - -----   - -------- -   - ------- -   -- ---------- -   -- --------- -   - ------ -   -- ---------- -   -- ---------- - Total                                                                                                                    $     242,150 comprehensive income 
  -- ---------- - Balance at      $ 2,091   $  154,736     $ 308,351     $     (17,389 )   $     (1,263 )   $ (3,628 )   $     442,898 December 31, 
 2004 - -----   - -------- -   - ------- -   -- ---------- -   -- --------- -   - ------ -   -- ---------- - 

See accompanying notes to consolidated financial statements. 

MEMC 2004 Annual Report  28  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

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, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world s largest foundries. 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. 

On November 13, 2001, an investor group led by Texas Pacific Group (TPG) purchased from E.ON and its affiliates (E.ON) all of E.ON s debt and equity holdings in MEMC for a nominal purchase price of six dollars. In addition, on that date MEMC and TPG restructured MEMC s debt acquired by TPG from E.ON and TPG committed to provide MEMC with a five-year $150,000 revolving credit facility. The revolving credit facility was subsequently replaced with a revolving facility from Citibank/UBS, guaranteed by TPG. TPG exchanged previously outstanding debt of approximately $860,000 for 260,000 shares of our Series A Cumulative Convertible Preferred Stock (Preferred Stock) with a stated value of $260,000, $50,000 in principal amount of our senior subordinated secured notes maturing in November 2007 and warrants to purchase 16,666,667 shares of our common stock. TPG also retained a 55 million Euro in principal amount note (55 Million Euro Note) issued by our Italian subsidiary and guaranteed by MEMC. 

As a result of the purchase of E.ON s equity interest by TPG and the rights possessed by TPG through its ownership of the Preferred Stock as of November 13, 2001, we applied purchase accounting and pushed down TPG s nominal basis in MEMC to our accounting records, reflected in our consolidated financial statements subsequent to November 13, 2001. In accordance with the terms and conditions of the purchase agreement between E.ON and TPG, TPG agreed to a contingent performance purchase price payment to E.ON based on MEMC s Earnings Before Interest, Taxes, Depreciation and Amortization, as defined, for fiscal year 2002. Due to the uncertainty as to which level of contingent performance purchase price might have been paid, if any, we did not consider this contingency in applying purchase accounting as of November 13, 2001. 

On August 19, 2003, TPG agreed to pay E.ON $25,200 to settle their dispute over the amount of contingent performance purchase price owed by TPG to E.ON. The payment resulted in an increase in TPG s basis in MEMC that was pushed down to our accounting records. This increased our property, plant and equipment balance by approximately $26,100, increased the value of our investment in joint venture by approximately $1,100, and decreased our net deferred tax assets by approximately $2,000. Additionally, the value assigned to the common stock and warrants acquired by TPG was increased by approximately $23,500, and the value assigned to the senior subordinated secured notes held by TPG was increased by approximately $1,700. 

In connection with the restructuring, we have entered into a management advisory agreement with TPG. Pursuant to the agreement, TPG provides management and financial advisory services to us as requested by our Board of Directors in exchange for a management advisory fee of $2,000 per year plus related out-of-pocket expenses, and additional compensation if TPG acts as a financial advisor to us for future transactions such as a merger or debt or equity financing. 

In February 2005, TPG sold 65.6 million common shares in a public offering, reducing its beneficial ownership to approximately 34%. 

MEMC 2004 Annual Report  29  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

(a) Basis of Presentation

In preparing the financial statements, we use some estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for depreciation, amortization, employee benefits and asset valuation allowances. Our actual results could differ from those estimates. Certain prior period amounts have been reclassified to conform with the current period presentation. 

(b) Principles of Consolidation

Our consolidated financial statements include the accounts of MEMC Electronic Materials, Inc. and our wholly and majority-owned subsidiaries. We account for investments of less than 50% in joint venture companies using the equity method. All significant transactions among our subsidiaries have been eliminated. Following the acquisition of Taisil effective February 1, 2004, we no longer have any significant investments in less than 50% joint venture companies. 

(c) Cash Equivalents

Cash equivalents include items almost as liquid as cash, such as overnight investments and short-term time deposits with maturity periods of three months or less when purchased. 

(d) Short-term Investments

Short-term investments were $0 as of December 31, 2004. Short-term investments of $33,838 as of December 31, 2003 included certain investments in trading securities, which had been stated at their respective fair values, of our Korean subsidiary. Unrealized gains included in short-term investments at December 31, 2003 were $26. Unrealized gains or losses were recognized in the Consolidated Statement of Operations as nonoperating (income) expense. Total net unrealized gains (losses) of $0, $(2,650) and $723 have been included in earnings in 2004, 2003 and 2002, respectively. 

(e) Inventories

We value our inventories at cost or market, if lower. Cost is determined as follows: 

.     Raw materials and supplies inventories at moving average actual costs; and 

.     Goods in process and finished goods at standard costs, which approximate actual costs. 

The effects of resetting standards and operating variances incurred during each period are allocated between inventories and cost of goods sold. 

We write-down the value of our obsolete and unmarketable inventory to the estimated realizable value based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. 

(f) Property, Plant and Equipment

Prior to the transactions described in Note 2 above, our property, plant and equipment was valued at cost. Effective as of November 14, 2001, we revalued our property, plant and equipment to reflect the push-down of TPG s nominal basis in MEMC. 

We depreciate property, plant and equipment evenly over the assets  estimated useful lives as follows: 

                                          Years
                                          -----
Land improvements                          6-15

Buildings and building improvements       10-30 

Machinery and equipment                    3-12

Depreciation expense for the years ended December 31, 2004, 2003 and 2002 was $42,042, $27,806 and $28,911, respectively. 

MEMC 2004 Annual Report  30  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Effective in 2003, we prospectively changed our accounting principles to depreciate the cost of significant long-lived spare parts when placed in service, consistent with our fixed asset capitalization policy. Depreciation is recognized evenly over the estimated useful lives of the spare parts. Prior to 2003, we directly expensed the full cost of spare parts when placed in service. In 2004, this change had a favorable impact on our gross margin of $23,968, a favorable after-tax effect of $14,812, and impacted both basic and diluted earnings per share by 7 cents. In 2003, this change had a favorable impact on our gross margin of $6,200, a favorable after-tax effect of $4,700, and impacted both basic and diluted earnings per share by 2 cents in 2003. The cumulative effect of the change on prior years was not determinable. 

Changes in circumstances such as technological advances, changes in our business model, or changes in our capital strategy could result in the actual useful lives differing from our estimates. In those cases where we determine that the useful life of property, plant and equipment should be shortened or lengthened, we depreciate the net book value over its revised remaining useful life. Effective July 1, 2003, in connection with the adjustment to property, plant and equipment caused by the TPG contingent purchase price payment as described in Note 2 above, we reevaluated our accounting estimates relating to the useful lives of most of our machinery and equipment, infrastructure and buildings. As a result of this evaluation, we concluded that the useful lives of certain of our assets should be extended to better reflect their economic life. In 2004, this reevaluation and the effect of the TPG contingent purchase price payment had a net favorable impact on gross margin of $6,645, a favorable after-tax effect of $4,498 and impacted both basic and diluted earnings per share by 2 cents. In 2003, this reevaluation and the effect of the TPG contingent purchase price payment had a net favorable impact on gross margin of $4,800, a favorable after-tax effect of $3,700 and impacted both basic and diluted earnings per share by 2 cents. 

The cost of constructing facilities and equipment and developing internal use software includes interest costs. These interest costs totaled $240, $147 and $23 in 2004, 2003 and 2002, respectively. 

(g) Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ( SFAS ) No. 144,  Accounting for the Impairment or Disposal of Long-Lived Assets,  we periodically assess the impairment of long-lived assets when conditions indicate a possible loss. When necessary, we record charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets. We believe there is no indication of impairment at December 31, 2004. We have recorded no significant impairment charges in 2004. 

(h) Debt

Liabilities with face values greater than their carrying values are accreted to their face values as interest expense using the effective interest method. 

(i) Revenue Recognition

We record revenue from product sales when the goods are both shipped and title passes to the customer. Our wafers are generally made to customer specifications at plant sites that have been pre-qualified by the customer. We conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer s specifications before the product is shipped. 

(j) Derivative Financial Instruments

We generally use currency forward contracts to manage foreign currency exchange risk relating to current trade receivables with our foreign subsidiaries and current trade receivables with our customers denominated in foreign currencies (primarily Japanese Yen, Euro and Korean Won). The purpose of our foreign currency hedging activities is to protect us from the risk that the dollar net cash flows resulting from foreign currency transactions will be negatively affected by changes in exchange rates. We do not hold or issue financial instruments for speculative or trading purposes. 

Gains or losses on our forward exchange contracts, as well as the offsetting losses or gains on the related hedged receivables, are included in nonoperating (income) expense in the Consolidated Statement of Operations. Net currency gains (losses) on unhedged foreign currency positions totaled $(1,907), $13,928 and $11,157 in 2004, 2003, and 2002, respectively. 

MEMC 2004 Annual Report  31  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

The currency gains and losses in 2004, 2003 and 2002 were primarily associated with the revaluation of a Yen-based intercompany loan. On July 1, 2004, we designated this Yen-based intercompany loan as a long-term investment with settlement not planned or anticipated in the foreseeable future. Since we no longer expect settlement of the intercompany loan, foreign currency gains and losses from this loan are no longer being recorded in the Consolidated Statement of Operations. 

(k) Translation of Foreign Currencies 

We determined the functional currency of each subsidiary based on a number of factors, including the predominant currency for the subsidiary s expenditures and the subsidiary s borrowings. When the subsidiary s local currency is considered its functional currency, we translate its financial statements to U.S. Dollars as follows: 

.     Assets and liabilities using rates in effect at the balance sheet date; and 

.     Statement of operations accounts at average rates for the period. 

Adjustments from the translation process are presented in accumulated other comprehensive loss in stockholders  equity. 

Effective October 1, 2004, we changed the functional currency of our South Korean subsidiary from U.S. Dollar to Won functional currency. The change was determined based on the significant changes in economic facts and circumstances of the subsidiary in accordance with Statement of Financial Accounting Standards No. 52,  Foreign Currency Translation.  The change was made prospectively with the adjustment for the current rate translation of nonmonetary assets on October 1, 2004 being recorded to other comprehensive income in the amount of $2,328. 

(l) Income Taxes

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items that we received a tax deduction for, but have not yet been recorded in the Consolidated Statement of Operations). We regularly review our deferred tax assets for realizability and adjust the valuation allowance based upon our judgement as to whether it is more likely than not that some items recorded as deferred tax assets will be realized, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgements, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified. 

(m) 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 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 the grant. Compensation expense equal to the intrinsic value of the options has been recognized for options granted at a price below the market price on the date of the grant and deferred compensation has been recorded for the unearned portion of the options as a separate component of stockholders  equity. 

MEMC 2004 Annual Report  32  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

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 following amounts indicated below: 

                                              For the year ended December 31,     
                                           -------------------------------------  
                                             2004          2003          2002     
                                           ---------     ---------     ---------  
Dollars in thousands, except share data                                           

Net income (loss) allocable to common      $ 226,201     $ 116,617     $ (22,097 ) stockholders, as reported Add: 

Stock-based employee compensation              1,431         3,461         8,403 included in reported net income (loss), net of related tax effects Deduct: 

Total stock-based employee compensation      (13,397 )     (14,801 )     (16,242 ) expense determined under fair value based method for all awards, net of related tax effects 
  - ------- -   - ------- -   - ------- - 

Pro forma net income (loss) allocable to   $ 214,235     $ 105,277     $ (29,936 )
common stockholders                                                               
                                           - ------- -   - ------- -   - ------- -

Income (loss) per share: 

Basic-as reported                          $    1.09     $    0.58     $   (0.17 )

Basic-pro forma                            $    1.03     $    0.52     $   (0.23 )

Diluted-as reported                        $    1.02     $    0.53     $   (0.17 )

Diluted-pro forma                          $    0.97     $    0.48     $   (0.23 )

We estimate the fair value of options using the Black-Scholes option-pricing model and the following assumptions: 

                                                       2004      2003      2002  
                                                       -----     -----     ----  
Risk-free interest rate                                  3.6 %     3.4 %    4.7 %

Expected stock price volatility                        286.0 %   187.6 %   92.8 %

Expected term until exercise (years)                       6         6        6  

Expected dividends                                       0.0 %     0.0 %    0.0 %

(n) Contingencies

We record contingent liabilities when the amount can be reasonably estimated and the loss is probable. 

MEMC 2004 Annual Report  33  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

(o) Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ( FASB ) issued FASB Staff Position ( FSP ) No. 109-2,  Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004  ( FSP 109-2 ), provides guidance under FASB Statement No. 109, Accounting for Income Taxes,  with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the Jobs Act ) on enterprises  income tax expense and deferred tax liability. The Jobs Act was enacted on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. We have not yet completed evaluating the impact of the repatriation provisions. Accordingly, as provided for in FSP 109-2, we have not adjusted our tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Act. 

In May 2004, the FASB issued FSP No. 106-2 ( FSP 106-2 ),  Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003  (the  Medicare Act ). The Medicare Act was enacted December 8, 2003. FSP 106-2 supersedes FSP 106-1,  Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,  and provides authoritative guidance on accounting for the federal subsidy specified in the Medicare Act. The Medicare Act provides for a federal subsidy equal to 28% of certain prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D, beginning in 2006. Due to the lack of information or guidance from Health and Human Services, it is not clear whether our plan will qualify for the federal subsidy payments beginning in 2006. Therefore, the accumulated pension benefit obligation and the net periodic postretirement benefit cost do not reflect any amount associated with the subsidy. 

The adoption of the following recent accounting pronouncements did not have a material impact on our results of operations and financial condition: 

.     FASB Interpretation No. 45 ( FIN 45 ),  Guarantor s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others-An Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 ; 

.     FASB Interpretation No. 46(R) ( FIN 46R ),  Consolidation of Variable Interest Entities-An Interpretation of ARB No. 51 ; 

.     FASB issued revised SFAS No. 132 (R) (revised 2003),  Employer s Disclosures about Pensions and Other Post-Retirement Benefits-An Amendment of FASB Statements No. 87, 88, and 106 ; 

In November 2004, the FASB issued SFAS No. 151,  Inventory Costs-An Amendment of ARB No. 43, Chapter 4  ( SFAS 151 ). SFAS 151 amends the guidance in ARB No. 43, Chapter 4,  Inventory Pricing,  to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of  so abnormal  as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by us in the third quarter of fiscal 2005, beginning on July 1, 2005. We are currently evaluating the effect that the adoption of SFAS 151 will have on our consolidated results of operations and financial condition but we do not expect SFAS 151 will have a material impact. 

In December 2004, the FASB issued SFAS No. 123 (revised 2004),  Share-Based Payment  ( SFAS 123R ), which replaces SFAS No. 123,  Accounting for Stock-Based Compensation,  ( SFAS 123 ) and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in the third quarter of fiscal 2005, beginning July 1, 2005. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method 

MEMC 2004 Annual Report  34  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. We are evaluating the requirements of SFAS 123R and expect that the adoption of SFAS 123R will have a material impact on our consolidated results of operations and earnings per share. We have not yet determined the method of adoption or the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123. 

In December 2004, the FASB issued SFAS No. 153,  Exchanges of Nonmonetary Assets-An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions  ( SFAS 153 ). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,  Accounting for Nonmonetary Transactions,  and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 and is required to be adopted by us in the third quarter of fiscal 2005, beginning on July 1, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will have on our consolidated results of operations and financial condition but we do not expect it to have a material impact. 

In May 2003, the FASB issued SFAS No. 150,  Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity  ( SFAS 150 ). This statement affects the classification, measurement and disclosure requirements of certain financial instruments with characteristics of both liabilities and equity. SFAS 150 was effective for us for instruments entered into or modified after May 31, 2003 and otherwise was effective as of January 1, 2004, except for mandatory redeemable financial instruments. For certain mandatory redeemable financial instruments, SFAS 150 will be effective for us on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatory redeemable financial instruments. We do not believe the implementation of SFAS 150 will have a material effect on our financial condition or results of operations. 

We used the following methods and assumptions to estimate the fair value of derivative and other financial instruments at the balance sheet date: 

.     Short-term financial instruments (cash equivalents, short-term investments, accounts receivable and payable, income taxes payable, short-term borrowings, and accrued liabilities)-cost approximates fair value because of the short maturity period. 

.     Long-term debt-fair value is based on the amount of future cash flows associated with each debt instrument discounted at our current borrowing rate for similar debt instruments of comparable terms. 

.     The $50,000 senior subordinated secured notes, which were redeemed on December 30, 2004, were valued at December 31, 2003 at their face/notional amount, including accrued unpaid stated interest, as there was no market for similar debt instruments of comparable terms. 

.     Currency forward contracts-fair value is measured by the amount that would have been paid to liquidate and repurchase all open contracts. 

Information on the estimated fair values of financial instruments is as follows: 

                                                  Carrying      Face/     Estimated
                                                              Notional             
                                                   Amount                   Fair   
                                                  ---------    Amount       Value  
                                                              ---------   ---------
Dollars in thousands                                                               

Long-term debt 

2004                                              $ 138,727   $ 138,727   $ 140,272

2003                                                114,193     171,051     162,026

Currency forward contracts 

2004                                                     NA   $  38,813   $     664

2003                                                     NA      24,153         749

MEMC 2004 Annual Report  35  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Our customers are in the semiconductor industry and are located in various geographic regions including North America, Europe, Japan and the Asia Pacific area. Our customers are primarily well capitalized, and the concentration of credit risk is considered minimal. In 2004, we had only one customer comprising over 10% (specifically 13.3%) of our sales. Sales to two customers accounted for approximately 26% and 29% of our net sales in 2003 and 2002, respectively. No other customers constituted 10% or more of our net sales in 2003 and 2002. 

In 2004, we incurred no charges in connection with restructuring activities. Utilization of the provision for restructuring costs in 2004 totaled $557 and primarily related to reductions in headcount of approximately 11 employees in Europe in the first quarter of 2004. In the fourth quarter of 2004, we reversed the remaining $996 restructuring reserve since all restructuring activities related to the original plan had been completed during 2004. 

In 2003, we incurred no charges in connection with restructuring activities. Utilization of the provision for restructuring costs in 2003 totaled $6,255 and primarily related to reductions in headcount of approximately 70 employees in 2003 and to the sale of the Spartanburg facility on July 1, 2003. In 2002, we incurred charges of $15,300 primarily in connection with restructuring plans affecting approximately 450 salaried, hourly and temporary employees in the U.S., Italy, South Korea, Malaysia, and Japan. Actual utilization of the provision for restructuring costs for these restructuring activities in 2002 totaled $9,151 and primarily related to a reduction in headcount of 460 employees in 2002. 

In the first quarter of 2002, we recorded an adjustment to reduce the restructuring reserve by $3,700. This amount was considered to be an adjustment to purchase accounting affecting our Consolidated Balance Sheet at November 13, 2001, rather than as a current benefit in our Consolidated Statement of Operations. This reduction related to dismantling and related costs and personnel costs at the Spartanburg, South Carolina facility and the small diameter wafer line at MEMC Southwest Inc. that were closed in 1999 and 2001, respectively. Of the reduction, $3,073 was a result of further write-downs of the Spartanburg facility in connection with push-down accounting. The remainder was a result of actual expenses related to the closure of the MEMC Southwest Inc. small diameter wafer line being less than we had originally estimated. 

Restructuring activity is as follows: 

                              Asset        Dismantling     Personnel       Total    
                                                                         ---------  
                            Impairment     and Related       Costs                  
                                /                          ---------                
                                              Costs                                 
                            Write-off      -----------                              
                            ----------                                              
Dollars in thousands                                                                

Balance as of January 1,    $      490     $     5,785     $   4,230     $  10,505  
2002                                                                                
Purchase accounting                -            (3,201 )        (499 )      (3,700 )
adjustment                                                                          
Charges taken                      815             (85 )      14,570        15,300  

Amounts utilized                  (817 )          (668 )     (12,812 )     (14,297 )

Reclassification                   -                28           (28 )         -    

                            -- ------- -   - --------- -   - ------- -   - ------- -

Balance as of December             488           1,859         5,461         7,808  
31, 2002                                                                            
Amounts utilized                  (488 )        (1,827 )      (3,940 )      (6,255 )

                            -- ------- -   - --------- -   - ------- -   - ------- -

Balance as of December             -                32         1,521         1,553  
31, 2003                                                                            
Amounts utilized                   -               -            (557 )        (557 )

Reversal of reserves               -               (32 )        (964 )        (996 )

Balance as of December      $      -       $       -       $     -       $     -    
31, 2004                                                                            

MEMC 2004 Annual Report  36  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Inventories consist of the following: 

                                                   As of December 31,  
                                                  ---------------------
Dollars in thousands                                2004        2003   
                                                  ---------   ---------
Raw materials and supplies                        $  20,307   $  14,819

Goods in process                                     54,160      42,088

Finished goods                                       53,097      52,581

                                                  - -------   - -------

                                                  $ 127,564   $ 109,488

                                                  - -------   - -------

At December 31, 2004, we had $22,183 of inventory held on consignment, compared to $24,948 at December 31, 2003. 

Property, plant and equipment consists of the following: 

                                                 As of December 31,      
                                              -------------------------  
Dollars in thousands                             2004           2003     
                                              ----------     ----------  
Land and land improvements                    $    5,823     $    5,551  
Buildings and building improvements              117,511        113,832  
Machinery and equipment                          456,636        291,194  
                                              - -------- -   - -------- -
                                                 579,970        410,577  
Less accumulated depreciation                   (198,595 )     (164,266 )
                                              - -------- -   - -------- -
                                                 381,375        246,311  
Construction in progress                          63,295         24,056  
                                              - -------- -   - -------- -
                                              $  444,670     $  270,367  
                                              - -------- -   - -------- -

On January 30, 2004, we closed on the first of two closings of the remaining approximate 55% interest of Taisil Electronic Materials Corporation (Taisil) that we did not already own. The second of the two closings occurred on February 4, 2004. The acquisition was structured as a stock purchase for cash. The selling stockholders were China Steel Corporation, Chiao Tung Bank, China Development Industrial Bank and Robina Finance & Lease Corporation, Ltd. (Robina). The purchase price totaled approximately $60,000. This purchase price was net of approximately $7,000 that was paid by Robina to Taisil on February 4, 2004 simultaneously with our purchase of the Taisil shares from Robina. This amount was paid by Robina to Taisil in the form of a return of a deposit that Taisil had previously advanced to Robina at the time Robina originally acquired the Taisil shares. In order to finance the acquisition, we borrowed $60,000 under the Citibank/UBS Facility. We now own 99.97% of the outstanding shares of Taisil. As a result of these transactions, the financial results of Taisil were consolidated with MEMC effective as of February 1, 2004. 

MEMC 2004 Annual Report  37  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

The table below reflects unaudited pro forma combined results of MEMC and Taisil as if the acquisition had occurred on January 1, 2003: 

                                                           For the year ended   
                                                              December 31,      
                                                         -----------------------
                                                            2004         2003   
                                                         -----------   ---------
Net sales                                                $ 1,029,832   $ 852,690

Net income                                                   226,493     125,352

Basic income per share                                   $      1.09   $    0.62

Diluted income per share                                 $      1.02   $    0.57

These unaudited pro forma amounts are not necessarily indicative of what the actual combined results of operations might have been if the acquisition had been effective at the beginning of 2003. The results for 2004 were affected by losses from a small fire at Taisil and the related business interruption insurance recovery. 

On August 1, 2004, we acquired the 20% ownership interest in our MEMC Southwest Inc. joint venture that we did not already own. The consideration for the 20% ownership interest was the termination of the various joint venture agreements, including the shareholders  agreement, the technology transfer agreement and a wafer purchase agreement. Negative goodwill of $18,546 resulted from the application of purchase accounting. The negative goodwill was calculated as the excess of the fair value of the minority interest s net assets acquired over the assumed purchase price. The negative goodwill was then allocated to the bases of the minority interest s share of existing property, plant and equipment, goodwill and other noncurrent assets. 

The financial results of MEMC Southwest Inc. continued to be consolidated with MEMC subsequent to this transaction, but the minority interest was no longer reflected in our consolidated balance sheets, statements of operations or cash flow statements. 

Prior to the transactions described in Note 2, our investment in the Taisil joint venture was valued at our equity infusions into our joint venture plus our ownership percentage of its annual net income or net loss. Effective November 14, 2001, we revalued our investment in joint venture to reflect the push-down of TPG s nominal basis in MEMC. 

Royalties earned under royalty agreements with the joint venture and sales of intermediate and finished product by the joint venture to MEMC were as follows: 

                                            January    For the year ended
                                                          December 31,   
                                             2004      ------------------
                                            -------     2003       2002  
                                                       -------    -------
Dollars in thousands                                                     
Royalties                                   $   105    $ 4,056    $ 3,195
Sales                                       $   764    $ 6,859    $ 4,367

MEMC 2004 Annual Report  38  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

A summary of the results of operations for 2004, 2003 and 2002, and financial position as of December 31, 2003 of the previously unconsolidated Taisil joint venture follows: 

                                                   January      For the year ended 
                                                                   December 31,    
                                                     2004       -------------------
                                                   --------       2003       2002  
                                                                --------   --------
Dollars in thousands                                                               

Total for unconsolidated joint venture: 

Net sales                                          $  3,649     $ 81,612   $ 78,344

Gross margin                                         (1,783 )     23,412     19,882

Net income (loss)                                    (3,815 )     13,855      2,754

Our share- 

Net income (loss)                                  $ (1,717 )   $  6,235   $  1,239

                                                       As of   
                                                      December 
                                                         31,   

                                                        2003   
                                                      ---------
Current assets                                        $  35,209
Noncurrent assets                                       120,671
                                                      - -------
Total assets                                            155,880
                                                      - -------
Current liabilities                                      26,036
Noncurrent liabilities                                    9,192
                                                      - -------
Total liabilities                                        35,228
                                                      - -------
Interests of others                                      72,563
Push-down accounting                                     23,934
                                                      - -------
Our investment                                        $  24,155
                                                      - -------

Our unsecured borrowings total approximately $1,754 at December 31, 2004, under approximately $61,026 of short-term loan agreements which are renewable annually. Interest rates are negotiated at the time of the borrowings. Our unsecured borrowings totaled approximately $16,899 at December 31, 2003. 

Our weighted average interest rate on short-term borrowings was 3.1% and 5.8% at December 31, 2004 and 2003, respectively. 

MEMC 2004 Annual Report  39  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Long-term debt consists of the following: 

                                                        As of December 31,     
                                                      -----------------------  
                                                        2004          2003     
                                                      ---------     ---------  
Dollars in thousands                                                           

Owed to affiliates: 

Senior subordinated secured notes issued in           $     -       $   2,442 November 2001 with interest payable at 8% payable in kind in the first two years, 14% payable in kind thereafter, $59,300 face value plus accrued stated interest at December 31, 2003, paid in full on December 30, 2004 
  - ------- -   - ------- - 

Total owed to affiliates                                    -           2,442  

                                                      - ------- -   - ------- -

Owed to nonaffiliates: 

Citibank/UBS revolving credit facility with              60,000           -    
interest payable semiannually at 3.5%                                          
Note with interest payable at 6.3% at maturity of            60        33,369  
March 2005                                                                     
Notes with interest payable semiannually at rates        21,380        23,217  
ranging from 1.1% to 4.1%, due in 2005 through 2015                            
Notes with interest payable semiannually at rates        51,696        55,165  
ranging from 2.1% to 2.9%, due in 2009 through 2017                            
Notes with interest payable monthly at rates              5,591           -    
ranging from 2.3% to 3.3%, due in 2005 through 2007                            
                                                      - ------- -   - ------- -

Total owed to nonaffiliates                             138,727       111,751  

                                                      - ------- -   - ------- -

Total long-term debt                                    138,727       114,193  

Less current portion                                    (22,645 )     (54,942 )

                                                      - ------- -   - ------- -

                                                      $ 116,082     $  59,251  

                                                      - ------- -   - ------- -

Pursuant to the transactions described in Note 2 above, TPG exchanged $860,000 of the total $910,000 of debt acquired from E.ON for shares of our Preferred Stock with a stated value of $260,000, $50,000 in principal of our senior subordinated secured notes and warrants to purchase 16,666,667 shares of our common stock. We recorded the senior subordinated secured notes at their fair market value of 1 dollar. On August 19, 2003, the value assigned to the senior subordinated secured notes was increased by approximately $1,700 in connection with TPG s payment of $25,200 to E.ON. We were accreting the senior subordinated secured notes up to their face value over their maturity using the effective interest method. Interest expense related to the accretion of these notes was $3,855, $719 and $0 in 2004, 2003 and 2002, respectively. In December 2004, we negotiated an amendment to the note indenture to allow for the early redemption without a premium. As a result of the amendment, we recognized a non-operating debt extinguishment loss on a pretax basis of $61,403 in the 2004 fourth quarter. The notes were redeemed in full on December 30, 2004 for $67,700, the face value of the notes plus accrued interest. 

We have a $150,000 five-year revolving credit facility from Citibank/UBS (the Citibank/UBS Facility). TPG has guaranteed our obligations under this facility, and we have entered into a reimbursement agreement with the guarantors under which we have agreed to reimburse them for any payments made under the guaranty. Both the Citibank/UBS Facility and the reimbursement agreement are secured by substantially all of our domestic assets, including all of the capital stock of our domestic subsidiaries and 65% of the capital stock of certain of our foreign subsidiaries. Our domestic subsidiaries 

MEMC 2004 Annual Report  40  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

have guaranteed our obligations under the Citibank/UBS Facility and the reimbursement agreement. The subsidiary guaranties are supported by security interests in substantially all of the assets of our domestic subsidiaries. Loans can be made under this facility subject to certain conditions, bearing interest at LIBOR plus 1.5% or an alternate base rate (based upon the greater of the Federal funds rate plus 0.5% and the Citibank prime rate) plus 0.5% per annum. 

TPG has provided us with a five-year $35,000 revolving credit facility (the TPG Facility) bearing interest at a rate of LIBOR plus 10% or an alternate base rate plus 9%. The TPG Facility is guaranteed by our domestic subsidiaries and secured by substantially the same collateral that secures the Citibank/UBS Facility. As a condition to any borrowings under the TPG Facility, we must have borrowed all amounts available under the Citibank/UBS Facility. The commitments under the TPG Facility terminate and any outstanding loans under the facility, together with any accrued interest thereon, will become due and payable upon the closing and funding of a debt or equity financing in which the net proceeds to MEMC equal or exceed $100,000. 

The Citibank/UBS Facility and the TPG Facility contain certain covenants, including covenants to maintain minimum quarterly consolidated Earnings Before Interest, Taxes, Depreciation, and Amortization, as defined; minimum monthly consolidated backlog; minimum monthly consolidated revenues; maximum annual capital expenditures; and other covenants customary for revolving loans of this type and size. In the event that we violate these covenants, the loan commitments under the revolving credit facilities may terminate and the loans and accrued interest then outstanding under the facilities and related accrued interest may be due and payable immediately. 

The Citibank/UBS Facility is guaranteed by TPG. The various guaranties terminate in November 2005, prior to the expiration of the Citibank/UBS Facility. In addition, each guarantor may terminate its guaranty for any reason. In the event that a guarantor terminates its guaranty, or does not renew its guaranty in the case of a non-renewal the lenders have not received cash collateral or a replacement guaranty executed by a replacement guarantor satisfactory to the lenders, then the loan commitments under the revolving credit facility will terminate and we will be required to repay all outstanding loans and accrued interest under this facility. Likewise, if any guarantor defaults under its guaranty, then the guarantor s default will constitute an event of default under this revolving credit facility. In such event, the loan commitments under this revolving credit facility may terminate and the loans and accrued interest under the facility may be due and payable immediately. 

In any of these events, the guarantors and their affiliates have severally agreed to make new revolving credit loans available to us on terms and conditions no less favorable to us than provided in the original $150,000 revolving credit facility between us and TPG. The original TPG $150,000 revolving credit facility was substantially similar to the Citibank/UBS Facility except that the interest rates were 2% higher than the interest rates under the Citibank/UBS Facility. 

The Citibank/UBS Facility and the TPG Facility contain change in control provisions. Under these instruments, if (1) TPG s ownership interest in us is reduced below 15% of our total outstanding equity interests, (2) another person or group acquires ownership of a greater percentage of our outstanding equity than TPG, or (3) a majority of our Board of Directors is neither nominated by our Board of Directors nor appointed by directors so nominated, then an event of default shall be deemed to have occurred under the Citibank/UBS Facility and the TPG Facility in which event the loan commitments under these facilities may terminate and the loans and accrued interest then outstanding may become immediately due and payable. As part of the underwriters  agreement with TPG, TPG agreed to not sell any additional shares following the February 2005 stock offering for 180 days. There are no other restrictions preventing TPG from further reducing its ownership interest in the company. 

Long-term debt at December 31, 2004 totaling $51,696 owed to banks by our Japanese subsidiary is guaranteed by us. These loans mature in years ranging from 2009 to 2017. Such guaranties would require us to satisfy the loan obligations in the event that the Japanese subsidiary failed to pay such debt in accordance with its stated terms. 

We have long-term committed loan agreements of approximately $263,725 at December 31, 2004, of which approximately $138,727 is outstanding. Of the $263,725 committed long-term loan agreements, $3,417 is unavailable as it relates to the issuance of third party letters of credit. We pay commitment fees of 0.375 to 0.50 percent on the unused portion of committed loan agreements. 

MEMC 2004 Annual Report  41  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

The aggregate amounts of long-term debt maturing after December 31, 2004 are as follows: 

Dollars in thousands                            
2005                                   $  22,645
2006                                      72,521
2007                                       6,881
2008                                       6,493
2009                                       6,025
Thereafter                                24,162
                                       - -------
                                       $ 138,727
                                       - -------

In October 1996, we entered into a financing arrangement with the City of O Fallon, Missouri related to the expansion of our St. Peters facility. In total, the City of O Fallon issued approximately $252,000 of industrial revenue bonds to us. At December 31, 2004 and 2003, $113,201 and $122,861 was outstanding relating to these bonds, respectively. 

The proceeds of the bonds were exchanged by the City of O Fallon for the assets related to the expansion, which we then leased for a period of 10 years for machinery and equipment and 15 years for building and building improvements. We have the option to purchase the machinery and equipment and the building and building improvements from the City of O Fallon. The industrial revenue bonds bear interest at an annual rate of 6% and mature concurrent with the annual payments due under the terms of the lease. 

We have classified the leased assets as property, plant and equipment and have established a capital lease obligation equal to the outstanding principal balance of the industrial revenue bonds. Lease payments may be made by tendering an equivalent portion of the industrial revenue bonds. As the capital lease payments to the City of O Fallon may be satisfied by tendering industrial revenue bonds (which is our intention), the capital lease obligation, industrial revenue bonds and related interest expense and interest income, respectively, have been offset for presentation purposes in the consolidated financial statements. 

The Series A Cumulative Convertible Preferred Stock (Preferred Stock) had a stated value of $1,000 per share and was convertible into our common stock at a price of $2.25 per share. As a result of the restructuring transactions, 260,000 shares of the Preferred Stock were issued to TPG. We recorded the Preferred Stock at its fair value of 2 dollars. The Preferred Stock was redeemable at the option of the holders on or after November 13, 2009. Accordingly, the Preferred Stock was being accreted up to its stated value over this eight-year period. 

Dividends on the Preferred Stock were payable at the rate of 10% per annum if paid in cash. If not declared and paid quarterly, dividends accumulated at 12% per annum and were payable in common stock upon conversion of the preferred or were payable in cash upon redemption of the Preferred Stock, a change in control of MEMC or a liquidation, dissolution, or winding up of MEMC. 

On July 10, 2002, TPG converted all of the outstanding Preferred Stock plus cumulative unpaid preferred dividends into 125,010,556 shares of our common stock. As a result, effective July 11, 2002, there is no further preferred dividend requirement as the Preferred Stock is no longer outstanding. Following the conversion of the Preferred Stock, the Series A Cumulative Convertible Preferred Stock was retired and may not be reissued. 

Preferred Stock

We have 50,000,000 authorized shares of $.01 par value preferred stock. The Board of Directors is authorized, without further action by the stockholders, to issue any or all of the preferred stock. The Series A Cumulative Convertible Preferred Stock was designated by our Board of Directors as a new series of preferred stock. See Note 12 above for a further description of the Series A Cumulative Convertible Preferred Stock. 

MEMC 2004 Annual Report  42  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Warrants

Pursuant to the transactions described in Note 2 above, TPG received warrants to purchase 16,666,667 shares of our common stock. We recorded the warrants at their aggregate fair market value of less than 1 dollar. The warrants are exercisable at an exercise price of $3.00 per share of common stock and expire on November 13, 2011. 

Common Stock

Holders of our $.01 par value common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Subject to the rights of any holders of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in the distribution of all assets remaining after payment of liabilities, subject to the rights of any holders of preferred stock. 

We do not anticipate paying dividends on our common stock in the foreseeable future. The declaration and payment of future dividends on our common stock, if any, will be at the sole discretion of the Board of Directors and is subject to restrictions as contained in the Citibank/UBS Facility, the TPG Facility and the restructuring agreement between MEMC and TPG. 

2003 Common Stock Offering 

On May 21, 2003, we sold 10,000,000 shares of common stock for $10.00 per share in a public offering. The $94,400 net proceeds were used to pay down $70,000 under the Citibank/UBS Facility, with the balance used for general corporate purposes. 

Treasury Stock

Prior to the transactions described in Note 2 above, treasury stock was valued at cost. Effective November 14, 2001, we wrote down the carrying value of our treasury stock as a result of the push-down of TPG s nominal basis in MEMC. 

Stock-Based Compensation

We have equity incentive plans that provide for the award of incentive and non-qualified stock options, restricted stock, performance shares, and restricted stock units to employees, non-employee directors, and consultants. As of December 31, 2004, there were 18,688,966 shares authorized for grant under these plans. 

Prior to 2002, non-qualified stock options to employees had typically been granted on January 1 and vested at a rate of 25% annually over four years. In 2002, options were granted with two-year, four-year, and seven-year cliff vesting, in addition to four-year ratable vesting. In 2003 and 2004, options to employees were generally granted semi-annually primarily with four-year ratable vesting, although certain grants had four-year cliff vesting. Prior to 2002, non-qualified stock options to non-employee directors had typically been granted on January 1 but vested at a rate of 33 1/3% annually over three years. In 2002, non-qualified stock options to non-employee directors were granted on July 25, 2002 and vest at a rate of 33 1/3% annually over three years. No stock options were granted to non-employee directors in 2003 or 2004. The maximum term of each option is 10 years. 

The exercise price of stock options granted has historically equaled the market price on the date of the grant. Under the provision of Opinion 25, in this case, there is no recorded expense related to grants of stock options. Once exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option. 

In 2001 and 2002, certain stock options were granted at prices less than the market price on the date of grant. These options were either immediately vested or vested over two to four years. Since these options were issued below the market price of our common stock on the date of issuance, compensation expense will be recognized for the intrinsic value of the options of approximately $12,800 using an accelerated method over the applicable vesting periods. Compensation expense related to these stock options was $1,907, $3,374, and $5,886 in 2004, 2003, and 2002, respectively. 

Recipients of stock grants do not pay any cash for the shares. Stock grants to employees totaled 244,258 shares of our common stock in 2002. We also issued 589,409 shares of restricted stock in 2002, which vested within one year after issuance. The weighted average fair value of the 

MEMC 2004 Annual Report  43  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

restricted stock on the date of grant was $5.69 per share. Forfeitures of restricted stock totaled 1,249 shares and 13,369 shares in 2003 and 2002, respectively. Recipients of restricted stock do not pay any cash consideration for the shares, have the right to vote all shares subject to such grant, and have dividend rights with respect to such shares, whether or not the shares have vested. We recorded compensation expense related to stock grants and restricted stock of $0, $0, and $2,318 in 2004, 2003, and 2002, respectively. There is no deferred compensation expense related to the stock grants or restricted stock at December 31, 2004 or 2003. 

Restricted stock units represent the right to receive a share of MEMC stock at a designated time in the future, provided the stock unit is vested at the time. Restricted stock units granted to non-employee directors, which generally vest over a two year period from the grant date, totaled 94,400 in 2004. Notwithstanding the foregoing, of the 40,000 restricted stock units granted to non-employee directors in April 2004, 50% vested in July 2004 and the remaining 50% will vest in July 2005. The weighted average fair value of the stock underlying the restricted stock unit on the date of grant was $8.24. Forfeitures of restricted stock units totaled 9,300 shares in 2004. Recipients of restricted stock units do not pay any cash consideration for the restricted stock units or the underlying shares, and do not have the right to vote or have any other rights of a shareholder until such time as the underlying shares of stock are distributed. We recorded compensation expense related to restricted stock units of $368 in 2004. Deferred compensation expense related to restricted stock unit grants at December 31, 2004 was $320. 

The following table summarizes the activity for the stock option plans: 

                                            Shares        Weighted-    Weighted-
                                          ----------                            
                                                           Average      Average 

                                                           Option        Fair   
                                                            Price      Value of 
                                                          ---------             
                                                                       Options  
                                                                        Granted 
                                                                       ---------
Year ended December 31, 2004:                                                   
Outstanding at beginning of year           9,217,587      $    6.53             
Granted at market                          2,781,680           9.46    $    9.46
Exercised                                 (1,391,323 )         3.47             
Canceled                                  (1,328,921 )         8.26             
                                          ---------- -    - -------             
Outstanding at end of year                 9,279,023      $    7.61             
                                          ---------- -    - -------             
Options exercisable at year-end            2,658,491      $    8.37             
                                          ---------- -    - -------             
Year ended December 31, 2003:                                                   
Outstanding at beginning of year           9,231,880      $    5.38             
Granted at market                          2,378,485          10.51    $    9.42
Exercised                                 (1,476,697 )         4.54             
Canceled                                    (916,081 )         7.50             
                                          ---------- -    - -------             
Outstanding at end of year                 9,217,587      $    6.53             
                                          ---------- -    - -------             
Options exercisable at year-end            2,577,670      $    8.39             
                                          ---------- -    - -------             
Year ended December 31, 2002:                                                   
Outstanding at beginning of year           2,976,180      $   13.71             
Granted at market                          2,272,000           4.15    $    3.37
Granted below market                       5,440,650           2.60         3.86
Exercised                                    (83,375 )         8.44             
Canceled                                  (1,373,575 )        10.20             
                                          ---------- -    - -------             
Outstanding at end of year                 9,231,880      $    5.38             
                                          ---------- -    - -------             
Options exercisable at year-end            1,706,480      $   13.66             
                                          ---------- -    - -------             

MEMC 2004 Annual Report  44  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

The table below summarizes information concerning options outstanding at
December 31, 2004:

                                Options Outstanding                 Options Exercisable  
                     ------------------------------------------   -----------------------
Range of               Number         Weighted-       Weighted-     Number      Weighted-

Exercise Prices      Outstanding       Average         Average    Exercisable    Average 
----------           -----------                                  -----------            
                                      Remaining       Exercise                  Exercise 

                                   Contractual Life     Price                     Price  
                                   ----------------   ---------                 ---------
$1.50   4.99           3,914,046          7.2 years   $    3.18     1,438,936   $    3.14

$5.63   9.43           2,486,670          9.1 years        8.64       224,825        8.41

$9.62   12.25          2,333,777          8.4 years       11.09       520,200       11.44

$12.98   49.50           544,530          3.1 years       19.83       474,530       20.84

                     -----------   ----------------   - -------   -----------   - -------

                       9,279,023          7.8 years   $    7.61     2,658,491   $    8.37

                     -----------   ----------------   - -------   -----------   - -------

In 2004 and 2003, basic and diluted earnings per share (EPS) were calculated as follows: 

                            For the year ended              For the Year ended      

                             December 31, 2004               December 31, 2003      
                       -----------------------------   -----------------------------
                           Basic          Diluted          Basic          Diluted   
                       -------------   -------------   -------------   -------------
EPS Numerator:                                                                      

Net income allocable   $     226,201   $     226,201   $     116,617   $     116,617
to common                                                                           
stockholders                                                                        
                       - -----------   - -----------   - -----------   - -----------

EPS Denominator:                                                                    

Weighted average         207,705,094     207,705,094     202,439,828     202,439,828 shares outstanding Restricted stock and           8,743          22,482             -            70,791 restricted stock units Warrants                         -        11,356,387             -        12,001,226 

Stock options                    -         1,963,983             -         4,207,614

                       - -----------   - -----------   - -----------   - -----------

Total shares             207,713,837     221,047,946     202,439,828     218,719,459

                       - -----------   - -----------   - -----------   - -----------

Earnings per share     $        1.09   $        1.02   $        0.58   $        0.53

                       - -----------   - -----------   - -----------   - -----------

In 2004 and 2003, options to purchase 3,345,661 and 1,500,571, respectively, of MEMC stock were excluded from the calculation of diluted EPS because the effect was antidilutive. Stock options are antidilutive when the exercise price of the options is greater than the average market price of the common shares for the period. 

In 2002, the numerator of the basic and diluted loss per share calculation was net loss allocable to common stockholders. Cumulative preferred stock dividends were not added back to the net loss, as the related conversion of the Preferred Stock would have been antidilutive. The Preferred Stock, the warrants and the options outstanding were not considered in computing diluted loss per share, as they were antidilutive. 

MEMC 2004 Annual Report  45  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Income (losses) before income taxes, equity in income (loss) of joint venture and minority interests consists of the following: 

                                              For the year ended December 31,     
                                           -------------------------------------  
                                             2004          2003          2002     
                                           ---------     ---------     ---------  
Dollars in thousands                                                              

U.S.                                       $  17,130     $  55,602     $  (5,849 )

Foreign                                      181,401       100,285        25,416  

                                           - ------- -   - ------- -   - ------- -

                                           $ 198,531     $ 155,887     $  19,567  

                                           - ------- -   - ------- -   - ------- -

Income tax (benefit) expense consists of the following: 
  Current      Deferred        Total ---------     ---------     --------- Dollars in thousands 

Year ended December 31, 2004: 

U.S. Federal                               $  31,599     $ (43,344 )   $ (11,745 )

State and local                                  222           -             222  

Foreign                                       22,837       (51,433 )     (28,596 )

                                           - ------- -   - ------- -   - ------- -

                                           $  54,658     $ (94,777 )   $ (40,119 )

                                           - ------- -   - ------- -   - ------- -

Year ended December 31, 2003: 

U.S. Federal                               $      (6 )   $   5,036     $   5,030  

State and local                                  314           -             314  

Foreign                                       20,319        11,201        31,520  

                                           - ------- -   - ------- -   - ------- -

                                           $  20,627     $  16,237     $  36,864  

                                           - ------- -   - ------- -   - ------- -

Year ended December 31, 2002: 

U.S. Federal                               $    (479 )   $     -       $    (479 )

State and local                                  (62 )         -             (62 )

Foreign                                       18,516        (1,263 )      17,253  

                                           - ------- -   - ------- -   - ------- -

                                           $  17,975     $  (1,263 )   $  16,712  

                                           - ------- -   - ------- -   - ------- -

MEMC 2004 Annual Report  46  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Income tax (benefit) expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income (loss) before income taxes, equity in income (loss) of joint venture and minority interests as a result of the following: 

                                            For the year ended December 31,      
                                        ---------------------------------------  
                                           2004          2003           2002     
                                        ----------     ---------     ----------  
Dollars in thousands                                                             

Income tax at federal statutory rate    $   69,486     $  54,561     $    6,848  

Increase (reduction) in income taxes: 

Change in the valuation allowance for     (137,452 )     (36,008 )      (10,071 )
deferred tax asset                                                               
Reorganization items                           -           5,933        215,432  

Change in the valuation allowance for          -             -         (215,432 )
reorganization items                                                             
Nondeductible interest                      26,583           -           19,029  

Foreign tax differences                      3,900        12,841          2,260  

State income taxes, net of Federal             144           204            (41 )
benefit                                                                          
Asset revaluation-foreign                   (2,971 )      (2,858 )       (2,723 )
subsidiaries                                                                     
Investment incentives                         (156 )         (26 )          (13 )

Other, net                                     347         2,217          1,423  

                                        - -------- -   - ------- -   - -------- -

                                        $  (40,119 )   $  36,864     $   16,712  

                                        - -------- -   - ------- -   - -------- -

The tax effects of the major items recorded as deferred tax assets and liabilities are: 

                                                  As of December 31,             
                                       ----------------------------------------  
                                          2004           2003           2002     
                                       ----------     ----------     ----------  
Dollars in thousands                                                             

Deferred tax assets: 

Inventories                            $    5,772     $    4,435     $    8,248  

Expense accruals                           39,815         22,367         27,574  

Property, plant and equipment             119,181        135,138        170,410  

Pension, medical and other employee        37,902         38,651         36,744  
benefits                                                                         
Net operating loss carryforwards           58,949         77,938         99,216  

Investment tax credit carryforward          1,766            -              -    

Alternative minimum tax credit              2,260          2,260          2,260  
carryforwards                                                                    
Other                                      12,324          6,953          1,128  

                                       - -------- -   - -------- -   - -------- -

Total gross deferred tax assets           277,969        287,742        345,580  

Less valuation allowance                 (133,579 )     (254,592 )     (295,945 )

                                       - -------- -   - -------- -   - -------- -

Net deferred tax assets                   144,390         33,150         49,635  

                                       - -------- -   - -------- -   - -------- -

Deferred tax liabilities: 

Other                                     (16,753 )      (12,740 )      (15,491 )

                                       - -------- -   - -------- -   - -------- -

Total deferred tax liabilities            (16,753 )      (12,740 )      (15,491 )

                                       - -------- -   - -------- -   - -------- -

Net deferred tax assets                $  127,637     $   20,410     $   34,144  

                                       - -------- -   - -------- -   - -------- -

MEMC 2004 Annual Report  47  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

In 2003, we reviewed our total net deferred tax assets by taxable jurisdiction and recognized a valuation allowance where it was deemed more likely than not that we would be unable to realize a benefit from these assets. In 2004, the net deferred tax asset was reviewed in light of improvements in both domestic and foreign operating results and higher expected taxable income levels. Domestically, because of higher projected taxable income levels and the expectation that it is more likely than not that we will be able to recognize the effect of certain deferred tax assets and tax loss carryforwards, we have recognized a reduced valuation allowance from that reflected in prior years. On the foreign side, earnings improvements at our Japanese operations have resulted in the expectation that all of the net deferred tax asset will be utilized resulting in the reversal in 2004 of the remaining valuation allowance. In summary, we reversed $107,851 in valuation allowances related to future earnings and $29,601 related to current earnings in 2004. 

Our deferred tax assets and liabilities, netted by taxing location, are in the following captions in the Consolidated Balance Sheet: 

                                                         As of December 31,       
                                                   -------------------------------
                                                     2004        2003       2002  
                                                   ---------   --------   --------
Dollars in thousands                                                              

Current deferred tax assets, net                   $   7,802   $    162   $    476

Noncurrent deferred tax assets, net                  119,835     20,248     33,668

                                                   - -------   - ------   - ------

                                                   $ 127,637   $ 20,410   $ 34,144

                                                   - -------   - ------   - ------

Our Federal and foreign net operating loss carryforwards at December 31, 2004 were $90,147 of which $1,752 will expire in 2007; $2,641 will expire in 2008; $17,885 will expire in 2020; $29,880 will expire in 2022; and $37,989 will expire in 2023. We also have alternative minimum tax credit carryforwards available of $2,260. 

Section 382 of the Internal Revenue Code ( IRC ) restricts the utilization of net operating losses and other carryover tax attributes upon the occurrence of an ownership change, as defined. Such an ownership change occurred during 2001 as a result of the acquisition by TPG, as described in Note 2 above. As a result of the ownership change, approximately $861,000 of our U.S. net operating loss carryforwards was applied to reduce our tax attributes under IRC Section 108(b). Certain portions of our U.S. net operating losses may be subject to the restrictions of Section 382. To the extent that any U.S. or foreign net operating loss carryforwards remain, we have recognized a valuation allowance to fully offset any associated deferred tax assets. 

Push-down accounting as described in Note 2 above created differences in the bases of certain assets and liabilities for financial statement accounting and for tax accounting. These differences resulted in the recognition of a net deferred tax asset. In 2001, we recognized a valuation allowance related to these deferred tax assets as it was determined more likely than not that we would be unable to realize a benefit from these assets. 

Other noncurrent liabilities includes tax liabilities of $36,576 and $5,036 at December 31, 2004 and 2003, respectively, have been established for potentially nondeductible items. These tax liabilities are expected to remain on our books until such time that the company sustains the deductions from an Internal Revenue Service audit or the expiration of the statute of limitations. 

On October 22, 2004, the American Jobs Creation Act ( the AJCA ) was signed into law. The AJCA includes a deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings repatriations in either 2004 or 2005. On December 21, 2004, the FASB issued FASB staff position ( FSP ),  Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004  ( FSP 109-2 ). FSP 109-2 allows companies additional time to evaluate the effect of the law on whether unrepatriated foreign earnings continue to qualify for SFAS 109 s exception to recognizing deferred tax liabilities and would require explanatory disclosures from those who need the additional time. Through December 31, 2004, MEMC has not provided deferred taxes on foreign earnings because such earnings were intended to be indefinitely reinvested outside the U.S. The Company has started an evaluation of the effects of the repatriation provision; however, the Company does not expect to be able to complete this evaluation until after Congress or the Treasury Department provide additional clarifying language on key elements of the provision. The Company expects to complete its evaluation of 

MEMC 2004 Annual Report  48  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

the effects of the repatriation provision within a reasonable period of time following the publication of the additional clarifying language. The range of possible amounts that the Company is considering for repatriation under this provision is between zero and approximately $440,000, the accumulated undistributed earnings of the consolidated foreign subsidiaries as of December 31, 2004. Due to the existence of net operating loss carryforwards and corresponding valuation allowances, the related potential range of income tax effect of such repatriation cannot be reasonably estimated. 

Prior to January 2, 2002, our defined benefit plan covered most U.S. employees. Benefits for this plan were based on years of service and qualifying compensation during the final years of employment. Effective January 2, 2002, we amended our defined benefit plan to discontinue future benefit accruals for certain participants. In addition, effective January 2, 2002, no new participants will be added to the plan. 

We also have a nonqualified plan under the Employee Retirement Income Security Act of 1974. This plan provides benefits in addition to the defined benefit plan. Eligibility for participation in this plan requires coverage under the defined benefit plan and other specific circumstances. The nonqualified plan has been amended to discontinue future benefit accruals. 

Prior to January 1, 2002, our health care plan provided postretirement medical benefits to full-time U.S. employees who met minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. Effective January 1, 2002, we amended our health care plan to discontinue eligibility for postretirement medical benefits for certain participants. In addition, effective January 2, 2002, no new participants will be eligible for postretirement medical benefits under the plan. 

Net periodic benefit cost consists of the following: 

                                 Pension Plans                     Health Care Plan      
                       ----------------------------------     ---------------------------
Year ended December      2004         2003         2002        2004      2003      2002  
31,                    --------     --------     --------     -------   -------   -------
-----------------                                                                        
Dollars in thousands                                                                     

Service cost           $  3,950     $  3,077     $  3,408     $   258   $   328   $   409

Interest cost             9,017        9,093        9,365       2,787     3,256     3,502

Expected return on       (5,974 )     (5,523 )     (7,130 )       -         -         -  
plan assets                                                                              
Amortization of              13            3          -           -         -         -  
service costs                                                                            
Net actuarial loss/       1,131          592          -             7       -         -  
(gain)                                                                                   
Transition                   23          -            -           -         -         -  
obligation                                                                               
recognized                                                                               
                       - ------ -   - ------ -   - ------ -   - -----   - -----   - -----

Net periodic benefit   $  8,160     $  7,242     $  5,643     $ 3,052   $ 3,584   $ 3,911
cost                                                                                     
                       - ------ -   - ------ -   - ------ -   - -----   - -----   - -----

We use a measurement date of September 30 to determine pension and other post-retirement benefit measurements for the plans. 

The following is a table of actuarial assumptions used to determine the net periodic benefit cost: 

                                                   Pension Plans      Health Care    
                                                   -------------          Plan       
                                                                     --------------  
Year ended December 31,                            2004     2003     2004     2003   
-----------------                                  ----     ----     ----     -----  
Weighted average assumptions:                                                        

Discount rate                                      6.00 %   6.75 %   6.00 %    6.75 %

Expected return on plan assets                     8.00 %   8.00 %     NA        NA  

Rate of compensation increase                      4.50 %   4.50 %   4.50 %    4.50 %

Current medical cost trend rate                      NA       NA     9.25 %   10.25 %

Ultimate medical cost trend rate                     NA       NA     5.25 %    5.25 %

Year the rate reaches ultimate trend rate            NA       NA     2008      2008  

MEMC 2004 Annual Report  49  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

The following summarizes the change in benefit obligation, change in plan assets, and funded status of the plans: 

                                      Pension Plans             Health Care Plan      
                                 -----------------------     -----------------------  
Year ended December 31,            2004          2003          2004          2003     
-----------------                ---------     ---------     ---------     ---------  
Dollars in thousands                                                                  

Change in benefit obligation: 

Benefit obligation, beginning    $ 155,741     $ 136,040     $  51,883     $  51,464  

Acquisition of Taisil, benefit       3,274           -             -             -    
obligation, beginning                                                                 
Service cost                         3,950         3,077           258           329  

Interest cost                        9,017         9,093         2,787         3,256  

Amendments                             163            39           -             -    

Actuarial (gain)/loss                6,889        19,030        (4,239 )       1,227  

Benefits paid                       (8,428 )     (11,538 )      (4,040 )      (4,393 )

                                 - ------- -   - ------- -   - ------- -   - ------- -

Benefit obligation as of           170,606       155,741        46,649        51,883  
September 30                                                                          
                                 - ------- -   - ------- -   - ------- -   - ------- -

Change in plan assets: 

Fair value of plan assets,          72,763        72,653           -             -    
beginning                                                                             
Acquisition of Taisil, fair          1,575           -             -             -    
value of plan assets,                                                                 
beginning                                                                             
Actual return on plan assets         4,669        10,551           -             -    

Employer contributions              21,467         1,097         4,040         4,393  

Benefits paid                       (8,428 )     (11,538 )      (4,040 )      (4,393 )

                                 - ------- -   - ------- -   - ------- -   - ------- -

Fair value of plan assets as        92,046        72,763           -             -    
of September 30                                                                       
                                 - ------- -   - ------- -   - ------- -   - ------- -

Funded status as of September      (78,560 )     (82,978 )     (46,649 )     (51,883 )
30                                                                                    
Unrecognized prior service             186            46           -             -    
cost                                                                                  
Unrecognized net actuarial          34,398        28,208        (3,087 )       1,159  
(gain)/loss                                                                           
Unrecognized transitional              454           -             -             -    
(asset) obligation                                                                    
Fourth quarter contribution          3,782           114         1,008         1,148  

                                 - ------- -   - ------- -   - ------- -   - ------- -

Accrued benefit cost at          $ (39,740 )   $ (54,610 )   $ (48,728 )   $ (49,576 )
December 31                                                                           
                                 - ------- -   - ------- -   - ------- -   - ------- -

Amounts recognized in statement of financial position: Accrued benefit liability        $ (68,113 )   $ (74,284 )   $ (49,736 )   $ (50,724 ) 

Fourth quarter contribution          3,782           114         1,008         1,148  

Accumulated other                   24,591        19,560           -             -    
comprehensive loss                                                                    
                                 - ------- -   - ------- -   - ------- -   - ------- -

Accrued pension expense          $ (39,740 )   $ (54,610 )   $ (48,728 )   $ (49,576 )

                                 - ------- -   - ------- -   - ------- -   - ------- -

The following is a table of the actuarial assumptions used to determine the benefit obligation: 

                                                   Pension Plans      Health Care    
                                                   -------------          Plan       
                                                                     --------------  
Year ended December 31,                            2004     2003     2004     2003   
-----------------                                  ----     ----     ----     -----  
Weighted average assumptions:                                                        

Discount rate                                      5.75 %   6.00 %   5.75 %    6.00 %

Rate of compensation increase                      4.50 %   4.50 %   4.50 %    4.50 %

Current medical cost trend rate                      NA       NA     9.25 %   10.25 %

Ultimate medical cost trend rate                     NA       NA     5.25 %    5.25 %

Year the rate reaches ultimate trend rate            NA       NA     2008      2008  

MEMC 2004 Annual Report  50  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Pension plan assets are invested primarily in marketable securities including common stocks, bonds and interest-bearing deposits. The weighted-average allocation of pension benefit plan assets at September 30 was: 

Asset Category                                                  2004      2003  
----------                                                      ----      ----  
Equity securities                                                 63 %      56 %
Fixed income securities                                           37 %      44 %
                                                                ---- -    ---- -
Total                                                            100 %     100 %
                                                                ---- -    ---- -

The investment objectives of our pension plan assets are as follows: 

.     To achieve a favorable relative return as compared with inflation; 

.     To achieve an above average total rate of return relative to capital markets; 

.     Preservation of capital through a broad diversification among asset classes which react, as nearly as possible, independently to varying economic and market circumstances; and 

.     Long-term growth, with a degree of emphasis on stable growth, rather than short-term gains. 

Our pension expense and pension liability are actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on assets to estimate our pension costs and obligations. We determine the expected return on plan assets based on our pension plans  actual asset mix as of the beginning of the year. While the assumed expected rate of return on plan assets in 2004 was 8.0%, the actual return experienced in our pension plan assets in the comparable period in 2004 was 6.25%. We use the Moody s AA long-term bond rate as a guideline in determining our discount rate assumption. 

Our pension obligations are funded in accordance with provisions of Federal law. Contributions to our pension plans in 2004 totaled $25,135. We expect contributions to our pension plan in 2005 to be approximately $15,000. 

For all of the above pension plans and for both periods presented, the accumulated benefit obligation was in excess of plan assets. The accumulated benefit obligation was $160,289 and $146,022 as of September 30, 2004 and 2003, respectively. 

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1% change in the medical trend rate would have the following effects at December 31, 2004: 

                                                          1%            1%      
                                                        Increase      Decrease  
                                                        --------      --------  
Dollars in thousands                                                            
Total service and interest cost components              $     49      $    (50 )
Postretirement benefit obligation                            770          (781 )

We estimate that the future benefits payable for the pension and other post-retirement plans are as follows: 

                                                         Pension       Health  
                                                          Plans         Care   
                                                         --------        Plan  
                                                                       --------
Dollars in thousands                                                           
2005                                                     $  7,701      $  4,177
2006                                                        8,085         4,372
2007                                                        8,537         4,531
2008                                                        9,148         4,511
2009                                                        9,971         4,494
2010-2014                                                  63,835        21,825

MEMC 2004 Annual Report  51  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Medicare Prescription Drug, Improvement and Modernization Act of 2003 

The U.S. Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. The Act provides a federal subsidy to companies who provide prescription drug benefits to retirees that are actuarially equivalent to the benefits provided under Medicare Part D under the Act. Due to the lack of information or guidance from Health and Human Services ( HHS ), it is not clear whether the plan will qualify for the federal subsidy payments beginning in 2006. Therefore, the accumulated pension benefit obligation and the net periodic postretirement benefit cost do not reflect any amount associated with the subsidy. 

We sponsor a defined contribution plan under Section 401(k) of the IRC covering all U.S. salaried and hourly employees. Our contributions included in results of operations totaled $4,568, $4,470, and $2,459 for 2004, 2003, and 2002, respectively. 

We lease buildings, equipment and automobiles under operating leases. Rental expense was $8,102, $5,904 and $6,219 in 2004, 2003, and 2002, respectively. This table shows future minimum rental commitments under noncancellable operating leases at December 31, 2004: 

Dollars in thousands 

2005                                                                   $  8,380

2006                                                                      5,989

2007                                                                      5,121

2008                                                                      4,725

2009                                                                      4,659

Thereafter                                                                6,264

                                                                       - ------

                                                                       $ 35,138

                                                                       - ------

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations and we do not have any pending indemnification claims. 

We are engaged in one reportable segment-the design, manufacture and sale of wafers for the semiconductor industry. 

Geographic financial information is as follows: 

Net Sales to Customers:

Dollars in thousands                              2004         2003        2002   
                                               -----------   ---------   ---------
North America                                  $   286,302   $ 278,067   $ 251,094

Europe                                             200,871     169,696     164,831

Japan                                               99,567      90,737      68,582

Asia Pacific                                       441,218     242,600     202,673

                                               - ---------   - -------   - -------

Total                                          $ 1,027,958   $ 781,100   $ 687,180

                                               - ---------   - -------   - -------

MEMC 2004 Annual Report  52  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Long-Lived Assets:

Dollars in thousands                              2004        2003        2002   
                                                ---------   ---------   ---------
United States                                   $ 120,139   $ 128,952   $ 131,718

Japan                                             171,169      84,583      36,584

Korea                                              44,687      35,963      13,882

Italy                                              82,697      64,165      32,271

Taiwan                                             77,306      24,184      16,868

Other foreign countries                             3,779       3,312       2,983

                                                - -------   - -------   - -------

Total                                           $ 499,777   $ 341,159   $ 234,306

                                                - -------   - -------   - -------

Net sales are attributed to countries based on the location of the customer. For 2003 and 2002, our investment in our joint venture is presented based on the country in which it is located. 

2004                               First        Second         Third        Fourth    
--                                Quarter       Quarter       Quarter       Quarter   
                                 ---------     ---------     ---------     ---------  
Dollars in thousands, except                                                          
per share data                                                                        
Net sales                        $ 228,760     $ 255,539     $ 275,283     $ 268,376  

Gross margin                        73,343        87,159       110,746        98,167  

Income before equity in loss        40,300        63,556        62,374        72,420  
of joint venture and minority                                                         
interests                                                                             
Equity in loss of joint             (1,717 )         -             -             -    
venture                                                                               
Minority interests                  (2,677 )      (2,955 )      (2,654 )      (2,446 )

Net income                       $  35,906     $  60,601     $  59,720     $  69,974  

Basic income per share           $    0.17     $    0.29     $    0.29     $    0.34  

Diluted income per share         $    0.16     $    0.27     $    0.27     $    0.32  

Market close stock prices: 

High                             $   11.73     $   10.36     $    9.55     $   13.25  

Low                              $    7.95     $    7.97     $    7.39     $    8.46  

2003                               First        Second         Third        Fourth    
--                                Quarter       Quarter       Quarter       Quarter   
                                 ---------     ---------     ---------     ---------  
Dollars in thousands, except                                                          
per share data                                                                        
Net sales                        $ 188,345     $ 191,829     $ 195,897     $ 205,029  

Gross margin                        54,202        55,624        58,519        64,411  

Income before equity in income      21,119        26,808        36,498        34,598  
of joint venture and minority                                                         
interests                                                                             
Equity in income of joint            1,063         1,665         1,589         1,918  
venture                                                                               
Minority interests                  (2,442 )      (1,197 )      (2,890 )      (2,112 )

Net income                       $  19,740     $  27,276     $  35,197     $  34,404  

Basic income per share           $    0.10     $    0.14     $    0.17     $    0.17  

Diluted income per share         $    0.09     $    0.13     $    0.16     $    0.15  

Market closing stock prices: 

High                             $   11.48     $   13.35     $   14.51     $   12.50  

Low                              $    7.00     $    8.88     $    9.51     $    8.38  

MEMC 2004 Annual Report  53  Technology Is Built On Us 

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Notes to Consolidated Financial              Dollars in thousands, except share
Statements                                                                 data

Quarter ended September 30, 2003: 

We recorded currency gains of $11,600 in the third quarter of 2003 related primarily to the revaluation of a Yen-based intercompany loan. The currency gains resulted from the significant weakening of the U.S. Dollar against the Japanese Yen in the third quarter of 2003. 

Quarter ended June 30, 2004: 

We reversed $25,300 in valuation allowances against deferred tax assets in the second quarter of 2004 as we believe that it is more likely than not certain deferred tax assets will be realized based on management s estimate of future earnings. 

Quarter ended December 31, 2004: 

We reversed $82,551 in valuation allowances against deferred tax assets in the fourth quarter of 2004 as we believe that it is more likely than not certain deferred tax assets will be realized based on management s estimate of future earnings. 

In December 2004, we negotiated an amendment to the note indenture to the senior subordinated secured notes to allow for the early redemption without a premium. As a result of the amendment, we recognized a non-operating extinguishment loss on a pretax basis of $61,403 in the 2004 fourth quarter. The notes were redeemed in full on December 30, 2004 for $67,700, the face value plus accrued interest of the notes. We recorded a $26,583 noncurrent tax liability in the fourth quarter to provide for the possible nondeductibility of the debt extinguishment payment. 

MEMC 2004 Annual Report  54  Technology Is Built On Us 

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Report of Independent Registered                                               
Public Accounting Firm                                                         

To the Board of Directors 

of MEMC Electronic Materials, Inc.:

We have audited the accompanying consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. 

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for spare parts in 2003. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control   Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2005, expressed an unqualified opinion on management s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting. 

                                                             LOGO              

	<original-page KPMG LLP >

St. Louis, Missouri

March 16, 2005 

MEMC 2004 Annual Report  55  Technology Is Built On Us 

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Report of Independent Registered                                               
Public Accounting Firm                                                         

The Board of Directors

MEMC Electronic Materials, Inc.:

We have audited management s assessment, included in the accompanying Management s Report on Internal Control Over Financial Reporting, that MEMC Electronic Materials, Inc. and subsidiaries (the Company) did not maintain effective internal control over financial reporting as of December 31, 2004, because the Company did not employ personnel with adequate expertise in matters related to the accounting for income taxes, based on criteria established in Internal Control   Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management s assessment and an opinion on the effectiveness of the Company s internal control over financial reporting based on our audit. 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 

A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company s assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management s assessment as of December 31, 2004: The Company did not employ personnel with adequate expertise in matters related to the accounting for income taxes. As a result of this deficiency in the Company s internal control over financial reporting, management did not detect errors in the accounting for income tax amounts and disclosures in a timely manner as of and for the year ended December 31, 2004. Specifically, errors were detected that resulted in a net understatement of current tax expense and an additional error was detected that resulted in an understatement of deferred tax benefit. In addition, errors were identified in the Company s initial income tax footnote disclosures. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 2004. The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated March 16, 2005, which expressed an unqualified opinion on those consolidated financial statements. 

In our opinion, management s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control   Integrated Framework issued by COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control   Integrated Framework issued by COSO. 

                                                             LOGO              

	<original-page KPMG LLP >

St. Louis, Missouri

March 16, 2005 

MEMC 2004 Annual Report  56  Technology Is Built On Us 

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Management s Report on Internal Control Over Financial Reporting               

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 

As of December 31, 2004, management conducted an assessment of the effectiveness of the Company s internal control over financial reporting based upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based upon this assessment, management concluded that, as of December 31, 2004, the Company did not maintain effective internal control over financial reporting as there was more than a remote likelihood that a material misstatement of the Company s annual or interim financial statements with respect to income taxes would not be prevented or detected, on a timely basis, by Company employees in the normal course of performing their assigned functions. 

The aforementioned material weakness identified by management relates to the Company not employing resources with adequate expertise in matters related to the accounting for income taxes. As a result of this deficiency in the Company s internal control over financial reporting, management did not detect errors in the accounting for income tax amounts and disclosures in a timely manner as of and for the year ended December 31, 2004. Specifically, errors were detected that resulted in a net understatement of current tax expense and an additional error was detected that resulted in an understatement of deferred tax benefit. In addition, errors were identified in the Company s initial income tax footnote disclosures. These errors were corrected, and the corrections were reflected in the audited financial statements as of and for the year ended December 31, 2004. 

KPMG LLP, an independent registered public accounting firm, has issued an attestation report on management s assessment of the Company s internal control over financial reporting. Their report appears on page 56 herein. 

Dated March 16, 2005 

LOGO                                        LOGO                               
Nabeel Gareeb                               Thomas E. Linnen                   
President and Chief Executive Officer       Senior Vice President and Chief    
                                            Financial Officer                  

MEMC 2004 Annual Report  57  Technology Is Built On Us 

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Stockholders  Information                                                      

Corporate Office

MEMC Electronic Materials, Inc.

501 Pearl Drive (City of O Fallon) 

St. Peters, Missouri 63376 

(636) 474-5000 www.memc.com

Transfer Agent and Registrar

Computershare Investor Services, L.L.C.

2 North LaSalle Street

Chicago, Illinois 60690-3504 

(312) 360-5433

www.computershare.com 

Stockholder Inquiries

Inquiries regarding address corrections, lost certificates, changes of registration, stock certificate holdings and other stockholder account matters should be directed to MEMC s transfer agent, Computershare Investor Services, L.L.C., at the address or phone number above. 

Common Stock Listing

MEMC s common stock is traded on the New York Stock Exchange under the symbol WFR . On December 31, 2004, the last business day of the year, the Company had 471 stockholders of record. 

Form 10-K

Stockholders may obtain a copy of MEMC s Annual Report on Form 10-K and related financial statement schedules for the year ended December 31, 2004, filed with the Securities and Exchange Commission, by writing MEMC s Investor Relations Department or by calling (636) 474-5000. 

Certifications

The New York Stock Exchange (NYSE) requires that our Chief Executive Officer file an annual certificate indicating that he is unaware of any violations of the NYSE listing standards. This certification was executed without qualification by our Chief Executive Officer on May 20, 2004 and filed after our 2004 annual meeting of stockholders. In addition, the Chief Executive Officer and Chief Financial Officer filed certifications with the SEC regarding the quality of our public disclosure. These certifications can be found as Exhibits 31.1 and 31.2 to our Form 10-K for the fiscal year ended December 31, 2004. 

Financial Information

MEMC maintains a home page on the Internet at www.memc.com where we publish information, including earnings releases, other news releases and significant corporate disclosures. 

Independent Auditors

	<original-page KPMG LLP >

10 South Broadway, Suite 900 

St. Louis, Missouri 63102

Investor Relations

Stockholders, securities analysts, investment professionals and prospective investors should direct their inquiries to: 

MEMC Electronic Materials, Inc.

Investor Relations Department

501 Pearl Drive (City of O Fallon) 

St. Peters, Missouri 63376 

Tel: (636) 474-5000

Fax: (636) 474-5158 

Email: invest@memc.com

Manufacturing Facilities

Chonan, South Korea

Hsinchu, Taiwan

Kuala Lumpur, Malaysia

Merano, Italy

Novara, Italy

Pasadena, Texas

Sherman, Texas

St. Peters, Missouri

Utsunomiya, Japan

LOGO Technology Is Built On Us, MDZ, and Magic Denuded Zone and their related trademark designs and logotypes are registered trademarks and OPTIA, AEGIS, and ADVANTA and their related trademark designs and logotypes are trademarks of MEMC Electronic Materials, Inc. 

MEMC 2004 Annual Report  59  Technology Is Built On Us 

                                                                     Exhibit 21

                             List Of Subsidiaries                              

Subsidiary                         Jurisdiction
-------                                 of     
                                   Organization
                                   ------------
MEMC Electronic Materials          France      
France Sarl                                    
MEMC Electronic Materials,         Germany     
GmbH                                           
MEMC Electronic Materials          Malaysia    
Sales, Sdn. Bhd.                               
MEMC Electronic Materials,         Malaysia    
Sdn. Bhd.                                      
MEMC Electronic Materials,         Italy       
S.p.A.                                         
MEMC Electronic Materials (UK)     United      
Ltd.                               Kingdom     
MEMC Holding B.V.                  The         
                                   Netherlands 
MEMC Holdings Corporation          Delaware    
MEMC International, Inc.           Delaware    
MEMC Japan Ltd.                    Japan       
MEMC Korea Company                 South Korea 
MEMC Kulim Electronic              Malaysia    
Materials, Sdn. Bhd.                           
MEMC Pasadena, Inc.                Delaware    
MEMC Southwest Inc.                Delaware    
PlasmaSil, LLC                     Delaware    
SiBond, LLC                        Delaware    
Taisil Electronic Materials        Taiwan      
Corporation                                    

                                                                     Exhibit 23

           Consent of Independent Registered Public Accounting Firm            

The Board of Directors

MEMC Electronic Materials, Inc.:

We consent to the incorporation by reference in the registration statement (No. 333-109120) on Form S-3 and in the registration statements (Nos. 33-96420, 333-19159, 333-43474, 333-83624, 333-83628, 333-100404 and 333-122405) on Form S-8 of MEMC Electronic Materials, Inc. of our reports dated March 16, 2005, with respect to the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders  equity (deficiency), and cash flows for each of the years in the three-year period ended December 31, 2004, the related financial statement schedule, management s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal control over financial reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on Form 10-K of MEMC Electronic Materials, Inc. 

As discussed in note 3 to the consolidated financial statements, MEMC changed its method of accounting for spare parts in 2003. 

Our report dated March 16, 2005, on management s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2004, expresses our opinion that MEMC Electronic Materials, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004 because of the effect of a material weakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states the Company did not employ personnel with adequate expertise in matters related to the accounting for income taxes. As a result of this deficiency in the Company s internal control over financial reporting, management did not detect errors in the accounting for income tax amounts and disclosures in a timely manner as of and for the year ended December 31, 2004. Specifically, errors were detected that resulted in a net understatement of current tax expense and an additional error was detected that resulted in an understatement of deferred tax benefit. In addition, errors were identified in the Company s initial income tax footnote disclosures. 

St. Louis, Missouri

March 16, 2005 

                                                                   Exhibit 31.1

Certification 

I, Nabeel Gareeb, certify that:

1.  I have reviewed this annual report on Form 10-K of MEMC Electronic Materials, Inc.; 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.  The registrant s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c)   Evaluated the effectiveness of the registrant s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d)   Disclosed in this report any change in the registrant s internal control over financial reporting that occurred during the registrant s most recent fiscal quarter (the registrant s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant s internal control over financial reporting; and 

5.  The registrant s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant s auditors and the audit committee of the registrant s board of directors (or persons performing the equivalent functions): 

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant s ability to record, process, summarize and report financial information; and 

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant s internal control over financial reporting. 

Date: March 16, 2005

                                                       /s/ NABEEL GAREEB       
                                                -------------------------------
                                                         Nabeel Gareeb         

                                                  Chief Executive Officer and  
                                                           President           

                                                                   Exhibit 31.2

Certification 

I, Thomas E. Linnen, certify that:

1.  I have reviewed this annual report on Form 10-K of MEMC Electronic Materials, Inc.; 

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.  The registrant s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c)   Evaluated the effectiveness of the registrant s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d)   Disclosed in this report any change in the registrant s internal control over financial reporting that occurred during the registrant s most recent fiscal quarter (the registrant s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant s internal control over financial reporting; and 

5.  The registrant s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant s auditors and the audit committee of the registrant s board of directors (or persons performing the equivalent functions): 

a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant s ability to record, process, summarize and report financial information; and 

b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant s internal control over financial reporting. 

Date: March 16, 2005

                                                     /s/ THOMAS E. LINNEN      
                                                -------------------------------
                                                       Thomas E. Linnen        

                                                Senior Vice President and Chief
                                                       Financial Officer       

                                                                     Exhibit 32

                           CERTIFICATION PURSUANT TO                           

                            AS ADOPTED PURSUANT TO                             

                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002                 

In connection with the annual report of MEMC Electronic Materials, Inc. (the Company ) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the  Report ), we, Nabeel Gareeb, President and Chief Executive Officer of the Company, and Thomas E. Linnen, Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 

    1.  The Report fully complies with the requirements of Section 13(a) or 15 
        (d) of the Securities Exchange Act of 1934; and                        

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

Date: March 16, 2005

                                                By:        /s/ Nabeel Gareeb   
                                                         ----------------------
                                                Name:    Nabeel Gareeb         
                                                Title:   President and Chief   
                                                         Executive Officer     

                                                         MEMC Electronic       
                                                         Materials, Inc.       

Date: March 16, 2005

                                                By:       /s/ Thomas E. Linnen 
                                                         ----------------------
                                                Name:    Thomas E. Linnen      
                                                Title:   Senior Vice President 
                                                         and                   

                                                         Chief Financial       
                                                         Officer               

                                                         MEMC Electronic       
                                                         Materials, Inc        

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