10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2008

OR

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

For the transition period from              to             

Commission file number 001-13828

MEMC Electronic Materials, Inc.

(Exact name of registrant as specified in its charter)

Delaware	56-1505767
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

501 Pearl Drive (City of O’Fallon) St. Peters, Missouri	63376
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(636) 474-5000

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s Common Stock held by nonaffiliates of the registrant, based upon the closing price of such stock on June 30, 2008 of $61.54 as reported by the New York Stock Exchange, and 228,371,631 shares outstanding on such date, was approximately $14,053,990,172. The number of shares outstanding of the registrant’s Common Stock as of February 16, 2009, was 223,473,106 shares.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the registrant’s 2008 Annual Report to Stockholders (Part I and Part II)

2. Portions of the registrant’s 2009 Proxy Statement (Part III)

PART I

Item 1. Business

Overview

We are a global leader in the manufacture and sale of wafers and have been a pioneer in the design and development of wafer technologies over the past fifty years. With manufacturing and research and development facilities in the U.S., Europe and Asia Pacific, we enable the next generation of high performance semiconductor and solar applications. Our customers include major semiconductor device and solar cell (device) manufacturers. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch). Since 2007 we have been selling 156 millimeter wafers targeted for solar applications. Depending on market conditions, we also sell intermediate products such as polysilicon, silane gas, ingots and scrap wafers to semiconductor device and equipment makers, solar cell and module manufacturers, flat panel and other industries.

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 2008, we were engaged in one reportable industry segment—the design, manufacture and sale of silicon wafers. Financial information regarding this industry segment is contained in our 2008 Annual Report, which information is incorporated herein by reference.

Industry Background

Almost all semiconductor devices and the large majority of photovoltaic solar cells (devices) are manufactured from silicon wafers. The silicon wafer industry grew shipments, measured in square inches of silicon, for semiconductor and solar applications at a compound annual growth rate of approximately 18% from approximately 2,200 million square inches in 1990 to approximately 45,000 million square inches in 2008, according to MEMC estimates based on data from SIA/SEMI, Solarbuzz and Prometheus. This long term growth was driven by the increase in the unit shipments of the semiconductor device industry and the increase of megawatts (MW) of cells consumed by the solar industry.

Wafers are becoming increasingly differentiated by specific physical and electrical characteristics such as flatness and defect-free, uniform crystal structures. As markets for devices (semiconductor and solar) continue to evolve and become more specialized, we believe device manufacturers recognize the critical 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 geometries and more stringent technical specifications. The wafers required to produce these next-generation devices are being developed in larger sizes. Thus, semiconductor device manufacturers continue to move to larger size wafers, with the 300 millimeter wafer now being the primary wafer used today (measured in square inches of silicon consumed and in units sold). Solar cell makers are evolving to larger size wafers (to 156 millimeter from 125 millimeter wafers) much like the semiconductor device makers did fifteen years ago.

Over the past decade, we believe the semiconductor wafer industry has consolidated, with only four major suppliers of wafers targeted for semiconductor applications. 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 semiconductor 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 device manufacturers will continue to select wafer suppliers that offer advanced technological capabilities, a broad product portfolio and superior service to satisfy their exacting device requirements. In parallel, there are a number of companies developing wafer manufacturing capability targeted for solar applications. In 2006 through 2008, over 100 companies entered the solar wafer manufacturing space (or announced plans to do so). It is unclear what impact the worldwide economic downturn in late 2008 and early 2009 will have on these solar wafer manufacturing companies.

Products

We offer wafers with a wide variety of features satisfying numerous product specifications to meet our customers’ exacting requirements. Our wafers vary in size, 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.

Our monocrystalline wafers for use in semiconductor applications range in size from 100 millimeter to 300 millimeter and are round in shape for semiconductor customers because of the nature of their processing equipment. Our wafers are used as the starting material for the manufacture of various types of semiconductor devices, including microprocessor, memory,

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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. Our wafers are also used as the starting material for solar cells. Customers using wafers for solar applications utilize wafers that are square in nature so that they fit into solar panels. Solar cells are used to manufacture solar modules for converting energy from the sun into usable electrical energy.

Wafers for Semiconductor Applications

Our monocrystalline wafers for semiconductor applications include three general categories of wafers: prime, epitaxial and test/monitor wafers. In 2009, we intend to commence shipments of commercial quantities of silicon-on-insulator (SOI) wafers.

Prime Wafers

Our prime wafer is a polished, highly refined, pure wafer with an ultraflat and ultraclean surface. The vast majority of our prime wafers are manufactured with a sophisticated chemical-mechanical polishing process that removes defects and leaves an extremely smooth surface. As semiconductor 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 Magic Denuded Zone^®, or MDZ^®. Our patented MDZ^® product feature can increase our customers’ yield by drawing impurities away from the surface of the wafer in a manner that is efficient and reliable, with results that are reproducible. We believe the OPTIA™ wafer is the most technologically advanced polished wafer available today. Our annealed wafer is a prime wafer with near surface crystalline defects dissolved during a high-temperature thermal treatment.

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 circuit 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 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 wafers with respect to cleanliness, and in some cases flatness, other specifications are generally less rigorous. This allows us to produce some of the 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.

Silicon-on-Insulator (SOI) Wafers

An SOI wafer is a relatively new type of starting material for the chip making process. SOI wafers have three layers: a thin surface layer of silicon (from a few hundred Angstrom to several microns thick) where the transistors are formed, an underlying layer of insulating material, and a support or “handle” bulk silicon wafer. The insulating layer, usually made of silicon dioxide, is referred to as the “buried oxide” or “BOX” layer, and is usually a few thousand Angstroms thick. Transistors built within the top silicon layer typically switch signals faster, run at lower voltages, and are much less vulnerable to signal noise from background cosmic ray particles. Each transistor is isolated from its neighbor by a complete layer of silicon dioxide.

Wafers for Solar Applications

Our wafers for solar applications are typically multicrystalline 156 millimeter square wafers. To date, we have not produced or sold monocrystalline wafers for solar applications, although we believe we could adapt some of our existing wafer manufacturing assets (historically used to produce wafers for semiconductor applications) to produce wafers or ingots for solar applications should market conditions or our customers require it.

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Sales, Marketing and Customers

We market our products primarily through a direct sales force. We have customer service and support centers globally, including in China, France, Germany, Italy, Japan, Malaysia, Singapore, 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, requirements and specifications. Although we have some long-term supply agreements with a ten-year term that specify price and volume for the length of the agreement, we make sales of wafers principally through agreements of one year or less (such agreements often are of three months or six months duration), which specify price and typically indicate only expected volumes or market share. We sell our wafers to virtually all major semiconductor device manufacturers, including the major memory, microprocessor and ASIC manufacturers, the world’s largest foundries, and solar cell and module manufacturers.

In 2008, each of three customers, Suntech Power Holdings, Samsung Electronics and Gintech Energy, accounted for 10% or more of our revenue. In the aggregate, these three customers accounted for 38% of our revenue.

We sell some of 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 assigned 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, 2008, we had approximately $15.1 million of inventory held on consignment, compared with approximately $8.4 million held on consignment at December 31, 2007.

Manufacturing

To meet our customers’ needs worldwide, we have established a global manufacturing network consisting of nine manufacturing facilities. We also utilize subcontractors to manufacture wafers for solar applications.

Our monocrystalline wafer manufacturing process begins with high purity 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 size 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.

We then grind the ingots to the specified size 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. 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 produce chunk polysilicon in our Merano, Italy facility. Chunk polysilicon can be substituted for granular polysilicon, although our manufacturing throughput and yields could be adversely affected. We believe our ability to meet all of our polysilicon

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requirements through our in-house capabilities provides us with a key cost advantage to compete more effectively in the wafer industry. Although we completed initial expansions in our Pasadena facility and Merano facility in 2007 and 2008, we have also previously announced our plans to further expand our polysilicon production capacity over the next few years, and we continue to work toward these polysilicon capacity expansion targets. We sell some polysilicon to third parties. We also buy some polysilicon on the open market from time to time.

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 is 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 for new applications. 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 and applications. 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 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. 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’ materials 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 and cost reduction. 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 sizes. We produced our first 300 millimeter wafer in 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 reductions 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 commercial production capability for 200 millimeter and 300 millimeter silicon-on-insulator (SOI) wafers using a dedicated group of engineers and scientists located in our St. Peters, Missouri facility.

Competition

The market for wafers is competitive. We compete globally and face competition from established manufacturers. Our major competitors are Shin-Etsu Handotai, SUMCO, Siltronic, LDK Solar, Kyocera Corp., REC Group, Renasola, Sanyo Corporation, Sharp Corporation and SolarWorld AG.

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 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, 2008, we owned of record or beneficially approximately 228 U.S. patents, of which approximately 24 will expire within the next five years, approximately 88 will expire between six and ten years, and approximately 116 will expire after ten years. As of December 31, 2008, we owned of record or beneficially approximately 513 foreign patents, of which approximately 59 will expire within the next five years, approximately 174 will

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expire between six and ten years, and approximately 280 will expire after ten years. These foreign patents are generally counterparts of our U.S. patents. As of December 31, 2008, we had approximately 68 pending U.S. patent applications and approximately 264 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, 2008, we had approximately 4,600 full time employees and approximately 300 temporary workers worldwide. We have approximately 2,200 unionized employees in our St. Peters, Missouri, Pasadena, Texas, South Korea, Italy and Japan facilities. We have not experienced any material work stoppages at any of our facilities due to labor union activities during the last several years. We believe our relations with our employees are generally good.

Geographic Information

Information regarding our foreign and domestic operations is contained in Note 15, “Geographic Segments”, of Notes to Consolidated Financial Statements included in our 2008 Annual Report, which information is incorporated herein by reference.

Available Information

We make available free of charge through our website (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 practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A. 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 2008 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 a downturn, 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’ semiconductor devices that are utilized in electronics applications. The semiconductor device industry experiences:

• rapid technological change;

• product obsolescence;

• changes in product mix;

• price erosion; and

• fluctuations in product supply and demand, some of which fluctuations can be severe.

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 much of the second half of 2007 and into the first three quarters of 2008, the semiconductor device industry had pockets of soft or weakened demand. In the fourth quarter of 2008 demand for wafers for semiconductor applications dropped by 36% according to SEMI, and Gartner is forecasting a continued decline in 2009. If the semiconductor device industry experiences future downturns, or if the current downturn lingers, we will face pressure to reduce prices and we may need to further rationalize capacity and reduce fixed costs. If we are unable to reduce our expenses sufficiently to offset reductions in price and volume, our operating results and financial condition will be materially adversely affected.

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

The solar industry has experienced a high level of growth in recent years, but it has also experienced wide fluctuations in the operating results of industry participants, some of which has been caused by the lack of readily available supply of certain raw materials, such as polysilicon or silane gas. In the past few years, a large number of companies have announced plans to produce polysilicon. In addition, in part due to the lack of available polysilicon supply, a number of companies are supplying thin-film solar cells, which are intended to obviate the need for crystalline-based cells, which would use wafers supplied by us. Both new available polysilicon supply and the increased use of thin-film cells by our customers or other solar cell and module companies could potentially lead to an excess supply of available material to service the demand of the industry. In the event of such oversupply, which oversupply appears to have occurred in late 2008 and early 2009, we may need to reduce our prices on certain products to retain or gain market share. In the past we have agreed to price reductions with some of our customers, including customers with whom we have long term supply agreements, and we may need to do so again in the future, which could have a material adverse effect on our operating results.

In the fourth quarter of 2008, solar industry demand appears to have dropped by as much as 10% on a unit basis, and this softening in demand may continue for the first half or all of 2009. It is unclear whether 2009 total solar industry demand will equal or exceed 2008 demand. Today’s solar industry demand appears to be mainly driven by the availability and size of government and economic incentives related to the use of solar power, because today the cost of solar power exceeds the cost of power furnished by the electric utility grid in many locations. As a result, government bodies in many countries, most notably Germany and Japan, have historically provided incentives in the form of rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applications and to reduce dependency on other forms of energy. These government economic incentives could be reduced or eliminated altogether, especially in light of the worldwide economic crisis that is putting a strain on governments’ abilities to fund such incentives. In addition, some of these solar program incentives expire, decline over time, are limited in total funding or require renewal of authority. Reductions in, or eliminations or expirations of, governmental incentives could result in decreased demand for our wafers and our customers’ products. In addition to the effects of government subsidies and incentives on solar demand and supply, the demand for solar electricity generation products is also influenced by macroeconomic factors such as the worldwide credit crisis, the devaluation of the Euro, the supply and price of other energy products, such as oil, coal and natural gas, as well as foreign, federal, state and local government regulations and policies concerning the electric utility industry.

Our dependence on single and limited source suppliers could harm our production output and adversely affect our manufacturing throughput and yield, which could also have a material adverse effect on our operating results.

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, and this dependence could have a material adverse effect on our operating results. In the case of granular polysilicon, although we believe that we could substitute chunk polysilicon for granular polysilicon, we cannot predict whether this substitution would be successful or how long the related customer qualification process would take. In addition, with any change to increased use of chunk polysilicon as a substitute for granular polysilicon, our manufacturing process would 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. We may experience shortages of our key raw materials, equipment, parts and supplies in the future. A prolonged inability to manufacture or obtain raw materials, equipment, parts or supplies, or increases in prices resulting from shortages of these critical materials could have a material adverse effect on our operating results.

In addition, we have long term annual take-or-pay contracts with certain suppliers of precursor raw materials, which could require us to make significant payments if we do not take the required annual amounts. For 2008, we made a payment to one such supplier of $16.3 million because we did not take the required amount of raw material in 2008 (although we are in negotiations with the supplier to recover a portion of the amount paid). These payments, if required in future years, could have a material adverse effect on our operating results.

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Our expansion of manufacturing volume and capacity presents business risks which could materially adversely affect our results of operations if we fail to manage these expansions successfully.

We have invested significantly, and are continuing to invest, in expanding our raw material (polysilicon) production capacity and our 300 millimeter production capacity. We have also announced our intention to develop significant 156 millimeter production capacity in the future. Expansion of our polysilicon production capacity is subject to risks such as availability of capital equipment; delays in construction and related technical difficulties in ramping such new capacity to significant production levels; and availability of additional precursor raw materials.

Because our plan to manufacture 156 millimeter wafers involves a new size wafer for MEMC, it is also subject to additional risks, including refining and adapting our manufacturing technologies to customer requirements; creating and developing demand for and market acceptance of our technologies and products; identifying and managing qualified subcontractors to manufacture 156 millimeter wafers; and establishing and maintaining sufficient internal research and development, marketing, sales, production and customer service infrastructure to support this effort.

In July 2005, we embarked upon a significant expansion of our 300 millimeter production capacity by establishing such production capacity at our Taisil facility in Taiwan, in addition to continuing our improvements to our Japan 300 millimeter operation. Although we may determine to slow down this expansion, given the current state of semiconductor industry demand, the expansion of this capacity still involves significant risks, including availability and timing of capital equipment installation; distraction of worldwide and local management; costs and spending in excess of budgeted amounts; timing of production ramp; and qualification of a new facility at new and existing customers.

In order to succeed in these planned expansions and increased quantities of wafer deliveries, we will need to devote capital expenditures as well as the investment of management time and related resources to successfully execute these planned expansions. This could disrupt our existing business, affect our operating results and distract our management team. There can be no assurance that we will be able to successfully reach our production, timing and cost goals for our planned expansions as customer specifications and demand evolve. Use of capital and management resources that otherwise would have been made available to expand other parts of our business could have material adverse consequences on our results of operations if we fail to manage these expansions successfully.

We experience 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 competition in the wafer industry from established manufacturers throughout the world. The largest wafer suppliers with whom we compete are Shin-Etsu Handotai, SUMCO, Siltronic, LDK Solar, Kyocera Corp., REC Group, Renasola, Sanyo Corporation, Sharp Corporation and SolarWorld AG. In addition to these larger or more established companies, there are a number of companies developing wafer manufacturing capability targeted for solar applications. In 2006 through 2008, over 100 companies entered the solar wafer manufacturing space (or announced plans to do so). It is unclear what impact the worldwide economic downturn in late 2008 and early 2009 will have on these solar wafer manufacturing companies.

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. 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 may need to reduce our prices to respond to aggressive pricing by our competitors to retain or gain market share, which could have a material adverse effect on our operating results.

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

It typically takes three to nine months or more 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 or lack of available additional capacity 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 polysilicon manufacturing facilities in Merano, Italy and Pasadena, Texas 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 extreme weather conditions, such as hurricanes, which are not uncommon in the Pasadena, Texas area, equipment failures, shortages of raw materials or supplies, transportation logistic complications or labor disputes. We have had interruptions of our manufacturing operations for some of these reasons in the past, and could have such interruptions again in the future. Unions represent some of the

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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 the wafer industry.

The success of our business depends, in part, on our continuous reduction of manufacturing costs and leveraging of operating expenses. The wafer industry has historically experienced price erosion, especially in the last quarter of 2008, and will likely continue to experience such price erosion in the future in 2009, and likely beyond. In addition, our long-term agreements to supply solar wafers have fixed price reduction curves (on a per watt basis). If we are not able to reduce our manufacturing costs and leverage our 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. We cannot assure you that we will be able to continue to reduce our manufacturing costs and leverage our operating expenses. Moreover, any future reduction of headcount or closure of one or more of our manufacturing facilities may adversely affect our ability to manufacture wafers in required volumes to meet customer demand and may result in other production disruptions, and could require us to take an excess capacity or impairment charge, which could have an adverse effect on our operating results.

Current credit and financial market conditions could prevent or delay our current or future customers from obtaining financing necessary to purchase our products or finance their own operations or capacity expansions, which could adversely affect our business, our operating results and financial condition.

Due to the recent severe tightening of credit and concerns regarding the availability of credit around the world, our semiconductor and solar customers may delay or attempt to delay their payments to us in connection with product purchases, or may be delayed in obtaining, or may not be able to obtain, necessary financing for their purchases of our products or their own operations or expansion plans. In addition, the current credit and financial market conditions may adversely affect the ability of our customers that have executed long-term supply agreements to purchase wafers for solar applications from us to make additional required security deposits with us or deliver required letters of credit to us pursuant to these long-term supply agreements or to fund their own expansion plans. Delays of this nature could materially adversely affect our solar product sales, and therefore harm our business, our operating results and financial condition.

The investment of our substantial cash balances and our investments in money market funds, auction rate securities, fixed income funds, individual corporate bonds, asset-backed and mortgage-backed securities and pension plan assets are subject to risks associated with the current worldwide credit and financial market conditions which may cause losses and adversely affect the liquidity or value of these investments.

As of December 31, 2008, we held $159.5 million of investments, net of temporary impairments of $14.5 million and other than temporary impairments of $14.5 million, in an investment portfolio with a major banking institution. These are invested primarily in individual corporate bonds and asset-backed and mortgage-backed securities. A majority of these investments maintain a floating interest rate based on a range of spreads to the one and three month LIBOR rate. Other than the securities for which we recorded an other than temporary impairment, we believe the decline in fair value to be directly attributable to the current global credit conditions which we believe are temporary. For certain securities, however, we believe the time to reach the original carrying value to be greater than 12 months and accordingly we have classified $55 million as non-current assets. Also as of December 31, 2008, we held $44.1 million of investments related to auction rate securities (ARS), net of temporary impairments of $7.3 million. As of December 31, 2008, all of our ARS were classified as non-current assets due to unsuccessful auctions coupled with current conditions in the general debt markets which have created uncertainty as to when successful auctions will be reestablished. While we do not anticipate having to sell these securities below our amortized cost in order to operate our business, there may be further declines in the value of these investments, which we may determine to be other than temporary. These market risks associated with our investment portfolio may have an adverse effect on our liquidity, results of operations and financial condition.

Because we manufacture and sell a substantial portion of our products outside of the United States, we are subject to the risks of doing business internationally, including 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 have affected our operating results in the past, and 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 regulations, including tax regulations;

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• 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 currently operate under tax holidays and/or favorable tax incentives and rates in certain foreign jurisdictions. Such tax holidays and incentives often require us to meet certain minimum employment and investment criteria or thresholds in these jurisdictions. We cannot assure you that we will be able to continue to meet these criteria or thresholds, or realize any net tax benefits from these tax holidays or incentives. If any of our tax holidays or incentives are terminated, our results of operations could be materially adversely effected.

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

Approximately 76% of our sales in 2008 were made outside the United States, and we expect that international sales will continue to represent a significant percentage of our total sales. Sales outside of the United States could expose us to currency exchange rate fluctuations. Our risk exposure from these sales is primarily related to the Euro, Japanese Yen and Korean Won. Because the majority of our sales are denominated in the U.S. Dollar, if one or more competitors is selling to our customers in a different currency than the U.S. Dollar, we are subject to the risk that the competitors’ products will be relatively less expensive than our products due to exchange rate effects. For 2008, approximately 83% of our sales were denominated in U.S. Dollars, compared to approximately 81% in both 2007 and 2006.

In addition, a significant portion of our manufacturing operations is located outside of the United States. Our risk exposure from expenses at international manufacturing facilities is concentrated in the Euro, Japanese Yen, Korean Won, Malaysian Ringgit and the New Taiwanese Dollar. When possible, we denominate our sales in the same currency in which we incurred manufacturing expenses. To the extent that our sales in foreign currencies occur at foreign sites which incur expenses in those same currencies, this natural hedge reduces our net exposure to foreign currency risk. We generally hedge receivables denominated in foreign currencies at the time of sale. One of our foreign subsidiaries has debt denominated in Japanese Yen. We generally do not hedge these net foreign currency exposures.

We recognized net currency losses totaling approximately $3.0 million in 2008, $1.7 million in 2007, and $1.0 million in 2006. We cannot predict whether the 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.

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 technologies, product specifications and sizes, 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.

We may acquire other businesses, products or technologies; if we do, we may be unable to integrate them with our business effectively or at all, 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.

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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. We cannot be certain, however, 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 to 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 allege 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. We are presently involved in multiple cases 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 claims of infringement by third parties, which could have a material adverse effect on us. If we lose any such litigation where we are alleged to infringe the rights of others, 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.

Three customers each accounted for 10% or more of our revenue in 2008, and in the aggregate, these three customers accounted for 38% of our 2008 revenue, compared to 25% of our revenue in 2007 from these same three customers. Our operating results could materially suffer if we experience a significant reduction in, or loss of, purchases by one or more of these companies or by our other top customers.

The loss of one or more of our customers with whom we have long-term agreements could materially adversely affect our results of operations. We have previously announced the execution of long-term supply agreements with four customers between July 2006 and July 2008. In February 2009, we announced amendments to the long-term supply agreements with two of these customers, which amendments only addressed calendar 2009, and maintained MEMC’s potential 2009 aggregate revenue from each agreement, by effecting a 2009 volume increase and a 2009 price reduction. While we are having similar discussions with the two other customers with whom we have long-term supply agreements, as of late February 2009 we had not reached an agreement with these customers on revised calendar 2009 price and volumes. In addition, one of these customers had not made a scheduled refundable capacity reservation deposit that was due under their agreement in early January 2009. As a result, we cannot be certain that one or both of these customers will be able to purchase their required volumes of wafers under their long-term supply agreement with us.

Although the long-term supply agreements with all four of these customers are “take or pay contracts”, there can be no assurance that the customers will be able to fulfill their financial commitments to us in the agreements to pay the associated amounts if they do not fulfill their purchase obligations under the agreements. If we had to stop shipping to a customer who failed to meet its obligations under the long-term supply agreement, we could have excess or idle production capacity. The loss of any of these customers could materially adversely affect our operating results.

The market price of our common stock has fluctuated significantly, especially in recent years, and may continue to do so in the future.

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;

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• market conditions experienced by our customers and in the semiconductor industry, solar industry and wafer industry;

• interruption of operations at our manufacturing facilities or the facilities of our suppliers;

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

• general worldwide macroeconomic conditions;

• developments in patent or other proprietary rights by us or by our competitors;

• changes in our relationships with our customers;

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

• general stock market trends.

As a participant in both the semiconductor industry and the solar industry, two industries that have often experienced extreme price and trading volume fluctuations that often have been unrelated to the operating performance of an individual company, this market volatility may adversely affect the market price of our common stock.

If we fail to comply with covenants under our credit facility, the lenders could cause outstanding amounts to become immediately due and payable, and we might not have sufficient funds and assets to pay such loans.

We are party to a $200 million revolving credit facility with National City Bank of the Midwest (now a part of PNC Bank), US Bank and other lenders named therein. This facility contains certain restrictive covenants, including covenants to maintain minimum consolidated EBITDA and interest coverage ratios, as those terms are defined in the agreement. 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 the facility. In such event, upon election of the lenders, the loan commitments under the credit facility would terminate and the loans and accrued interest then outstanding 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. These events could have a material adverse effect on us depending on our outstanding balances at that time. As of December 31, 2008, we had no outstanding borrowings under this facility, although we had approximately $114.2 million of outstanding third party letters of credit backed by this facility at such date. We met all covenants under this facility at December 31, 2008.

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 into 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. In addition, if we should decide to close a facility in the future, we could be subject to additional costs related to cleanup and/or remediation of the facility in connection with closing the facility. We do not expect these known conditions to have a material impact on our business. Environmental issues relating to presently known or unknown matters, however, 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.

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

Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to furnish a report by our management on our internal control over financial reporting. Such report must contain, 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 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. The report must also contain a statement that our auditors have issued an attestation report on management’s assessment of our internal controls over financial reporting.

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If our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert our internal control over financial reporting is effective. If we are unable to assert that our internal control over financial reporting is effective presently or in the future (or if our auditors are unable to express an opinion on the effectiveness of our internal controls over financial reporting), we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

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 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.

For example, our Restated Certificate of Incorporation 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. 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.

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 regarding possible or assumed future results of our operations, including but not limited to any statements contained herein or therein concerning:

• Our belief that our ability to meet all of our polysilicon requirements through our in-house capabilities provides us with a key cost advantage to compete more effectively in the wafer industry;

• Our belief that device manufacturers recognize the critical role that wafers and other materials play in improving device performance and reducing their production costs;

• Our belief that the semiconductor wafer industry has consolidated over the past decade, and that this change in the competitive landscape is causing segmentation between larger and smaller producers, with larger manufacturers gaining an increasing share of the overall semiconductor wafer market;

• Our belief that semiconductor device manufacturers will continue to select wafer suppliers that offer advanced technological capabilities, a broad product portfolio and superior service to satisfy exacting device requirements;

• Our belief that the OPTIA™ wafer is the most technologically advanced polished wafer available today;

• Our belief that we could adapt some of our existing wafer manufacturing assets to produce wafers or ingots for solar applications should market conditions or our customers require it;

• Our belief that our wafers are competitive with wafers manufactured by others on the basis of product quality, consistency, price, technical innovation, customer service and product availability;

• Our belief that our relations with our employees are generally good;

• Our belief that could substitute chunk polysilicon for granular polysilicon;

• Our belief that we will generate sufficient taxable income to realize the benefits of our net deferred tax assets;

• Our belief that our capital expenditures for 2009 will be less than our capital expenditures for 2008;

• Our anticipation that we will not have to sell our auction rate securities below our cost in order to operate our business;

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• Our belief that, other than the securities for which we have recorded an other than temporary impairment, the decline in fair value of our securities is directly attributable to the current global credit conditions;

• Our belief that, based on our current cash, cash equivalents and investment balances and expected operating cash flows, the current liquidity concerns in the credit and capital markets will not have a material impact on our liquidity, cash flow, financial flexibility or our ability to fund our operations;

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

• Our belief that SFAS 157 will not have a material impact upon adoption on our consolidated financial statements related to non-financial assets and liabilities;

• Our belief that SFAS 141R will not have a material effect on our consolidated results of operations and financial condition;

• Our belief that SFAS 160 will not have a material effect on our consolidated results of operations and financial condition;

• Our belief that SFAS 161 will not have a material effect on our consolidated results of operations and financial condition;

• Our belief that FSP FAS 132(R)-1 will not have a material effect on our consolidated results of operations and financial condition;

• Our belief that our tax positions are fully supported and that our income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments;

• Our expectation that contributions to our pension and post-employment plans in 2009 will be approximately $1.1 million and $2.2 million, respectively;

• Our belief that we are taking all necessary environmental remediation steps at our facilities, and our expectation that these known conditions will not have a material impact on our business;

• Our belief that our existing facilities and equipment are well maintained, in good operating condition and are adequate to meet our current requirements;

• The impact of pending litigation on us, including the cases described in Item 3 hereof;

• Our belief that there will be some insurance coverage available under MEMC’s insurance policies for the class actions and derivative claims described in Item 3 hereof;

• Our belief that, as of December 31, 2008, our internal control over financial reporting was effective;

• 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. You should not place undue reliance on such statements, which speak only as of the date that they were made. Factors that could cause actual results to differ materially are set forth under this “Item 1A. Risk Factors.”

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

Item 1B. Unresolved Staff Comments

None.

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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, 2008 and were situated in the following locations:

Location	Square Footage
St. Peters, MO, USA	744,000
Sherman, TX, USA	693,000
Pasadena, TX, USA	436,000
Hsinchu, Taiwan	522,000
Chonan, South Korea	453,000
Utsunomiya, Japan	327,000
Merano, Italy	327,000
Novara, Italy	322,000
Kuala Lumpur, Malaysia	86,000
Singapore	2,930

We 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 and is extendable for not less than a 20 year renewal period thereafter. We also lease our facility in Kuala Lumpur, Malaysia, which lease expires in March 2009, but is in the process of renewal for a three year term, and our facility in Singapore, which lease expires in July 2010.

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

S.O.I.TEC Silicon on Insulator Technologies S.A. vs. MEMC Electronic Materials, Inc.

On May 19, 2008, Soitec and Commissariat A L’Energie Atomique (“CEA”) filed a complaint for patent infringement against MEMC in the U.S. District Court for the District of Delaware (Civil Action No. 08-292) alleging infringement, including willful infringement, by MEMC of three U.S. patents related to silicon-on-insulator (SOI) technology, and requested damages and an injunction preventing further infringement of the three patents listed in Soitec’s complaint. On July 9, 2008, MEMC filed a motion to dismiss the complaint, or in the alternative, for a more definite statement. On February 20, 2009, the district court denied our motion to dismiss, and as a result, our answer is due in early March 2009. Although the case is still in the initial pleading stage, we believe that Soitec’s suit against us alleging infringement of the three patents named in the complaint has no merit, and we are asserting a vigorous defense against these claims. We do not believe that this case, should it be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, the outcome of these matters are unpredictable and the results of these cases could be unfavorable for MEMC.

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

On July 13, 2004, Sumitomo Mitsubishi Silicon Corporation (“SUMCO”) and certain of its affiliates filed a lawsuit against MEMC in the U.S. District Court for the District of Delaware 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 May 2005, MEMC successfully had

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this case removed to the Northern District of California. Plaintiffs alleged that MEMC violated the antitrust laws by attempting to control sales of low defect silicon wafers in the United States, including through its patent policies and enforcement of its patents related to low defect silicon wafers. Plaintiffs also sought a declaratory judgment that plaintiffs’ wafers do not infringe the claims of two MEMC patents and that these two MEMC patents are invalid and unenforceable. Finally, plaintiffs alleged that these two MEMC patents are void and unenforceable because of MEMC’s alleged patent misuse. Plaintiffs sought treble damages in an unspecified amount, and attorneys’ fees and costs incurred by plaintiffs in this and a previous case between MEMC and SUMCO. MEMC asserted defenses against these claims, including a counterclaim for infringement of one of the two patents. In June 2006, certain of the counts related to the two MEMC patents were dismissed without prejudice.

On August 13, 2007, the U.S. District Court granted summary judgment in favor of MEMC, and in light of the summary judgment ruling in favor of MEMC, the U.S. District Court issued a final judgment against SUMCO. On August 23, 2007, SUMCO filed its Notice of Appeal of the grant of summary judgment in favor of MEMC with the U.S. Federal Circuit Court of Appeals. On December 5, 2008, the Federal Circuit affirmed the summary judgment in favor of MEMC, per curiam, which concludes the litigation.

Semi-Materials Co., Ltd. vs. MEMC Electronic Materials, Inc. and MEMC Pasadena, Inc.

On September 28, 2006, Semi-Materials Co., Ltd. (“Semi-Materials”) filed a complaint against MEMC in the U.S. District Court for the Eastern District of Missouri (Case No. 4:06-CV-01426-FRB) alleging breach of contract, unjust enrichment, fraud, and conversion, and seeking specific performance, all related to a series of purchase orders for chunk polysilicon and polysilicon solar ingot. MEMC filed its answer in the case in December 2006. On MEMC’s motion, the Court dismissed Semi-Materials’ conversion claim.

The parties entered into settlement discussions for this case in November 2007 and December 2007. Semi-Materials claims that a binding settlement was reached as a result of those late 2007 discussions. MEMC denies Semi-Materials’ allegation that a binding settlement was reached. In January 2008, Semi-Materials moved the trial court to enforce the alleged settlement terms. On March 17, 2008, the trial court sustained Semi-Materials’ motion and found that binding settlement terms had been reached as a result of the late 2007 negotiations between Semi-Materials and MEMC. This decision was immediately appealed by MEMC to the United States Court of Appeals for the Eighth Circuit, and enforcement of the trial court’s order was stayed pending that appeal. The Eighth Circuit heard oral argument on September 26, 2008. Just prior to the September 26 oral argument, Semi-Materials informed MEMC and the Eighth Circuit that Semi-Materials no longer sought enforcement of the alleged settlement agreement (although Semi-Materials still claims that a binding settlement was reached in late 2007). Semi-Materials instead now requests that the Eighth Circuit vacate the trial court’s March 2008 order enforcing the alleged settlement agreement and remand the case back to the trial court for further proceedings. As of February 24, 2009, the Eighth Circuit had not issued a decision in the appeal.

On March 31, 2008, Semi-Materials and its affiliate SMC Shanghai (“SMC”) filed two additional lawsuits against MEMC, one in the United States District Court for the Southern District of Texas (Case No. 4:08-CV-00991) (the “Texas Action”) and another in the United States District Court for the Eastern District of Missouri (Case No. 4:08-CV-00434-JCH) (the “Missouri Action”). In both cases, SMC alleges that: (i) MEMC Pasadena, Inc. (“MEMC Pasadena”) breached an agreement with SMC for SMC to act as MEMC’s exclusive sales agent in China; (ii) MEMC Pasadena breached an agreement with Semi-Materials for Semi-Materials to act as MEMC Pasadena’s exclusive sales agent in Korea; (iii) MEMC tortiously interfered with the purported sales agency agreements between MEMC Pasadena and SMC and Semi-Materials; and (iv) MEMC tortiously interfered with a separate sales agency agreement Semi-Materials claims existed with an unrelated party. In the Missouri Action, Semi-Materials also claims that MEMC tortiously interfered with an expectancy for an on-going business relationship Semi-Materials claims existed with the unrelated party.

No discovery has been undertaken in the Texas Action, and it has been stayed pending resolution of the appeal in the first case. Discovery is ongoing in the Missouri Action.

We do not believe that the Semi-Materials cases, should they ultimately be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, the outcome of these matters are unpredictable and the results of these cases could be unfavorable for MEMC.

Minneapolis Firefighters’ Relief Association v. MEMC Electronic Materials, Inc., et al.

On September 26, 2008, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by plaintiff Minneapolis Firefighters’ Relief Association asserting claims against MEMC and Nabeel Gareeb, MEMC’s former Chief Executive Officer. On October 10, 2008, a substantially similar putative class action lawsuit was filed

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by plaintiff Donald Jameson against MEMC, Mr. Gareeb and Ken Hannah, MEMC’s Chief Financial Officer. These cases purportedly are brought on behalf of all persons who acquired shares of MEMC’s common stock between June 13, 2008 and July 23, 2008, inclusive (the “Class Period”). Both complaints allege that, during the Class Period, MEMC failed to disclose certain material facts regarding MEMC’s operations and performance, which had the effect of artificially inflating MEMC’s stock price in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Plaintiffs further allege that Messrs. Gareeb and Hannah are subject to liability under Section 20(a) of the Act as control persons of MEMC. Plaintiffs seek certification of the putative class, unspecified compensatory damages, interest, and costs, as well as ancillary relief. On December 12, 2008, these actions were consolidated, and the Court appointed Mahendra A. Patel as lead plaintiff. Plaintiff filed a consolidated amended complaint on February 23, 2009. Defendants must answer or move to dismiss by April 10, 2009.

MEMC and the individual defendants believe this action has no merit and intend to vigorously defend themselves against the claims. However, due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome of this action.

Brian Larkowski v. John Marren, et al.

On November 4, 2008, Brian Larkowski, a purported shareholder of MEMC, filed a derivative action in the Circuit Court of St. Charles County, Missouri against defendants John Marren, Peter Blackmore, Nabeel Gareeb, Marshall Turner, Robert J. Boehlke, C. Douglas Marsh, William E. Stevens, James B. Williams, and Michael McNamara (collectively “Individual Defendants”) and MEMC as a nominal defendant. Each individual defendant is a current or former officer and/or director of MEMC. The lawsuit alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment, based on allegations of conduct similar to that alleged in the putative class action lawsuit described above. On December 19, 2008, the Court entered a stipulated order staying the derivative action pending resolution of any motions to dismiss in the putative class action.

On January 30, 2009, a second putative derivative plaintiff served a demand letter on the Company’s Board of Directors requesting that it investigate factual allegations similar to those underlying the Larkowski derivative action.

Jerry Jones v. MEMC Electronic Materials, Inc., et al.

On December 26, 2008, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by plaintiff, Jerry Jones, purportedly on behalf of all participants in and beneficiaries of MEMC’s 401(k) Savings Plan (the “Plan”) between September 4, 2007 and December 26, 2008, inclusive (the “Class Period”). The complaint asserts claims against MEMC and certain of its directors, employees and/or other unnamed fiduciaries of the Plan. The complaint alleges that the defendants breached certain fiduciary duties owed under the Employee Retirement Income Security Act (“ERISA”), generally asserting that the defendants failed to make full disclosure of the risks to the Plan’s participants of investing in MEMC’s stock, to the detriment of the Plan’s participants and beneficiaries, and that Company’s stock should not have been made available as an investment alternative for the Plan’s participants. The misstatements alleged in the complaint significantly overlap with the misstatements alleged in the federal securities class action described above. The complaint seeks unspecified monetary damages, including losses the participants and beneficiaries of the Plan allegedly experienced due to their investment through the Plan in MEMC’s stock, equitable relief and an award of attorney’s fees.

MEMC currently believes that there will be some insurance coverage available under MEMC’s insurance policies for the foregoing class actions and derivative claims. Such policies are subject to self-insurance retentions, exclusions, conditions, any potential coverage defenses or gaps, policy limits and insurer solvency. MEMC is currently unable to predict or determine the outcome or resolution of the foregoing proceedings or to estimate the amounts of, or potential range of, loss with respect to these proceedings. The range of possible resolutions of these proceedings could include judgments against MEMC or settlements that could require substantial payments by MEMC. These payments could have a material adverse effect on MEMC’s results of operations and financial condition.

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 2008.

17

Executive Officers of the Registrant

The following is information concerning our executive officers as of January 31, 2009.

Name	Age	All Positions and Offices Held
Marshall Turner	67	Interim Chief Executive Officer and Director
Kenneth H. Hannah	40	Senior Vice President and Chief Financial Officer
John A. Kauffmann	52	Senior Vice President, Worldwide Sales, Customer Service and Marketing
Shaker Sadasivam	49	Senior Vice President, Research and Development
Mignon Cabrera	49	Senior Vice President, Human Resources
Michael Cheles	50	Vice President, Information Technology and CIO
Bradley D. Kohn	40	Vice President, General Counsel and Corporate Secretary

Mr. Turner has been our Interim Chief Executive Officer since November 2008 and has been a Director since April 2007. Mr. Turner served as Chairman and Chief Executive Officer of Toppan Photomasks, Inc. from June 2003 through April 2005, and President and Chief Executive Officer of that company through May 2006. Mr. Turner is also a member of the board of directors of Xilinx, Inc. and the AllianceBernstein Funds.

Mr. Hannah has been our Senior Vice President and Chief Financial Officer since April 2006. Prior to joining MEMC, Mr. Hannah was employed by The Home Depot, Inc. from 2003 to 2006. Mr. Hannah most recently served as the Senior Vice President, Operations, covering all aspects of The Home Depot’s operations in the United States, Mexico, and Canada. Prior to that, he served as Senior Vice President, Finance, supporting all Home Depot stores in the United States and Mexico, as well as store operations and the global supply chain. Before Home Depot, from 2001 to 2003 Mr. Hannah worked as Vice President for The Boeing Company where he led the audit and financial planning functions. He also held senior finance positions at several GE divisions from 1997 to 2001.

Mr. Kauffmann has been our Senior Vice President, Worldwide Sales, Customer Service 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.

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

Ms. Cabrera has been our Senior Vice President, Human Resources since August 2006. Prior to joining MEMC, Ms. Cabrera was owner and principal of Professional Consulting Services, a human resource consulting firm, from September 2005 to August 2006. Previous to her consulting experience, from January 1999 to August 2005, Ms. Cabrera served as Vice President of Human Resources and General Affairs with Samsung Telecommunications America.

Mr. Cheles has been our Vice President, Information Technology and Chief Information Officer since September 2006. Prior to joining MEMC, Mr. Cheles was a Director of Information for the Uniprise Division of United HealthCare, from April 2005 to August 2006. Previous to his employment with Uniprise, Mr. Cheles was Vice President, Information Technology at Hussmann Corporation from July 1997 to February 2004.

Mr. Kohn has been our Vice President, General Counsel and Corporate Secretary since September 2005. Prior to joining MEMC, from March 2000 until September 2005, Mr. Kohn was with Pillsbury Winthrop Shaw Pittman LLP (formerly Pillsbury Madison & Sutro LLP) in its Palo Alto office, most recently as a partner in the Corporate Securities Group.

There are no family relationships between or among any of the named officers and the directors.

18

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) The narrative and tabular information regarding the market for our common equity and related stockholder matters required by this item is set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2008 Annual Report and under “Stockholders’ Information” in our 2008 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.

(c) Unregistered Sales of Equity Securities and Use of Proceeds

On May 16, 2007, our Board of Directors approved a $500 million share repurchase program, and on July 22, 2008, the Board approved an additional $500 million of share repurchases, for a total of $1 billion. The stock repurchase program allows MEMC to purchase common stock from time to time on the open market or through privately negotiated transactions using available cash. The specific timing and amount of repurchases will vary based on market conditions and other factors. The stock repurchase program may be modified, extended or terminated by the Board of Directors at any time.

Repurchases made in the fourth quarter of 2008 are set forth below.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
October 1 to October 31, 2008	1,500,000	$	23.70	1,500,000	$	567.9
November 1 to November 30, 2008	0		N/A	0	$	567.9
December 1 to December 31, 2008	0		N/A	0	$	567.9
Total	1,500,000	$	23.70	1,500,000	$	567.9

(d) The information required under this Item 5 concerning equity compensation plan information is set out below under Item 12 and is incorporated herein by this reference.

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” in our 2008 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 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2008 Annual Report, which information is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is set forth under “Market Risk” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2008 Annual Report, which information is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The information required by this item is set forth under “Consolidated Statements of Income”, “Consolidated Balance Sheets”, “Consolidated Statements of Cash Flows”, “Consolidated Statements of Stockholders’ Equity”, “Notes to Consolidated Financial Statements”, “Report of the Independent Registered Public Accounting Firm” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2008 Annual Report, all of which are incorporated herein by reference.

19

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

None.

Item 9A. Controls and Procedures

The information required by this item is set forth under “Management’s Report on Internal Control Over Financial Reporting” in our 2008 Annual Report, which information is incorporated herein by reference.

Item 9B. Other Information

None.

20

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth in the 2009 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 2009 Proxy Statement under “Information about Nominees and Continuing Directors” and is incorporated herein by reference. Information required by this Item relating to our Code of Ethics and Audit Committee will be set forth in the 2009 Proxy Statement under “Board of Directors and Committees of the Board of Directors.” 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 11. Executive Compensation

The information regarding beneficial ownership of our securities required by this Item will be set forth in our 2009 Proxy Statement under the headings “Director Compensation”, “Compensation Discussion and Analysis”, “Report of the Compensation Committee”, “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information regarding beneficial ownership of our securities required by this Item will be set forth in our 2009 Proxy Statement under the headings “Security Ownership by Certain Beneficial Owners, Directors and Executive Officers” and is incorporated herein by reference.

Equity Compensation Plans

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, 2008.

	(a)	(b)		(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1)
Equity compensation plans approved by security holders	5,303,783 shares of common stock	$	40.28512	11,462,696 shares of common stock
Equity compensation plans not approved by security holders	0 shares of common stock	$	0	0 shares of common stock
Total	5,303,783 shares of common stock	$	40.28512	11,462,696 shares of common stock

(1) Number of shares is subject to adjustment for changes in capitalization for stock splits, stock dividends and similar events.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information concerning related party transactions which is required by this Item will be set forth in our 2009 Proxy Statement under the heading “Certain Transactions” and is incorporated herein by reference. The information concerning director independence required by this Item will be set forth in our 2009 Proxy Statement under the heading “Board of Directors and Committees of the Board of Directors” and is incorporated herein by this reference.

Item 14. Principal Accounting Fees and Services

The information required by this Item will be set forth in our 2009 Proxy Statement under the heading “Principal Accounting Firm Services and Fees” and is incorporated herein by reference.

21

PART IV

Item 15. Exhibits, Financial Statement Schedules

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

1. Financial Statements

The following consolidated financial statements of us and our subsidiaries and the Report of the Independent Registered Public Accounting Firm of KPMG LLP are included in our 2008 Annual Report, and are incorporated herein by reference:

Consolidated Statements of Income—Years Ended December 31, 2008, 2007, and 2006.

Consolidated Balance Sheets—December 31, 2008 and 2007.

Consolidated Statements of Cash Flows—Years Ended December 31, 2008, 2007, and 2006.

Consolidated Statements of Stockholders’ Equity—Years Ended December 31, 2008, 2007, and 2006.

Notes to Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm.

2. Financial Statement Schedules

None.

3. Exhibits

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of MEMC Electronic Materials, Inc. (“the Company”) (Incorporated by reference to Exhibit 3-a of the Company’s Form 10-Q for the Quarter ended June 30, 1995)
3.2	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)
3.3	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)
3.4	Restated By-laws of the Company (Incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K, dated January 20, 2009)
10.1	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)
10.2	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)
10.3	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)

22

Exhibit No.	Description
10.4	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)
*10.5	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)
*10.6	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)
10.7	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)
10.8	Amendment to Ground Lease Agreement dated as of May 31, 1997, 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)
†10.9	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)
†10.10	Form of Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10-cc(1) of the Company Form 10-Q for the Quarter ended June 30, 2004)
†10.11	Form of Stock Option and Restricted Stock Agreement (Incorporated by reference to Exhibit 10-t(1) of the Company’s Form 10-K for the Year ended December 31, 1995)
†10.12	Form of Stock Option and Performance Restricted Stock Agreement (Incorporated by reference to Exhibit 10-yy of the Company’s Form 10-K for the Year ended December 31, 1995)
†10.13	Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-zz of the Company’s Form 10-K for the Year ended December 31, 1995)
†10.14	Form of Stock Option and Performance Restricted Stock Agreement (Incorporated by reference to Exhibit 10-nnn of the Company’s Form 10-Q for the Quarter ended March 31, 1997)
†10.15	Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-ooo of the Company’s Form 10-Q for the Quarter ended March 31, 1997)
†10.16	Form of Stock Option Agreement (Non-employee Directors) (Incorporated by reference to Exhibit 10-ppp of the Company’s Form 10-Q for the Quarter ended March 31, 1997)
†10.17	Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-cc(7) of the Company’s Form 10-K for the Year ended December 31, 1999)
†10.18	Form of Stock Option Agreement (4-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(9) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.19	Form of Stock Option Agreement (2-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(10) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.20	Form of Stock Option Agreement (7-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(11) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.21	Form of Stock Option Agreement (Outside Directors) (Incorporated by reference to Exhibit 10-cc(12) of the Company’s Form 10-K for the Year ended December 31, 2003)
†10.22	MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan as Restated on January 24, 2007
†10.23	Form of Stock Option Agreement (4 year vesting) (Incorporated by reference to Exhibit 10-dd(1) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)

23

†10.24	Form of Stock Option Agreement (7 year cliff vesting) (Incorporated by reference to Exhibit 10-dd(2) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.25	Form of Stock Option Agreement (end of contract vesting) (Incorporated by reference to Exhibit 10-dd(3) of the Company’s Form 10-K for the Year ended December 31, 2002)
†10.26	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)
†10.27	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)
†10.28	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)
†10.29	Stock Option Grant Agreement (Four Year Vesting) (Incorporated by reference to Exhibit 10-ii(2) of the Company’s Form 10-Q for the Quarter ended June 30, 2002)
†10.30	Form of Restricted Stock Unit Award Agreement under the 2001 Equity Incentive Plan (Incorporated by reference to Exhibit 10.44 of the Company’s Form 10-K for the year ended December 31, 2005)
†10.31	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)
†10.32	Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj(1) of the Company’s Form 10-Q for the Quarter ended March 31, 2003)
10.33	Revolving Credit Agreement, dated as of July 21, 2005, by and among the Company, National City Bank of the Midwest, US Bank National Association and the other lender signatories thereto (Incorporated by reference to Exhibit 10-eee(1) of the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2005)
10.34	Subsidiary Guarantee, dated as of July 21, 2005, by and among the Company, National City Bank of the Midwest, as Administrative Agent, and the guarantor signatories thereto (Incorporated by reference to Exhibit 10-eee(2) of the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2005)
10.35	Amendment No. 1 to Revolving Credit Agreement, dated as of December 20, 2006, by and among the Company, National City Bank of the Midwest, US Bank National Association and the other lender signatories thereto (Incorporated by reference to Exhibit 10.42 of the Company’s Form 10-K for the year ended December 31, 2006)
*10.36	Solar Wafer Supply Agreement, dated as of July 25, 2006, by and between the Company and Suntech Power Holdings Co. Ltd. (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2006)
*10.37	Solar Wafer Supply Agreement, dated as of October 25, 2006, by and between the Company and Gintech Energy Corporation (Incorporated by reference to Exhibit 10.46 of the Company’s Form 10-K for the year ended December 31, 2006)
10.38	Summary of Director Compensation
10.39	Summary of Compensation Arrangements for Certain Named Executive Officers
*10.40	Solar Wafer Supply Agreement between Conergy AG and the Company dated October 25, 2007 (Incorporated by reference to Exhibit 10.42 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)
*10.41	Amendment No. 1 to Solar Wafer Supply Agreement between Gintech Energy Corp. and the Company dated October 25, 2007 (Incorporated by reference to Exhibit 10.43 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)
†10.42	Form of MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10-44 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)
†10.43	Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Directors (Incorporated by reference to Exhibit 10.45 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)
†10.44	Form of MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Employees (Time Vesting) (Incorporated by reference to Exhibit 10.46 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)

24

†10.45	Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Officers (Time Vesting) (Incorporated by reference to Exhibit 10.47 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)
†10.46	Form of Amendment to MEMC Electronic Materials, Inc. Stock Unit Award Agreement for Officers (Performance Vesting) (Incorporated by reference to Exhibit 10.48 of the Company’s Annual Report on Form 10-K for the Year ended December 31, 2007)
*10.47	Amended and Restated STF Supply Agreement dated as of April 30, 2007, by and between the Company and PCS Phosphate Company, Inc. (Incorporated by reference to Exhibit 10.49 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2007)
*10.48	Solar Wafer Supply Agreement dated as of July 9, 2008, by and between MEMC Singapore Pte. Ltd. and Tainergy Tech Co., Ltd. (Incorporated by reference to Exhibit 10.50 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2007)
*10.49	Amendment Number 1 to Solar Wafer Supply Agreement, by and between MEMC Singapore Pte. Ltd. and Conergy AG, dated as of July 10, 2008. (Incorporated by reference to Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2007)
†10.50	Separation Agreement and General Release, by and between Sean Hunkler and MEMC Electronic Materials, Inc., dated as of August 13, 2008. (Incorporated by reference to Exhibit 10.52 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2007)
†10.51	Offer Letter, effective as of November 7, 2008, between the Company and Marshall Turner for employment as Interim Chief Executive Officer beginning November 12, 2008.
13	Selected pages from the Company’s 2008 Annual Report to Stockholders
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 requested or 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.

25

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/ MARSHALL TURNER
	Marshall Turner Interim Chief Executive Officer

Date: February 27, 2009

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/ MARSHALL TURNER	Interim Chief Executive Officer and Director	February 27, 2009
Marshall Turner	(Principal executive officer)
/s/ KENNETH H. HANNAH	Senior Vice President and Chief Financial Officer	February 27, 2009
Kenneth H. Hannah	(Principal financial officer and accounting officer)
/s/ PETER BLACKMORE	Director	February 25, 2009
Peter Blackmore
/s/ ROBERT J. BOEHLKE	Director	February 25, 2009
Robert J. Boehlke
/s/ JOHN MARREN	Chairman of the Board of Directors	February 25, 2009
John Marren
/s/ C. DOUGLAS MARSH	Director	February 25, 2009
C. Douglas Marsh
/s/ MICHAEL MCNAMARA	Director	February 25, 2009
Michael McNamara
/s/ WILLIAM E. STEVENS	Director	February 25, 2009
William E. Stevens
/s/ JAMES B. WILLIAMS	Director	February 25, 2009
James B. Williams

26

EXHIBIT INDEX

The following exhibits are filed as part of this report.

10.38	Summary of Director Compensation
10.39	Summary of Compensation Arrangements for Certain Named Executive Officers
10.51	Offer Letter, effective as of November 7, 2008, between the Company and Marshall Turner for employment as Interim Chief Executive Officer beginning November 12, 2008.
13	Selected pages from the Company’s 2008 Annual Report to Stockholders
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 requested or granted.

27

EX-10.38

Exhibit 10.38

Summary of Director Compensation

Set forth below is a summary of the compensation paid by MEMC Electronic Materials, Inc. (the “Company”) to its outside directors. Directors that are also employees of the Company receive no additional compensation for their service as a director.

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

• $45,000 annual Board of Directors cash retainer;

• $50,000 additional cash retainer for Chairman of the Board of Directors;

• $40,000 additional cash retainer for Chairman of the Audit Committee and $10,000 additional cash retainer for each member of the Audit Committee;

• $20,000 additional cash retainer for Chairman of the Compensation Committee and $5,000 additional cash retainer for each member of the Compensation Committee;

• $5,000 additional cash retainer for the Chairman of the Nominating and Corporate Governance; and Committee; and

• $1,000 cash for each Board of Directors’ meeting and each Committee meeting attended.

Equity Compensation. Equity compensation is granted to outside directors as follows:

• Upon their initial election or appointment to the Board of Directors, outside directors receive a grant of non-qualified stock options to purchase 10,000 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 four years.

• Outside directors are awarded RSUs for shares of our common stock on an annual basis (as of the date of the annual stockholder meeting each year). The RSUs vest ratably over two years. Each year, RSUs are to be awarded in an amount such that the number of underlying shares of MEMC common stock has a total value of $100,000 on the date the award is granted. The actual number of RSUs to be awarded shall be determined in increments of 100 RSUs such that the value of common stock underlying the RSUs is as close to $100,000 as possible. For newly elected or appointed outside directors that become directors on a date other than the date of the annual stockholder meeting, such directors would receive RSUs for a pro rata portion of the $100,000 total value.

EX-10.39

Exhibit 10.39

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 executive officers to be named in the Company’s 2009 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, 2008 (the “Form 10-K”) and are continuing as an executive officer of the Company in 2009. 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. These executive officers receive base salaries in the amounts indicated below:

Name and Position	2009 Base Salary Amount
Mignon Cabrera, Senior Vice President, Human Resources	$	244,000
Michael Cheles, Vice President, Information Technology and CIO	$	237,000
Kenneth H. Hannah, Senior Vice President and Chief Financial Officer	$	441,000
John A. Kauffmann, Senior Vice President, Sales and Marketing	$	340,000
Bradley D. Kohn, Vice President, General Counsel and Corporate Secretary	$	273,000
Shaker Sadasivam, Senior Vice President, Research and Development	$	348,000

The Compensation Committee adjusts these base salaries from time to time as the Committee deems appropriate, generally annually each year in January. In January 2009, however, the Committee decided that in light of the current worldwide economic climate in January 2009 and limited visibility of future Company performance for 2009 due to this climate, no increase in the executive officers’ base salaries would be made at that time.

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, including the Company’s short term incentive awards plan (which provides for cash incentive awards) and the Company’s long-term incentive awards plan (e.g., the Company’s 2001 Equity Incentive Plan). Such plans, and any forms of awards thereunder providing for material terms, are included as exhibits to the Form 10-K as appropriate.

Pension Plan. These executive officers are also eligible to participate in the Company Pension Plan on the same terms as the Company’s other covered employees. Because they commenced employment after December 31, 2001, Ms. Cabrera, Mr. Cheles, Mr. Hannah and Mr. Kohn are not covered by the MEMC Pension Plan.

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

EX-10.51

Exhibit 10.51

November 7, 2008

Marshall C. Turner

220 Montgomery Street

Penthouse 10

San Francisco, CA 94104

Dear Marshall,

We are pleased to confirm our offer of employment for the position of interim Chief Executive Officer. We would like for you to assume this position as of Wednesday, November 12, 2008. In connection with your appointment as interim Chief Executive Officer, I note that you have resigned from the Compensation Committee and Nominating and Corporate Governance Committee of the MEMC Board of Directors, although you will remain a director of MEMC.

Your salary for serving as interim Chief Executive Officer will be $75,000 per month, which salary will be paid bi-weekly, pursuant to the Company’s standard payroll procedures ($34,615.38 gross amount each bi-weekly payroll period, less applicable withholdings).

In connection with your appointment as interim Chief Executive Officer, on October 29, 2008 you were granted options to purchase 40,000 shares of MEMC common stock priced at the MEMC closing price on the NYSE on that date. These options will vest as follows: 20,000 shares upon the commencement of your employment on November 12, 2008, and 20,000 shares, if you not have voluntarily ended your employment as interim Chief Executive Officer prior thereto, on February 10, 2008. Your entitlement to these is, of course, subject to the terms of the stock option agreement between you and MEMC as well as the terms of the 2001 Stock Incentive Plan under which the options were granted. You may be eligible in future months for additional grants of stock options, subject to the approval of the MEMC Board of Directors.

You will be provided with temporary housing and use of a rental car in the St. Louis area during your term as interim Chief Executive Officer in accordance with the Company’s existing policies. In addition, the Company will pay for your flights between your home and St. Louis during your term as interim Chief Executive Officer, and will pay for your meal expenses while in St. Louis. You will be contacted by MEMC’s Human Resources Department to work out the logistics of these items. The value of these items will be subject to applicable taxation. The Company will “gross you up” on these items for tax purposes.

As an MEMC employee, you will also be eligible to participate in MEMC’s group employee benefit programs. The programs include: PTO (Paid Time Off), 401(k) savings plan, medical plan, dental plan, flexible spending accounts for health and dependent care, group life insurance, supplemental life insurance if you would like, as well as short-term and long-term disability plans. Each plan has its own eligibility criteria and some have contribution requirements. A summary of the MEMC benefit programs will be provided to you by MEMC HR for your review.

Consistent with Company policy, this offer is contingent upon: (1) signing of MEMC’s standard employee confidentiality agreement; (2) successful completion of a medical laboratory screening for

MEMC Electronic Materials, Inc. 501 Pearl Drive (City of O’Fallon), Post Office Box 8 St. Peters, Missouri 63376

Marshall Turner

November 7, 2008

Page 2

illegal drug use and substance abuse with a test result of negative prior to your start date; (3) your submission of documents sufficient for MEMC to verify that you have the right to work in the United States.

We do not want you to, and we hereby instruct you not to, bring any confidential or proprietary material of any former employer or to violate any other obligations you may have to any former employer. Your employment with MEMC is “at-will.” That means that both you and MEMC have the right to terminate employment for any reason, or no reason, at any time by giving notice as required by your confidentiality agreement with MEMC.

Marshall, we are all excited to work with you during this transition period. Please indicate your acceptance of this offer by signing this original letter and faxing it to MEMC’s General Counsel, Brad Kohn, at 866-773-0791.

If you have any questions, don’t hesitate to call me.

Sincerely,

John Marren

Chairman of the Board of Directors, MEMC

Agreed and accepted:

/s/ Marshall C. Turner

Marshall C. Turner

11-7-08

Date

MEMC Electronic Materials, Inc. 501 Pearl Drive (City of O’Fallon), Post Office Box 8 St. Peters, Missouri 63376

EX-13

Exhibit 13

Five Year Selected Financial Highlights

The following data has been derived from our annual consolidated financial statements, including the consolidated balance sheets and the related consolidated statements of income, cash flows, and stockholders’ equity and the notes thereto. The information below should be read in conjunction with our consolidated financial statements and notes thereto including Note 2 related to significant accounting policies.

	2008(1)		2007			2006			2005		2004
(in millions, except per share and employment data)
Statement of Income Data:
Net sales	$	2,004.5	$	1,921.8		$	1,540.6		$	1,107.4	$	1,028.0
Gross profit		1,004.8		1,000.5			689.0			366.5		369.4
Marketing and administration (2)		110.8		111.3			94.9			76.3		71.9
Research and development		40.8		39.3			35.8			33.2		38.0
Operating income		853.2		849.9			558.3			257.0		260.5
Non-operating (income) expense (3)		268.2		(261.9	)		(32.2	)		4.6		62.0
Net income(4)		387.4		826.2			369.3			249.4		226.2
Basic income per share		1.71		3.66			1.66			1.17		1.09
Diluted income per share		1.69		3.56			1.61			1.10		1.02
Balance Sheet Data:
Cash, cash equivalents and investments (5)		1,421.4		1,329.1			588.2			153.9		92.6
Working capital		981.6		1,145.3			641.7			211.4		155.0
Total assets		2,936.7		2,887.2			1,765.5			1,148.1		1,028.2
Long-term debt (including current portion of long-term debt)		32.2		30.9			34.4			39.9		138.7
Stockholders’ equity		2,082.0		2,035.0			1,166.9			711.3		442.9
Other Data:
Capital expenditures		303.2		276.4			148.4			162.7		145.8
Employees		4,900		5,400			5,500			5,400		5,500

⁽¹⁾ Includes additional bad debt expense of $4.5 million recorded in the fourth quarter of 2008. See Note 16 to the financial statements.

⁽²⁾ Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”. Stock-based compensation expense recorded to marketing and administration expense was $19.4 million, $25.1 million and $13.1 million in 2008, 2007 and 2006, respectively. Amounts recorded to marketing and administration expense during 2005 and prior years were less than $4 million per year.

⁽³⁾ A loss of $292.5 million and gains of $220.8 million and $18.9 million were recorded to non-operating income in 2008, 2007 and 2006, respectively, due to the mark to market adjustment related to a warrant received from a customer.

⁽⁴⁾ During 2005, we reversed $67.1 million of valuation allowances related to deferred tax assets. This represented the reversal of all remaining valuation allowances on deferred tax assets. During 2004, we reversed $137.4 million of valuation allowances related to deferred tax assets.

⁽⁵⁾ Includes $284.7 million and $12.7 million of long-term investments as of December 31, 2008 and 2007, respectively.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are a vertically integrated, global leader in the manufacture and sale of wafers. Our customers include semiconductor device and solar cell manufacturers. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) for semiconductor applications and 156 millimeter wafers for solar applications. Depending on market conditions, we also sell intermediate products such as polysilicon, silane gas, ingots and scrap wafers to semiconductor device and equipment makers, solar cell and module manufacturers, flat panel and other industries.

Beginning in the third quarter of 2008 and accelerating in the 2008 fourth quarter, the uncertainty in macroeconomic conditions weakened demand for electronics and subsequently wafers for semiconductor applications. This was exacerbated by our customers’ inventory reduction efforts. This resulted in reductions in our volumes and pricing pressure on nearly all semiconductor application wafer diameters. The reduction in semiconductor demand led to additional polysilicon and ingots making their way to the solar industry, resulting in downward pricing pressure for solar applications. Overall, we saw a decline in polysilicon revenues as a percent of total revenue in 2008 due to lower volumes as well as a sequential decline in pricing in the fourth quarter of 2008 versus the third quarter of 2008.

Overall, our 2008 sales increased 4% compared to 2007. Gross margins and operating margins remained healthy in 2008 at 50% and 43%, respectively. We continued to generate solid levels of cash from operations and free cash (operating cash less capital expenditures) with minimal debt. As of December 31, 2008, we held over $1.4 billion of cash, cash equivalents and investments. While we believe this positive cash performance positions us well in light of the current illiquidity in the financial markets, the current credit markets has also resulted in some of our investments experiencing other than temporary deteriorations in value.

End market weakness and low order visibility across both semiconductor and solar applications has continued into the 2009 first quarter. Reduced consumer spending, limited access to credit and other effects of the macroeconomic environment weigh on both semiconductor and solar markets. All of this, combined with above-normal inventory levels at semiconductor customers, is resulting in yet another significant sequential reduction in semiconductor wafer demand in the first quarter of 2009. Short term oversupply of polysilicon continues to contribute to pricing pressure on solar products. During February 2009, we amended two of our long-term solar wafer agreements. The aggregate revenues under the agreements for sales in 2009 and aggregate revenues for sales over the remaining term of the contracts remain unchanged, but volume increases and price reductions for 2009 have been effectuated. There were no changes to the requirements for security deposits or letters of credit other than to extend the time to comply fully with the 2009 letter of credit requirement for one of the agreements.

We expect some underutilization of our semiconductor-related property, plant and equipment will continue at least through the first quarter and perhaps longer in 2009. The lower than normal capacity utilization levels will negatively impact our gross margin percentage because of the need to period expense a portion of our fixed costs at these levels. We anticipate our polysilicon facilities will continue to operate within a normal range of production capacity in the near term. During this economic downturn, we continue to evaluate our manufacturing capabilities to identify opportunities that could allow us to reduce our overall manufacturing costs, which could entail reductions or shifting of our plant capacity and reductions in our workforce as considered necessary in the future.

RESULTS OF OPERATIONS

Net Sales	2008			2007			2006
Dollars in millions
Net Sales	$	2,004.5		$	1,921.8		$	1,540.6
Percentage Change		4	%		25	%		39	%

Our net sales increased by 4% to $2,004.5 million in 2008 from $1,921.8 million in 2007. This increase was driven by increases in product volumes totaling $108.7 million. Volumes for both 156 millimeter and 300 millimeter wafer shipments were up but were offset by decreases in volumes of all other products, including polysilicon. During 2008, sales for solar applications reached $1 billion. The overall increase in net sales was negatively impacted by pricing decreases of $49.5 million, driven by price decreases for semiconductor wafers, which were only partially offset by price increases for 156 millimeter wafers and intermediate products such as polysilicon, silane gas, ingots and scrap wafers. Our 2008 overall wafer average selling prices were approximately 43% lower than the average selling prices for 2007. This was due to a change in product mix, primarily attributable to the increase in 156 millimeter wafer shipments in 2008, which have a lower average selling price per wafer, as well as price decreases for nearly all diameters of semiconductor wafers. Sales of our excess polysilicon raw material amounted to approximately 19% and 22% of total sales in 2008 and 2007, respectively. This percentage is anticipated to continue to decline over time as our wafer sales grow at a faster rate. Polysilicon selling prices for the year were still approximately 15% higher than the average polysilicon selling prices for 2007. We expect short term semiconductor demand to be relatively soft and short-term pricing for solar applications, including intermediate products, to decline.

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Our net sales increased by 25% to $1,921.8 million in 2007 from $1,540.6 million in 2006. Increases in volume generated an increase in sales, which was primarily attributable to the introduction of 156 millimeter wafers in 2007 and increases in 300 millimeter wafer shipments. The remaining increase in our sales was due to increases in prices, which were primarily attributable to then existing wafer products and intermediate products. Sales of our excess polysilicon raw material amounted to approximately 22% and slightly less than 19% of total sales in 2007 and 2006, respectively. With the inclusion of prices for 156 millimeter wafers in the calculation of 2007 average selling prices, wafer average selling prices declined approximately 41% in 2007 compared to 2006.

We operate in all the major semiconductor and solar-producing regions of the world, with approximately 76% of our 2008 net sales to customers located outside the United States. Net sales by geographic region for each of the last three years were as follows:

Net Sales by Geographic Area:

Dollars in millions

Gross Profit	2008			2007			2006
Dollars in millions
Cost of Goods Sold	$	999.7		$	921.3		$	851.6
Gross Profit		1,004.8			1,000.5			689.0
Gross Margin Percentage		50	%		52	%		45	%

The improvement in gross profit dollars for 2008 of $4.3 million to $1,004.8 million was primarily due to improved volume and mix of 156 millimeter wafers and 300 millimeter wafers, partially offset by pricing declines as described above. The decrease in gross margin percentage is primarily the result of overall price declines across most diameters and decreases in polysilicon and intermediate product volumes, as well as the impact of abnormal costs of approximately $16 million in 2008 due to an adverse annual long-term purchase obligation and unallocated fixed overhead costs. We expect short-term pricing in solar applications including intermediate products to decline.

Our gross profit was $1,000.5 million in 2007 compared to $689.0 million in 2006 and increased as a percentage of sales to 52% from 45%. The increase in gross margin percentage was primarily the result of an improved mix of 156 millimeter wafers, 300 millimeter wafers and polysilicon sales, as well as higher average prices on then existing wafer products and polysilicon sales throughout the year.

Marketing and Administration	2008			2007			2006
Dollars in millions
Marketing and Administration	$	110.8		$	111.3		$	94.9
As a Percentage of Net Sales		6	%		6	%		6	%

The decrease in marketing and administration expenses in 2008 versus the prior year was primarily due to a decrease in stock compensation expense of $5.7 million driven by the forfeiture of stock options related to the resignation of our former Chief Executive Officer of $15.5 million, slightly offset by the adjustment of estimated forfeiture rates and new award grants. The change was also due to an additional $5.7 million recorded to our allowance for doubtful accounts compared to the prior year and net favorable legal settlements of $4.3 million, offset by one-time severance expense of $3.2 million.

Marketing and administration expenses were $111.3 million in 2007 compared to $94.9 million in 2006. As a percentage of net sales, marketing and administration expenses remained consistent with 2006, at 6%. In aggregate dollar amounts, marketing and administration fees increased due to increased stock compensation expense of $12.0 million related to new option grants, as well as higher professional fees and increased freight on customer shipments.

Research and Development	2008			2007			2006
Dollars in millions
Research and Development	$	40.8		$	39.3		$	35.8
As a Percentage of Net Sales		2	%		2	%		2	%

3

R&D expenses consisted mainly of product and process development efforts to increase our capability in the areas of flatness, particles and crystal defectivity. R&D expenditures in 2008 were consistent with the prior year. Our research and development expenses increased to $39.3 million in 2007 compared to $35.8 million in 2006 mainly due to increased raw material and labor costs on next generation products and higher patent-related professional fees.

Non-operating (Income) Expense	2008			2007			2006
Dollars in millions
Interest Expense	$	1.8		$	1.4		$	2.4
Interest Income		(46.4	)		(45.0	)		(14.6	)
Decline (Increase) in Fair Value of Warrant	$	292.5			(220.8	)		(18.9	)
Other, Net		20.3			2.5			(1.1	)

Interest income mainly relates to returns on cash, cash equivalents and investments. Interest income was higher in 2008 compared to 2007 due to higher average cash, cash equivalent and investment balances throughout the year partially offset by a decline in interest rates. Our interest income of $45.0 million in 2007 was higher compared to $14.6 million in 2006 due to increased returns on higher cash and investment balances.

Decline (increase) in fair value of warrant represents the mark-to-market adjustment for a warrant received from Suntech Power Holdings (Suntech). We recorded a decline in the estimated fair value of the warrant of $292.5 million in 2008 compared to increases of $220.8 million in 2007 and $18.9 million in 2006. The change in the estimated fair value of the warrant is mainly driven by the change in the price of Suntech’s ordinary shares, which had a price per share of $11.70, $82.32 and $34.01 at December 31, 2008, 2007 and 2006, respectively.

Other, net expense in 2008 included $14.5 million of other than temporary impairments on our investments.

Income Taxes	2008			2007			2006
Dollars in millions
Income Tax Expense	$	195.4		$	282.2		$	214.8
Income Tax Rate as a % of Income before Income Taxes		33	%		25	%		36	%

In 2008, we recorded income tax expense of $195.4 million representing 33% of income before income taxes and minority interests. The effective rate was 8.0 percentage points higher in 2008 compared to 2007 as a result of the non-taxable loss and income for the mark-to-market adjustment associated with the Suntech warrant for 2008 and 2007, respectively. This increase in the effective rate was partially offset by the decrease to the reserve for uncertain tax positions of $44.0 million, including related interest, reducing income tax expense by $29.5 million and increasing income taxes payable by $14.5 million, due to the closure of the Internal Revenue Service examination in the United States of the 2004 and 2005 audit years, as well as earnings generated by foreign subsidiaries whose earnings are being permanently reinvested abroad and taxed at lower rates. Certain of our Asian subsidiaries have been granted a concessionary tax rate of between 0% and 10% on all qualifying income for a five year period based on investments in certain machinery and equipment and other development and expansion activities, resulting in a tax benefit for 2008 of approximately $37.0 million. Under the awards, the income tax rate for qualifying income will be taxed at an incentive tax rate lower than the corporate tax rate. The last of these incentives are scheduled to expire in 2012.

In 2007, we recorded income tax expense of $282.2 million representing 25% of income before income taxes and minority interests. The decrease in the overall tax rate in 2007 from 2006 was related primarily to the non-taxable gain on the fair value of the Suntech warrant as well as a reduction in the effective tax rate as a result of an increase in earnings generated by foreign subsidiaries whose earnings are being permanently reinvested and taxed at lower rates.

FINANCIAL CONDITION

Cash and cash equivalents increased $129.0 million from $859.3 million at December 31, 2007 to $988.3 million at December 31, 2008. See additional discussion in “Liquidity and Capital Resources” below.

Short-term and long-term investments of $433.1 million at December 31, 2008 decreased $36.7 million from $469.8 million at December 31, 2007. This decrease was primarily due to an increase in net unrealized temporary losses recorded to other comprehensive income of $38.9 million and other than temporary impairments of $14.5 million as well as currency adjustments. The decrease was slightly offset by net purchases of investments of $31.8 million during the period associated with the purchase of

4

available for sale investments. As of December 31, 2008, we classified $44.1 million of auction rate securities and an additional $55.0 million of corporate bonds, asset-backed and mortgage-backed securities as non-current assets due to the current conditions in the general debt markets as further discussed in “Liquidity and Capital Resources” below. In addition, at December 31, 2008 we held $168.8 million in fixed income funds with the intent of holding them for a period exceeding 12 months.

Our accounts receivable decreased $0.6 million to $197.3 million at December 31, 2008, compared to $197.9 million at the end of 2007. Our overall days sales outstanding was 42 days at December 31, 2008 compared to 34 days at the end of 2007, based on annualized fourth quarter sales for the respective years. The change in the accounts receivable balance was mainly due to a decrease in sales in the fourth quarter of 2008 versus 2007, higher prepayments for spot polysilicon sales at the end of 2007 compared to 2008, and an increase in our allowance for bad debts of $5.7 million, offset by a slight extension of payment terms. Some of our customers have been impacted by the current global macroeconomic downturn which may directly or indirectly influence their current liquidity.

Our inventories increased $44.9 million or 123% to $81.3 million from the prior year. Inventories primarily increased as a result of the higher finished goods inventory due to a sharp decrease in demand in the 2008 fourth quarter and an increase in per unit costs related to lower production volumes. 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 11 times at December 31, 2008 versus approximately 27 times at December 31, 2007. 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. At December 31, 2008, we had $15.1 million of inventory held on consignment, compared to $8.4 million at December 31, 2007.

Our net property, plant and equipment increased $207.2 million to $1,041.2 million over the prior year. The increase was primarily due to capital expenditures related to expansions at our plants in Pasadena, Texas, Hsinchu, Taiwan and Merano, Italy and foreign currency changes, offset by depreciation expense.

Our net deferred tax assets totaled $70.7 million at December 31, 2008 (of which $1.0 million of current deferred tax assets was included in prepaid and other assets) compared to $101.3 million at December 31, 2007 (of which $12.0 million was included in prepaid and other assets). In 2008, the decrease of $30.6 million in net deferred tax assets is primarily attributed to the reversal of timing differences for 2008, which included pension and other post-retirement reserve items related to contributions made in the current year, fixed asset additions for items placed into service and tax method changes related to fixed assets. We believe that it is more likely than not, with our projections of future taxable income, that we will generate sufficient taxable income to realize the benefits of the net deferred tax assets at December 31, 2008.

Customer warrant decreased from $306.3 million at December 31, 2007 to $13.8 million at December 31, 2008. The current year decrease represents the change in the estimated fair value of the warrant and is mainly due to the significant decrease in the price of Suntech’s ordinary shares.

Other assets increased $17.7 million to $73.1 million at December 31, 2008 from $55.4 million at December 31, 2007. This increase is mainly due to an increase in spares, the receipt of a right to sell our auction rate securities at par and additional contributions to our U.S. pension plan that eliminated the unfunded status of the plan.

Accrued liabilities increased $26.7 million to $67.5 million at December 31, 2008 from $40.8 million at December 31, 2007. This increase was due to a $13.7 million accrual for an adverse annual long-term purchase obligation and a $12.8 million increase in accrued withholding taxes.

Short-term customer deposits increased $65.0 million to $187.0 million at December 31, 2008, primarily due to additional deposits received for two new long-term supply agreements and additional contractually required deposits for existing long-term supply agreements. These customer deposits are the portion of deposits received that are refundable to the customer within the next twelve months.

Income taxes payable decreased $58.0 million to $17.9 million at December 31, 2008, compared to $75.9 million at December 31, 2007. This decrease is primarily related to the timing of estimated tax payments of $28.6 million related to 2007 that were remitted in 2008. The remaining change was due to a decrease in US and foreign tax liabilities due to lower taxable income in the fourth quarter of 2008.

Pension and post-employment liabilities decreased $15.1 million to $49.3 million at December 31, 2008, compared to $64.4 million at the end of 2007 (of which $3.0 million and $3.8 million were included in accrued liabilities at December 31, 2008 and 2007, respectively). This decrease was due to discretionary contributions of $63.5 million to the U.S. pension plan above the minimum funding requirements that eliminated the unfunded status of the plan, offset by negative investment returns on the portfolio of $31.2 million. As noted above, the U.S. pension plan is overfunded as of December 31, 2008 and the net asset is recorded in other long-term assets.

5

Long-term deferred revenue relates to customer supply agreements and the original estimated fair value of the warrant described above. We will recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the contracts. The increase in deferred revenue from $81.4 million at December 31, 2007 to $88.8 million at December 31, 2008 is primarily the result of increased non-refundable deposits of $10.3 million received in connection with our supply agreements, offset by deferred revenue recognized in 2008 of $2.9 million.

Other non-current liabilities decreased $18.5 million to $186.1 million at December 31, 2008, compared to $204.6 million at December 31, 2007. This decrease is mainly due to a decrease in the reserve for uncertain tax positions of $44.0 million, including related interest, due to the closure of the Internal Revenue Service examination in the United States of the 2004 and 2005 audit years. This decrease was partially offset by the receipt of refundable customer deposits that are to be refunded beyond the next twelve months and are related to long-term supply agreements.

LIQUIDITY AND CAPITAL RESOURCES

	2008			2007			2006
Dollars in millions
Net Cash Provided by (Used in):
Operating Activities	$	640.5		$	917.2		$	527.8
Investing Activities		(335.0	)		(688.9	)		(174.2	)
Financing Activities		(153.3	)		76.9			40.8

In 2008, we generated $640.5 million of cash from operating activities, compared to $917.2 million in 2007 and $527.8 million in 2006. The year over year decrease of $276.7 million to $640.5 million in 2008 was due to contributions of $76.3 million to our pension and post-employment plans, changes in working capital, including changes in income taxes payable and inventories, as well as non-current assets and liabilities and deferred revenue. The increase in cash from operating activities in 2007 from $527.8 million in 2006 was due to improved operating results.

Our principal sources and uses of cash during 2008 were as follows:

Sources:

• Generated $640.5 million from operations;

• Received $229.7 million in customer deposits related to long-term supply agreements; and

• Received $19.9 million from the exercise of stock options.

Uses:

• Purchased $31.8 million of investments, net;

• Invested $303.2 million in capital expenditures;

• Paid $321.0 million to repurchase common stock;

• Refunded $81.6 million in customer deposits related to long-term supply agreements; and

• Contributed $76.3 million to our pension and post-employment plans.

At December 31, 2008, we had approximately $97.6 million of committed capital expenditures. Capital expenditures in 2008 and committed capital expenditures for 2009 primarily relate to increasing our capacity and expanding capability for our next generation products and polysilicon. We are currently evaluating our 2009 capital expenditures in light of current macroeconomic events and expect that capital expenditures will be lower in dollar terms than the amount expended in 2008.

In 2008, cash from financing activities used $153.3 million, compared to $76.9 million provided in 2007. The decrease was mainly due to repurchases of our common stock of $321.0 million in 2008 compared to $111.2 million in 2007. This was slightly offset by approximately $138.0 million, net received in connection with customer deposits related to supply agreements in 2008 compared to $115.3 million in 2007. These deposits are refundable to the customer over two years, although such deposits are scheduled to be replaced each year with new deposits based on volume commitments stated in the contract to reduce our risks associated with nonfulfillment of the contract by the customers. One customer with which we maintain a long-term solar supply agreement did not make the final refundable capacity reservation deposit due on January 2, 2009. We continue to have discussions with this customer regarding 2009 purchases and their ability to pay the deposit. Previous deposits held by us and a committed letter of credit exceed the accounts receivable balance for such customer as of December 31, 2008. Also contributing to the decrease in cash from financing activities was the excess tax benefits from share-based payment arrangements decrease to $19.0 million in 2008, compared to $40.0 million in 2007, and decrease to $19.9 million received in connection with stock option exercises, compared to $44.2 million in 2007.

6

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest (“National City Bank”), US Bank National Association, and such other lending institutions as may from time to time become lenders (the “National City Agreement”). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the LIBOR rate. Additionally, our obligations and the guaranty obligations of our subsidiaries are no longer secured by a pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200.0 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At December 31, 2008, there were no borrowings under this credit facility, however, credit available under the facility has been reduced by $114.2 million related to the issuance of third party letters of credit. We are currently in compliance with all debt covenants.

Credit facilities and related borrowings outstanding at December 31, 2008 were as follows:

	Committed		Outstanding
Dollars in millions
Long-term Debt	$	270.4	$	32.2
Short-term Borrowings		33.2		—
Total	$	303.6	$	32.2

Of the $270.4 million in committed long-term credit facilities, $114.9 million is unavailable because it relates to the issuance of third party letters of credit. Our weighted-average cost of borrowing was 2.2% at December 31, 2008 and 2007, respectively. Our short-term borrowings are subject to renewal annually with each financial institution through the course of the year.

Our contractual obligations as of December 31, 2008 were as follows:

	Payments Due By Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Dollars in millions
Long-term Debt 1	$	32.2	$	6.1	$	7.5	$	6.4	$	12.2
Operating Leases		13.4		3.6		4.5		3.2		2.1
Purchase Obligations 2		826.3		126.0		162.0		176.9		361.4
Committed Capital Expenditures 3		97.6		97.6		—		—		—
Employee Related Liabilities 4		78.1		0.4		—		—		—
Other Long-term Liabilities—Uncertain Tax Positions 5		55.9		—		—		—		—
Customer Deposits 6		290.3		186.0		104.3		—		—
Total Contractual Obligations	$	1,393.8	$	419.7	$	278.3	$	186.5	$	375.7

The contractual commitments shown above, except for our debt obligations, employee related liabilities, uncertain tax positions and customer deposits, are not recorded on our consolidated balance sheet.

¹ Our long-term debt consists of Japanese Yen denominated plant expansion borrowings that have notes maturing over the next nine years.

² Represents obligations for agreements to purchase goods or services that are enforceable and legally binding on the Company, including minimum quantities to be purchased, and outstanding purchases for goods or services as of December 31, 2008.

³ Committed capital expenditures represent commitments for construction or purchase of property, plant and equipment. They are not recorded as liabilities on our consolidated balance sheet as of December 31, 2008 because we have not yet received the related goods or services or taken title to the property.

⁴ Employee related liabilities include pension, health and welfare benefits and other post-employment benefits. Other than pensions, the employee related liabilities are paid as incurred and accordingly, specific future years’ payments are not

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reasonably estimable. Amounts in the table due in less than one year relate to required pension funding obligations which represent the estimated contribution planned during 2009. Funding projections beyond the next twelve months are not practical to estimate due to the rules affecting tax-deductible contributions and the impact from the plan asset performance, interest rates and potential U.S. and international legislation.

⁵ As of December 31, 2008, $55.9 million of unrecognized tax benefits were included as a component of other long-term liabilities. Due to the inherent uncertainty of the underlying tax positions, we are unable to reasonably estimate in which future periods these unrecognized tax benefits will be settled.

⁶ Customer deposits consist of amounts provided in connection with long-term supply agreements which must be refunded to the customers according to the terms of the agreements.

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 indemnification obligations generally do not provide for a limitation of our liability. We have not had any claims related to these indemnification obligations as of December 31, 2008.

Our pension expense and pension liability are actuarially determined. See “Critical Accounting Policies and Estimates.” Our total net unfunded pension liability related to our various defined benefit pension plans at December 31, 2008 totaled $17.3 million. Our pension obligations are funded in accordance with provisions of federal law. Contributions to our pension plans in 2008 totaled approximately $73.9 million, of which $63.5 million represented a discretionary contribution. We expect contributions to our pension plans in 2009 to be approximately $1.1 million.

As of December 31, 2008, we held $159.5 million in a portfolio comprised of corporate bonds and asset-backed and mortgage-backed securities, net of temporary impairments of $14.5 million and other than temporary impairments of $14.5 million. As of December 31, 2007, this portfolio had $299.5 million of investments, net of temporary impairments of $4.3 million. A majority of these investments maintain a floating interest rate based on a range of spreads to the one and three month LIBOR rate. While we believe the decline in fair value related to the temporary impairments to be directly attributable to the current global credit conditions, we believe the time to reach the original carrying value to be greater than 12 months. Accordingly, we have classified $55.0 million of those investments as non-current assets. We do not anticipate having to sell these securities below our cost in order to operate our business. The asset backed securities are collateralized by various types of assets including auto, consumer, home equity, student loan and credit card loans. The collateralized mortgage obligations are collateralized primarily by residential mortgages. Many of these issuances have varying tranches and subordinations and our investments are typically in investment grade and more senior, higher priority tranches.

As of December 31, 2008, we held $168.8 million in fixed income funds, net of temporary impairments of $33.2 million, with the intent of holding them for a period exceeding 12 months. See “Critical Accounting Policies and Estimates” related to our process of evaluating investments for impairment.

The fair value of the corporate debt securities, auction rate securities and asset-backed and mortgage-backed securities, using Level 3 inputs, may fluctuate based on varying assumptions used in their valuations, which include the tax status (taxable vs. tax-exempt), type of security (type of issuer, collateralization, subordination, etc.), credit quality, duration, likelihood of redemption, insurance coverage and degree of liquidity in the current credit markets. Due to the lack of observable inputs, active markets or transparency to the underlying assets, we may rely on qualitative factors to estimate the fair values of the investments, including general macro-economic information and other data supplied by our investment advisers and brokers.

The credit ratings for our investments in debt securities as of December 31, 2008 are as follows:

			Credit Ratings
Dollars in millions	Fair Value		AAA		AA+ to A-		BBB+ and Below
Corporate debt securities	$	84.0	$	14.0	$	57.5	$	12.5
Asset-backed securities		40.6		33.1		6.0		1.5
Mortgage-backed securities		34.9		30.5		4.2		0.2
Auction rate securities		44.1		44.1		—		—
	$	203.6	$	121.7	$	67.7	$	14.2

We take into consideration the credit ratings of the individual securities when evaluating the financial condition and near term prospects of the issuer in determining whether the impairment is temporary or other than temporary. See “Critical Accounting Policies and Estimates” related to our process of evaluating investments for impairment and balance sheet classification.

As of December 31, 2008, we held $44.1 million of investments related to auction rate securities (ARS), net of unrealized losses of $7.3 million. These securities were reclassified as trading securities for accounting purposes during the quarter ended December 31, 2008 and all changes in fair value are recorded to non-operating (income) expense, other. The ARS are comprised of interest bearing state sponsored student loan revenue bonds and municipal bonds with varying maturity periods and typically provide short-term

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liquidity via an auction process that also resets the applicable interest rate at predetermined calendar intervals (typically every 7, 28 or 35 days). The student loan revenue bonds are collateralized and serviced by underlying student loans and the municipal bonds are serviced through revenue generated by the issuing municipal entity. In the event of an auction failing to settle on its respective settlement date, these funds remain invested at a “failed” interest rate which is typically higher than the previous market rate until the next successful auction. For those auctions that failed to settle, we will not be able to access those funds until the next successful auction, another buyer is found outside of the auction process, the issuer redeems the security or the security matures. As of December 31, 2007, none of our $111.7 million of ARS had failed. Commencing in mid-February 2008, the tightening credit markets and a lesser degree of liquidity in the overall credit marketplace caused auctions on our ARS to fail. During 2008, we liquidated approximately $60.3 million of ARS. As of December 31, 2008, all remaining ARS were classified as non-current assets due to unsuccessful auctions coupled with current conditions in the general debt markets which have created uncertainty as to when successful auctions will be reestablished. We do not anticipate having to sell these securities below our cost in order to operate our business. The ARS are insured through two different monoline insurers that presently maintain a credit rating of AAA or similar designation by S&P, Moody’s and/or Fitch as of December 31, 2008 or by a U.S. government backed student loan program.

During November 2008, we accepted an offer by our investment broker to receive an ARS Right that would substantially ensure recovery to par of our ARS between June 2010 and July 2012. We have elected the fair value option for the ARS Right and have recorded the ARS Right at fair value to other assets and non-operating income, other. At the same time, we reclassified the ARS from the available-for-sale category to trading. As of December 31, 2008, the ARS Right had a value of $6.2 million, which substantially offset the mark-to-market adjustment of our outstanding ARS of $7.3 million. See “Critical Accounting Policies and Estimates” related to our process of evaluating investments for impairment.

We believe that, based on our current cash, cash equivalents and investment balances of approximately $1.4 billion at December 31, 2008 and expected operating cash flows, the current liquidity concerns in the credit and capital markets will not have a material impact on our liquidity, cash flow, financial flexibility or our ability to fund our operations.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties, however, and, as a result, actual results could differ from these estimates. Our significant accounting policies are more fully described in Note 2 of Notes to Consolidated Financial Statements herein.

Revenue Recognition

We record revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed and determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned storage facility or storage area or, if the customer does not pull the product within a contractually 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. Our wafers are generally made to customer specifications and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes. We defer revenue for multiple element arrangements based on an average fair value per unit for the total arrangement when we receive cash in excess of fair value. We also defer revenue when pricing is not fixed and determinable or other revenue recognition criteria is not met.

In connection with supply agreements executed during 2006, we received various equity instruments and recorded their estimated fair value to long-term deferred revenue. We will recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the contracts. During 2007, we executed a supply agreement in which the terms of any additional consideration provided by the customer have not been finalized. During 2008, we executed a supply agreement in which we obtained a right to subscribe to common shares of our customer. If and when the terms are finalized for both agreements, the estimated fair value of the additional consideration, if determinable and material, will be recorded to deferred revenue.

Inventory

Inventories, which consist of materials, labor and manufacturing overhead, are valued at the lower of cost or market. Fixed overheads are allocated to the costs of conversion based on the normal capacity of our production facilities. Unallocated overheads during periods of abnormally low production levels are recognized as cost of goods sold in the period in which they are incurred. Raw materials are stated at weighted-average cost. Goods in process and finished goods inventories are stated at standard cost as adjusted

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for variances, which approximates weighted-average actual cost. The valuation of inventory requires us to estimate excess and slow moving inventory. The determination of the value of excess and slow moving 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 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. Concurrent with our polysilicon expansion in 2008, we assessed the useful lives of certain new polysilicon related property, plant and equipment placed in service in 2008, and based on historical experience with similar existing assets, determined that a useful life of 25 years was appropriate. Previously existing polysilicon production assets were depreciated over an estimated useful life of 10 years and have immaterial net book values at December 31, 2008.

In accordance with SFAS 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 have recorded no significant impairment charges in 2008, 2007 or 2006.

We recognize asset retirement obligations at fair value in the period in which they are incurred and the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding asset capitalized at inception is depreciated over the useful life of the asset. In addition, we could have certain legal obligations for asset retirements related to disposing of materials in the event of closure, abandonment or sale of certain of our facilities. We plan to operate the facilities that are subject to the asset retirement obligations for an indeterminate period beyond the foreseeable future and as such cannot estimate a liability at December 31, 2008. We will recognize a liability in the period in which we have determined the timeframe that the asset will no longer operate and information is available to reasonably estimate the liability’s fair value.

Income Taxes

In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. We calculate our current and deferred tax provisions based upon estimates and assumptions that could differ from the actual results reflected in our income tax returns filed during the subsequent year. We record adjustments based on filed returns when we have identified the adjustments and finalized the returns, which is generally in the third and fourth quarters of the subsequent year. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes. We regularly review our deferred tax assets for realizability, 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 judgments, 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 adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), as of January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. From time to time, we are subject to income tax audits in these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities are likely to challenge certain positions, which may not be fully sustained. Our income tax expense includes amounts intended to satisfy income tax assessments that may result from these challenges. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires significant judgments and estimates. Under FIN 48, tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. Prior to the adoption of FIN 48, uncertain tax positions were accounted for under either FASB Statement No. 5, “Accounting for Contingencies,” or FASB Statement No. 109, “Accounting for Income Taxes.” We believe that our income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. We review our liabilities quarterly, and we may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices, the resolution of entire audits, or the expiration of statutes of limitations. Adjustments, if required, are most likely to occur in the year during which major audits are closed.

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We repatriate to the United States a portion of the current year earnings of a certain subsidiary. We do not provide for U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries which would be payable if the undistributed earnings were distributed to the U.S., as we consider those foreign earnings to be permanently reinvested outside the U.S. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.

Employee-Related Liabilities

We have a long-term net liability for our defined benefit pension and other post-employment benefit plans. Our obligations are funded in accordance with provisions of federal law. We adopted the recognition provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”) as of December 31, 2006, and the measurement date provisions as of December 31, 2008. SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.

Our pension and other post-employment liabilities 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 costs and obligations. If our assumptions do not materialize as expected, expenditures and costs that we incur could differ from our current estimates. 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 2008 was 8.3%, the actual return experienced in our pension plan assets in the comparable period in 2008 was a loss of 17.7%. We consult with the plans’ actuaries to determine a discount rate assumption that reflects the characteristics of our plans, including expected cash outflows from our plans, and utilize an analytical tool that incorporates the concept of a hypothetical yield curve, developed from corporate bond (Aa quality) yield information. Assuming a 100 basis point increase in these assumptions, our 2008 pension expense would have been approximately $1.9 million higher. Assuming a 100 basis point decrease in these assumptions, our 2008 pension expense would have been approximately $0.9 million lower.

Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method and therefore have not restated prior periods’ results. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of an estimated forfeiture rate and recognize the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. With the adoption of SFAS 123R, we elected to recognize stock-based compensation expense for all grants on or after January 1, 2006 on a straight-line basis over the requisite service period of the entire award for ratable awards. For awards granted prior to January 1, 2006, we will continue to calculate compensation expense by treating each vesting tranche as a separate award. We estimated the forfeiture rate for 2006 and 2007 based on our historical experience during the preceding four fiscal years.

Prior to January 1, 2006, we accounted for our stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (“Opinion 25”), “Accounting for Stock Issued to Employees”, and related interpretations. Accordingly, we generally recognized expense only when we granted options with a discounted exercise price. Any resulting compensation expense was recognized over the associated service period, which was generally the option vesting term.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the making of subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. As of December 31, 2008, approximately $52.1 million of total estimated unrecognized compensation cost related to stock compensation is expected to be recognized over a weighted-average period of two years. See Note 10 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

Fair Value Measurements

We adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157) as of January 1, 2008. SFAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that

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market participants would use in pricing the asset or liability developed, and are based on market data obtained from sources independent of MEMC. Unobservable inputs are inputs that reflect MEMC’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that MEMC has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Because valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.

• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Valuations for Level 2 assets are prepared on an individual asset basis using data obtained from recent transactions for identical securities in inactive markets or pricing data from similar assets in active and inactive markets.

• Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Valuations of our Level 3 available for sale investments are performed using a discounted cash flow model, which involves making assumptions about expected future cash flows based on estimates of current market interest rates. Our models include estimates of market data, including yields or spreads of trading instruments that are believed to be similar or comparable, when available and assumptions that are believed to be reasonable on nonobservable inputs. Such assumptions include the tax status (taxable vs. tax-exempt), type of security (type of issuer, collateralization, subordination, etc.), credit quality, duration, likelihood of redemption, insurance coverage and degree of liquidity in the current credit markets.

In October 2008, the FASB issued Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP 157-3). FSP 157-3 clarifies the application of SFAS 157 in cases where a market is not active. MEMC has considered the guidance provided by FSP 157-3 in our determination of estimated fair values for our investments as of December 31, 2008.

Derivative Financial Instruments

On July 25, 2006, MEMC received a fully vested, non-forfeitable warrant to purchase common shares of a customer, Suntech. The warrant becomes exercisable over a five year period (20% annually commencing on January 1, 2008) and has a five year exercise period from the date each tranche becomes exercisable. The warrant is considered a derivative and is therefore marked to market each reporting period. Determining the appropriate fair value model and estimating the fair value of the warrant requires the making of subjective assumptions, including the stock price volatility of Suntech. We used a lattice model to estimate the warrant’s fair value. A combination of Suntech’s historical and implied stock price volatility was used as an indicator of expected volatility.

Investments

Our investment in equity securities consists of a customer’s common stock (Gintech) acquired in connection with the execution of a long-term supply agreement. This investment was accounted for under the cost method of accounting until December 2008 when the restriction on sale became less than one year. Subsequently, this investment is accounted for at fair value and is classified as a long-term available-for-sale investment. The fair value of the investment was estimated based on the closing stock price on December 31, 2008, reduced by the estimated value of a put with a one year restriction. In 2007, the fair value of the investment for disclosure purposes was estimated based on the closing stock price on December 31, 2007 reduced by the estimated value of a regulatory restriction on sale. The value of the regulatory restriction on sale was estimated using a Black Scholes model considering the stock price volatility, expected term, dividend yield and risk-free interest rate.

We also have investments in debt securities which require us to make estimates of their fair values to determine the unrealized gains and losses on the securities, if any losses are temporary or other than temporary and concerning the ability and related timing of liquidating our holdings. Unrealized losses are recorded to other income and expense when a decline in fair value is determined to be other-than-temporary. In accordance with FSP FAS 115-1 and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” we review several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the issuer; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Realized gains and losses are accounted for on the specific identification method. We determine the fair value of our debt securities using quoted prices from active and inactive markets, traded prices for similar assets, or fair value measurements based on a pricing model. We also review our ability to liquidate our investments within the next 12 month operating cycle to determine the appropriate short or long-term classification. Our ability to liquidate is determined based on a review of current and short-term credit and capital market conditions and the financial condition and near term prospects of the issuer.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. The requirements of SFAS 141R are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141R amends SFAS No. 109, “Accounting for Income Taxes” (SFAS 109) such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141R would also apply the provisions of SFAS 141R. Early adoption was not permitted. Upon adoption, SFAS 141R will not have a significant impact on our financial position and results of operations, however, any business combination entered into after the adoption may significantly impact our consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The requirements of SFAS 160 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect SFAS 160 to have a material effect on our consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), as well as related hedged items, bifurcated derivatives, and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We do not expect SFAS 161 to have a material effect on our consolidated results of operations and financial condition.

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan including investment policies and strategies, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets and significant concentrations of risk within plan assets. This FSP is effective for fiscal years ending after December 15, 2009, with earlier application permitted. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. We are currently evaluating the disclosure requirements of this new FSP, however its adoption will not have an impact on our consolidated 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. 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. 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 Euro, the Japanese Yen, 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, Malaysia and Singapore based subsidiaries use the U.S. Dollar as their functional currencies for US GAAP purposes and do not hedge New Taiwanese Dollar, Malaysian Ringgit or Singapore Dollar exposures.

We are subject to interest rate risk related to our cash equivalents, investments and pension plan assets. To mitigate substantial risk associated with changes in interest rates, we seek to obtain fixed rate securities, actively manage our portfolio duration and diversify across different currencies. Our long-term debt is also at a fixed rate. In addition to interest rate risk on our cash equivalents, investments and pension plan assets, we are subject to issuer credit risk because the value of our investments may change based on liquidity issues or adverse economic conditions affecting the creditworthiness of the issuers or group of issuers of the securities we may own. As of December 31, 2008, our investments were in fixed income funds, individual corporate bonds, asset-backed securities,

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mortgage-backed securities and auction rate securities, comprised of tax exempt municipal bonds and state sponsored student loan revenue bonds. Our pension plan assets are invested primarily in marketable securities including common stocks, bonds and interest bearing deposits. Due to the continued liquidity conditions in the global credit markets and failed auctions for some of our auction rate securities at December 31, 2008, we classified certain debt securities, previously recorded as current, with a fair value of $99.1 million, as non-current assets. See additional discussion in “Liquidity and Capital Resources” and “Critical Accounting Policies and Estimates”. Due to the diversity of and numerous securities in our portfolio, estimating a hypothetical change in value of our portfolio based on estimated changes in interest rates and issuer risk is not practical.

With the receipt of the Suntech warrant and our investment in a customer’s stock, we are exposed to equity price risk. A hypothetical 10% change in the stock price of our customer in which we maintain a warrant would result in an estimated change in the fair value of the warrant of approximately $4 million at December 31, 2008.

14

UNAUDITED QUARTERLY FINANCIAL INFORMATION

2008	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Dollars in millions, except per share data
Net sales	$	501.4		$	531.4		$	546.0		$	425.7
Gross profit		259.3			282.8			269.7			193.0
(Loss) income before minority interests		(40.7	)		177.5			183.6			69.2
Minority interests		(1.1	)		(1.4	)		(0.8	)		1.1
Net (loss) income		(41.8	)		176.1			182.8			70.3
Basic (loss) income per share		(0.18	)		0.77			0.81			0.31
Diluted (loss) income per share		(0.18	)		0.76			0.80			0.31
Market close stock prices:
High		87.88			77.35			59.64			28.83
Low		63.08			61.38			26.52			10.45

A loss of $209.4 million, $12.3 million, $9.6 million and $61.2 million was recorded to non-operating expense in the quarters ended March 31, June 30, September 30 and December 31, 2008, respectively, due to the mark to market adjustment related to the Suntech warrant received in 2006 as discussed in Note 2(m) to the Consolidated Financial Statements.

2007	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Dollars in millions, except per share data
Net sales	$	440.4		$	472.7		$	472.8	$	535.9
Gross profit		222.5			245.6			238.8		293.6
Income before minority interests		136.1			164.9			151.2		377.4
Minority interests		(1.4	)		(1.3	)		0.3		(1.0	)
Net income		134.7			163.6			151.5		376.4
Basic income per share		0.60			0.73			0.67		1.65
Diluted income per share		0.58			0.70			0.65		1.62
Market close stock prices:
High		63.60			67.43			63.64		94.02
Low		40.29			54.09			53.34		59.17

A (gain)/loss of $1.1 million, ($7.9) million, ($9.3) million and ($204.7) million was recorded to non-operating (income) expense in the quarters ended March 31, June 30, September 30 and December 31, 2007, respectively, due to the mark to market adjustment related to the Suntech warrant received in 2006 as discussed in Note 2(m) to the Consolidated Financial Statements.

15

Consolidated Statements of Income

	For the year ended December 31,
	2008			2007			2006
In millions, except per share data
Net sales	$	2,004.5		$	1,921.8		$	1,540.6
Cost of goods sold		999.7			921.3			851.6
Gross profit		1,004.8			1,000.5			689.0
Operating expenses:
Marketing and administration		110.8			111.3			94.9
Research and development		40.8			39.3			35.8
Operating income		853.2			849.9			558.3
Non-operating (income) expense:
Interest expense		1.8			1.4			2.4
Interest income		(46.4	)		(45.0	)		(14.6	)
Decline (increase) in fair value of warrant		292.5			(220.8	)		(18.9	)
Other, net		20.3			2.5			(1.1	)
Total non-operating expense (income)		268.2			(261.9	)		(32.2	)
Income before income tax expense and minority interests		585.0			1,111.8			590.5
Income tax expense		195.4			282.2			214.8
Income before minority interests		389.6			829.6			375.7
Minority interests		(2.2	)		(3.4	)		(6.4	)
Net income	$	387.4		$	826.2		$	369.3
Basic income per share	$	1.71		$	3.66		$	1.66
Diluted income per share	$	1.69		$	3.56		$	1.61
Weighted-average shares used in computing basic income per share		226.9			225.6			222.1
Weighted-average shares used in computing diluted income per share		228.6			232.3			229.7

See accompanying notes to consolidated financial statements.

16

Consolidated Balance Sheets

	As of December 31,
	2008			2007
In millions, except per share data
Assets
Current assets:
Cash and cash equivalents	$	988.3		$	859.3
Short-term investments		148.4			457.1
Accounts receivable, net		197.3			197.9
Inventories		81.3			36.4
Prepaid and other current assets		38.9			38.8
Total current assets		1,454.2			1,589.5
Investments		284.7			12.7
Property, plant and equipment, net		1,041.2			834.0
Deferred tax assets, net		69.7			89.3
Customer warrant		13.8			306.3
Other assets		73.1			55.4
Total assets	$	2,936.7		$	2,887.2
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	6.1		$	5.3
Accounts payable		162.4			168.3
Accrued liabilities		67.5			40.8
Accrued wages and salaries		31.7			31.9
Customer deposits		187.0			122.0
Income taxes payable		17.9			75.9
Total current liabilities		472.6			444.2
Long-term debt, less current portion		26.1			25.6
Pension and post-employment liabilities		46.3			60.6
Deferred revenue		88.8			81.4
Other liabilities		186.1			204.6
Total liabilities		819.9			816.4
Minority interests		34.8			35.8
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 50.0 shares authorized, none issued or outstanding at December 31, 2008 or 2007		—			—
Common stock, $.01 par value, 300.0 shares authorized, 233.3 and 231.9 issued at December 31, 2008 and 2007, respectively		2.3			2.3
Additional paid-in capital		425.6			358.0
Retained earnings		2,147.1			1,760.5
Accumulated other comprehensive (loss) income		(55.6	)		29.8
Treasury stock: 8.8 and 2.6 shares at December 31, 2008 and 2007, respectively		(437.4	)		(115.6	)
Total stockholders’ equity		2,082.0			2,035.0
Total liabilities and stockholders’ equity	$	2,936.7		$	2,887.2

See accompanying notes to consolidated financial statements.

17

Consolidated Statements of Cash Flows

	For the year ended December 31,
	2008			2007			2006
In millions
Cash flows from operating activities:
Net income	$	387.4		$	826.2		$	369.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		104.0			80.7			70.2
Stock-based compensation		28.5			31.1			19.0
Provision for deferred taxes		54.1			24.5			47.1
Decline (increase) in fair value of warrant		292.5			(220.8	)		(18.9	)
Other		20.9			2.3			2.8
Changes in assets and liabilities:
Short-term investments—trading securities		—			9.5			(0.8	)
Accounts receivable		(4.3	)		6.0			(69.8	)
Inventories		(43.7	)		45.5			42.6
Prepaid and other current assets		(12.0	)		(3.9	)		3.7
Accounts payable and accrueds		24.2			23.9			(22.0	)
Deferred revenue and customer deposits		(33.1	)		39.0			(9.3	)
Income taxes payable		(59.1	)		18.3			45.6
Pension and post-employment liabilities		(72.4	)		(9.9	)		10.1
Other non-current assets and liabilities		(46.5	)		44.8			38.2
Net cash provided by operating activities		640.5			917.2			527.8
Cash flows from investing activities:
Proceeds from sale and maturities of investments		485.5			93.2			32.2
Purchases of investments		(517.3	)		(506.4	)		(62.0	)
Capital expenditures		(303.2	)		(276.4	)		(148.4	)
Other		—			0.7			4.0
Net cash used in investing activities		(335.0	)		(688.9	)		(174.2	)
Cash flows from financing activities:
Net repayments on short-term borrowings		—			—			(13.2	)
Net proceeds from customer deposits related to long-term supply agreements		138.0			115.3			37.3
Principal payments on long-term debt		(6.0	)		(5.2	)		(5.3	)
Excess tax benefits from share-based payment arrangements		19.0			40.0			10.5
Dividend to minority interest		(3.2	)		(6.2	)		(5.6	)
Common stock repurchased		(321.0	)		(111.2	)		—
Proceeds from issuance of common stock		19.9			44.2			17.1
Net cash (used in) provided by financing activities		(153.3	)		76.9			40.8
Effect of exchange rate changes on cash and cash equivalents		(23.2	)		26.6			6.6
Net increase in cash and cash equivalents		129.0			331.8			401.0
Cash and cash equivalents at beginning of period		859.3			527.5			126.5
Cash and cash equivalents at end of period	$	988.3		$	859.3		$	527.5
Supplemental disclosures of cash flow information:
Interest payments, net of amount capitalized	$	1.1		$	0.4		$	1.4
Income taxes paid	$	194.4		$	147.8		$	77.0
Supplemental schedule of non-cash investing and financing activities:
Accounts payable (relieved) incurred for acquisition of fixed assets	$	(6.9	)	$	19.3		$	24.9

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Stockholders’ Equity

	Common Stock Issued			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Deferred Compensation			Common Stock Held in Treasury					Total Stockholders’ Equity			Total Comprehensive Income (Loss)
	Shares	Amount														Shares		Amount
In millions
Balance at December 31, 2005	222.3	$	2.2	$	191.6		$	557.7		$	(35.8	)	$	(0.1	)	(0.7	)	$	(4.2	)	$	711.4
SAB 108 cumulative effect adjustment	—		—		—			6.8			—			—		—			—			6.8
SFAS 158 adjustment (net of $4.4 tax)	—		—		—			—			7.1			—		—			—			7.1
Comprehensive income:
Net income	—		—		—			369.3			—			—		—			—			369.3		$	369.3
Net translation adjustment	—		—		—			—			18.6			—		—			—			18.6			18.6
Minimum pension liability (net of $1.6 tax)	—		—		—			—			2.7			—		—			—			2.7			2.7
Stock plans, net	1.7		—		50.9			—			—			0.1		—			—			51.0
Total comprehensive income																								$	390.6
Balance at December 31, 2006	224.0	$	2.2	$	242.5		$	933.8		$	(7.4	)	$	—		(0.7	)	$	(4.2	)	$	1,166.9
FIN 48 adjustment	—		—		—			0.5			—			—		—			—			0.5
Comprehensive income:
Net income	—		—		—			826.2			—			—		—			—			826.2		$	826.2
Net translation adjustment	—		—		—			—			32.3			—		—			—			32.3			32.3
Net unrecognized actuarial loss and prior service credit (net of $5.9 tax)	—		—		—			—			9.2			—		—			—			9.2			9.2
Net unrealized loss on available-for-sale securities	—		—		—			—			(4.3	)		—		—			—			(4.3	)		(4.3	)
Stock plans, net	3.4		—		115.6			—			—			—		(0.1	)		(0.2	)		115.4
Common stock repurchases	—		—		—			—			—			—		(1.8	)		(111.2	)		(111.2	)
Net exercise of warrants	4.5		0.1		(0.1	)		—			—			—		—			—			—
Total comprehensive income																								$	863.4
Balance at December 31, 2007	231.9	$	2.3	$	358.0		$	1,760.5		$	29.8		$	—		(2.6	)	$	(115.6	)	$	2,035.0
SFAS 158 adjustment – adoption of measurement date provision	—		—		—			(0.8	)		—			—		—			—			(0.8	)
Comprehensive income:
Net income	—		—		—			387.4			—			—		—			—			387.4		$	387.4
Net translation adjustment	—		—		—			—			(14.2	)		—		—			—			(14.2	)		(14.2	)
Net unrecognized actuarial loss and prior service credit (net of $17.5 tax)	—		—		—			—			(32.3	)		—		—			—			(32.3	)		(32.3	)
Net unrealized loss on available-for-sale securities	—		—		—			—			(38.9	)		—		—			—			(38.9	)		(38.9	)
Stock plans, net	1.4		—		67.6			—			—			—		—			(0.8	)		66.8
Common stock repurchases	—		—		—			—			—			—		(6.2	)		(321.0	)		(321.0	)
Total comprehensive income																								$	302.0
Balance at December 31, 2008	233.3	$	2.3	$	425.6		$	2,147.1		$	(55.6	)	$	—		(8.8	)	$	(437.4	)	$	2,082.0

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

1. NATURE OF OPERATIONS

We are a vertically integrated, global leader in the manufacture and sale of wafers and have been a pioneer in the design and development of wafer technologies for fifty years. With research and development and manufacturing facilities in the US, Europe and Asia Pacific, we enable the next generation of high performance semiconductor and solar applications. Our customers include major semiconductor device and solar cell manufacturers. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) for semiconductor applications and 156 millimeter wafers for solar applications. Depending on market conditions, we also sell intermediate products such as polysilicon, silane gas, ingots and scrap wafers to semiconductor device and equipment makers, solar cell and module manufacturers, flat panel and other industries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Use of Estimates

In preparing our financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for investments, depreciation, amortization, accrued liabilities, employee benefits, derivatives, stock based compensation, income taxes and asset valuation allowances among others. To the extent there are material differences between the estimates and actual results, our future results of operations would be affected.

(b) Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

(c) Principles of Consolidation

Our consolidated financial statements include the accounts of MEMC Electronic Materials, Inc. and our wholly and majority-owned subsidiaries. We record minority interest for non-wholly owned consolidated subsidiaries. All significant intercompany balances and transactions among our subsidiaries have been eliminated.

In November 2001, Texas Pacific Group (TPG) acquired a beneficial ownership of approximately 72% of the outstanding stock of MEMC. In connection with that transaction, the assets of a majority-owned subsidiary were understated and a portion of the subsequent depreciation of those assets should have been charged to minority interests. The effect in any individual prior year was not material to our results of operations, financial position or cash flows. During 2006, MEMC adopted the provisions of Staff Accounting Bulletin No. 108 and recorded a cumulative credit adjustment of $6.8 million to beginning retained earnings related to the minority interest that was overstated as of December 31, 2005. As of December 31, 2007, TPG no longer had any beneficial ownership of MEMC stock.

(d) Cash and Cash Equivalents

Cash equivalents include highly liquid commercial paper, time deposits and money market funds with original maturity periods of three months or less when purchased. Total cash and cash equivalents of $138.0 million and $353.8 million as of December 31, 2008 and 2007, respectively, are maintained by foreign subsidiaries whose functional currency is not the U.S. dollar.

Cash and cash equivalents consist of the following:

	As of December 31,
	2008		2007
Dollars in millions
Cash	$	82.9	$	285.0
Cash Equivalents
Commercial paper		—		45.5
Time deposits		119.4		296.9
Money market funds		786.0		231.9
	$	988.3	$	859.3

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(e) Investments

Short and long-term investments consist of the following:

Time Deposits. Time deposits, classified as short-term investments, are comprised mainly of demand deposits with commercial banks or investment companies having fixed original maturities exceeding three months but less than or equal to one year, with fixed interest rates and including pre-payment penalties for early withdrawal. Purchases and sales of these time deposits are included in investing activities in the Consolidated Statements of Cash Flows.

Trading Investments. Trading investments are stated at fair value, with realized and unrealized gains or losses resulting from changes in fair value recognized currently in non-operating income and expense. Included in trading investments are auction rate securities. Purchases and sales of trading investments are included in operating activities in the Consolidated Statements of Cash Flows.

Available-for-Sale Investments. Investments designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income. Purchases and sales of available-for-sale investments are included in investing activities in the Consolidated Statements of Cash Flows.

Investments are evaluated at each period end date for impairment, including classification as temporary or other than temporary. Unrealized losses are recorded to other income and expense when a decline in fair value is determined to be other-than-temporary. In accordance with FSP FAS 115-1 and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” we review several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the issuer; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. Realized gains and losses are accounted for on the specific identification method. We determine the fair value of our debt securities using quoted prices from active and inactive markets, traded prices for similar assets, or fair value measurements based on a pricing model. We also review our ability and intent to liquidate our investments within the next 12 month operating cycle to determine the appropriate short or long-term classification. Our ability to liquidate is determined based on a review of current and short-term credit and capital market conditions and the financial condition and near term prospects of the issuer.

(f) Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts to adjust our net receivables to amounts considered to be ultimately collectible. Our allowance is based on a variety of factors, including the length of time receivables are past due, significant one-time events, the financial health of our customers and historical experience. The balance of our allowance for doubtful accounts was $5.9 million and $0.2 million as of December 31, 2008 and 2007, respectively. Bad debt expense was $5.7 million for the year ended December 31, 2008. During the year ended December 31, 2007, we reduced our estimate of the allowance for doubtful accounts by approximately $1.2 million with the offset recorded to the income statement. There were no write-offs for bad debts for the years ended December 31, 2008 and 2007. As discussed in Note 16, in late February 2009, we revised our estimate for the allowance for doubtful accounts and recorded an additional $4.5 million of bad debt expense, which is included in the 2008 amounts above.

(g) Inventories

Inventories, which consist of materials, labor and manufacturing overhead, are valued at the lower of cost or market. Fixed overheads are allocated to the costs of conversion based on the normal capacity of our production facilities. Unallocated overheads during periods of abnormally low production levels are recognized as cost of goods sold in the period in which they are incurred. Raw materials are stated at weighted-average cost. Goods in process and finished goods inventories are stated at standard cost as adjusted for variances, which approximates weighted-average actual cost. The valuation of inventory requires us to estimate excess and slow moving inventory. The determination of the value of excess and slow moving inventory is based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, inventory write-downs may be required.

(h) Property, Plant and Equipment

We record property, plant and equipment at cost and depreciate it evenly over the assets’ estimated useful lives as follows:

	Years
Buildings and improvements	4-60
Machinery and equipment	1-25

Concurrent with our polysilicon expansions in 2008, we assessed the useful lives of certain new polysilicon related property, plant and equipment placed in service in 2008, and based on historical experience with similar existing assets, determined that a useful life of 25 years was appropriate. Previously existing polysilicon production assets were depreciated over an estimated useful life of 10 years and have immaterial net book values at December 31, 2008. Leasehold improvements are depreciated over the shorter of the estimated remaining useful life of the asset or the remaining lease term including renewal periods considered reasonably assured of execution. Depreciation expense for the years ended December 31, 2008, 2007 and 2006 was $103.0 million, $79.3 million and $68.2 million, respectively.

21

The cost of constructing facilities and equipment includes interest costs. Capitalized interest totaled $0.8 million, $1.0 million and $0.7 million in 2008, 2007 and 2006, respectively.

(i) Impairment of Long-Lived Assets and Asset Retirement Obligations

In accordance with Statement of Financial Accounting Standards 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 have recorded no significant impairment charges in 2008, 2007 or 2006.

We recognize asset retirement obligations at fair value in the period in which they are incurred and the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding asset capitalized at inception is depreciated over the useful life of the asset. In addition, we could have certain legal obligations for asset retirements related to disposing of materials in the event of closure, abandonment or sale of certain of our facilities. We plan to operate the facilities that are subject to the asset retirement obligations for an indeterminate period beyond the foreseeable future and as such, cannot estimate a liability at December 31, 2008. We will recognize a liability in the period in which we have determined the timeframe that the asset will no longer operate and information is available to reasonably estimate the liability’s fair value.

(j) Operating Leases

The Company enters into lease agreements for a variety of business purposes, including office and manufacturing space, office and manufacturing equipment and computer equipment. A portion of these are noncancellable operating leases.

(k) Customer Deposits

MEMC has executed supply agreements, including any amendments, with multiple customers which required the customers to provide security deposits. As of December 31, 2008 and 2007, the balance of these deposits totaled $290.3 million and $152.6 million, respectively. These deposits are required to be refunded to the customers over the next two years, as set forth in the agreements, unless minimum purchase quantities are not met. These deposits are generally refundable to the customer over two years. The long-term portion of these deposits is included in other non-current liabilities on our consolidated balance sheet. As of December 31, 2008, the following obligations were outstanding:

	Refundable Amounts Due By Period
	Total		Less than 1 Year		1-2 Years
Dollars in millions
Customer Deposits	$	290.3	$	186.0	$	104.3

(l) Revenue Recognition

We record revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed and determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned MEMC storage facility or storage area or, if the customer does not pull the product within a contractually 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. Our wafers are generally made to customer specifications and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes. We defer revenue for multiple element arrangements based on a fair value per unit for the total arrangement when we receive cash in excess of fair value. We also defer revenue when pricing is not fixed and determinable or other revenue recognition criteria is not met.

As of December 31, 2008 and 2007, MEMC had $16.0 million and $6.1 million, respectively of long-term deferred revenue related to the non-refundable portion of cash received in connection with long-term supply agreements. MEMC also had $72.8 million and $75.3 million of long-term deferred revenue related to additional consideration received from our customers in the form of equity instruments as of December 31, 2008 and 2007, respectively. We recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the contracts.

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(m) Derivative Financial Instruments

During 2006, MEMC signed a long-term supply agreement with a customer, Suntech Power Holdings (Suntech). At the same time, MEMC received a fully vested, non-forfeitable warrant to purchase common shares of Suntech. The warrant becomes exercisable over a five year period (20% annually) beginning January 1, 2008 and has a five year exercise period from the date each tranche becomes exercisable. The estimated grant date fair value of the warrant was $66.6 million and was recorded to customer warrant with the offset to deferred revenue – long-term in accordance with EITF 00-8 “Accounting by a Grantee for an Equity Instrument to be received in conjunction with Providing Goods or Services”. The non-cash transaction was excluded from the Consolidated Statements of Cash Flows. Determining the appropriate fair value model and calculating the fair value of the warrant require the making of estimates and assumptions, including Suntech’s stock price volatility, interest rate, dividends, marketability and expected return requirements. We used a lattice model to determine the warrant’s fair value. The assumptions used in calculating the fair value of the warrant represent our best estimates, but these estimates involve inherent uncertainties and the application of our judgment. The warrant is considered a derivative and is therefore marked to market each reporting period. Accordingly, in 2008, 2007 and 2006, $292.5 million, ($220.8) million and ($18.9) million, respectively, was recorded as a decrease/(increase) to other assets – long-term and non-operating (income) expense.

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 and payables with our customers and vendors denominated in foreign currencies (primarily Japanese Yen and Euro). The purpose of our foreign currency forward contract 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 non-operating (income) expense in the Consolidated Statements of Income. Net currency losses on unhedged foreign currency positions totaled $3.0 million, $1.7 million and $1.1 million in 2008, 2007 and 2006, respectively.

(n) 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 exchange rates in effect at the balance sheet date; and

• Statement of income accounts at average exchange rates for the period.

Adjustments from the translation process are presented in accumulated other comprehensive income (loss) in stockholders’ equity.

(o) Income Taxes

Deferred income taxes arise because of a different tax basis of assets or liabilities between financial statement accounting and tax accounting, which are 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 for which we receive a tax deduction, but have not yet been recorded in the Consolidated Statements of Income). We regularly review our deferred tax assets for realizability, 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 judgments, 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 adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), as of January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Under FIN 48, tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. We believe that our income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. We review our liabilities quarterly, and we may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices, the resolution of entire audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed.

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We repatriate to the United States a portion of the current year earnings of a certain subsidiary for which deferred taxes have been recorded. We do not provide for U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries which would be payable if the undistributed earnings were distributed to the U.S., as we consider those foreign earnings to be permanently reinvested outside the U.S. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.

(p) Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method and therefore we did not restate prior periods’ results. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123. Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of an estimated forfeiture rate and recognize the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. With the adoption of SFAS 123R, we elected to recognize stock-based compensation expense for all grants on or after January 1, 2006 on a straight-line basis over the requisite service period of the entire award for ratable awards. For awards granted prior to January 1, 2006, we will continue to calculate compensation expense by treating each vesting tranche as a separate award. We estimate the forfeiture rate taking into consideration our historical experience during the preceding four fiscal years.

We routinely examine our assumptions used in estimating the fair value of employee options granted. As part of this assessment, we have determined that our historical stock price volatility and historical pattern of option exercises are appropriate indicators of expected volatility and expected term. The interest rate is determined based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the award. We estimate the fair value of options using the Black-Scholes option-pricing model for our ratable and cliff vesting options.

(q) Contingencies

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

(r) Shipping and Handling

Costs to ship products to customers are included in marketing and administration in the consolidated statements of income. Amounts billed to customers, if any, to cover shipping and handling are included in net sales. Cost to ship products to customers were $11.2 million, $10.9 million and $9.6 million for the years ended December 31, 2008, 2007 and 2006, respectively.

(s) Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157), which establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB FSP 157-2 which delays the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities, until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We do not believe SFAS 157 will have a material impact upon adoption on our consolidated financial statements related to non-financial assets and liabilities. Effective January 1, 2008, we adopted SFAS 157 for financial assets and liabilities recognized at fair value on a recurring basis which did not have a material impact on our consolidated financial position, results of operations or cash flows. In October 2008, the FASB issued Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP 157-3). FSP 157-3 clarifies the application of SFAS 157 in cases where a market is not active. MEMC has applied the guidance provided by FSP 157-3 in our determination of estimated fair values for our investments as of December 31, 2008.

SFAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed, and are based on market data

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obtained from sources independent of MEMC. Unobservable inputs reflect assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

• Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that MEMC has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Because valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.

• Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Valuations for Level 2 assets are prepared on an individual asset basis using data obtained from recent transactions for identical securities in inactive markets or pricing data from similar assets in active and inactive markets.

• Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

On January 1, 2008, MEMC adopted Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115” (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. We have adopted SFAS 159, and did not elect to designate any financial instruments to be subject to the fair value option at the date of adoption. Subsequently, we have elected to account for the auction rate securities right (the ARS Right) under the fair value option as discussed in Note 3.

We maintain various financial instruments recorded at cost in the December 31, 2008 and 2007 balance sheets that are not required to be recorded at fair value. For these instruments, we used the following methods and assumptions to estimate the fair value:

• Cash equivalents, accounts receivable and payable, income taxes payable, short-term borrowings, and accrued liabilities—cost approximates fair value because of the short maturity period; and

• 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.

(t) Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. The requirements of SFAS 141R are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141R amends SFAS No. 109, “Accounting for Income Taxes” (SFAS 109) such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141R would also apply the provisions of SFAS 141R. Early adoption was not permitted. Upon adoption, SFAS 141R will not have a significant impact on our financial position and results of operations, however, any business combination entered into after the adoption may significantly impact our consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. The requirements of SFAS 160 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect SFAS 160 to have a material effect on our consolidated results of operations and financial condition.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), as well as related hedged items, bifurcated derivatives and nonderivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We do not expect SFAS 161 to have a material effect on our consolidated results of operations and financial condition.

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In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan including investment policies and strategies, major categories of plan assets, inputs and valuation techniques used to measure the fair value of plan assets and significant concentrations of risk within plan assets. This FSP is effective for fiscal years ending after December 15, 2009, with earlier application permitted. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative purposes. We are currently evaluating the disclosure requirements of this new FSP, however its adoption will not have an impact on our consolidated results of operations and financial condition.

3. FAIR VALUE MEASUREMENTS

The following table summarizes the financial instruments measured at fair value on a recurring basis in the accompanying consolidated balance sheets:

	December 31,
	2008								2007
Assets (liabilities) in millions	Level 1		Level 2		Level 3		Total		Total
Available for sale investments	$	176.2	$	153.3	$	22.8	$	352.3	$	420.8
Trading investments		—		—		44.1		44.1		—
Auction rate securities right		—		—		6.2		6.2		—
Suntech warrant		—		—		13.8		13.8		306.3
Currency forward contracts		1.6		—		—		1.6		0.1
	$	177.8	$	153.3	$	86.9	$	418.0	$	727.2

During November 2008, we accepted an offer by our investment broker to receive an ARS Right that would substantially ensure recovery to par of our ARS between June 2010 and July 2012. At the same time, we reclassified the ARS from the available-for-sale category to trading. We have elected the fair value option for the ARS Right because its value is highly correlated to the value of the ARS, which are also marked to market. We have recorded the ARS Right to other assets and non-operating income, other. The ARS Right is the only item eligible for the fair value option in other assets. As of December 31, 2008, the ARS Right had a value of $6.2 million, which substantially offset the mark-to-market adjustment of our outstanding ARS of $7.3 million. To determine the fair value of the ARS Right, we performed a Level 3 valuation using a discounted cash flow model, which involves making assumptions about expected future cash flows based on estimates of current market interest rates considering credit quality, duration, and likelihood of redemption.

Suntech warrant consists of a fully vested, non-forfeitable warrant to purchase common shares of Suntech, a customer, which was received at the time that MEMC signed a long-term supply agreement with Suntech. We used a lattice model to determine the fair value of the Suntech warrant. Determining the appropriate fair value model and calculating the fair value of the warrant requires the making of estimates and assumptions, including Suntech’s stock price volatility, interest rate, dividends, marketability and expected return requirements. The Suntech warrant is considered a derivative and is accounted for under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” and, accordingly, changes in the value of the warrant are recorded in non-operating (income) expense. The notional amount of the warrant was $205.8 million as of December 31, 2008 and 2007.

We acquired less than 10% of the common stock of a customer (Gintech) at the same time as the execution of a long-term supply agreement with that customer. This investment was accounted for under the cost method of accounting until December 2008 when the restriction on sale became less than one year. Subsequently, this investment is accounted for at fair value and is classified as a long-term available-for-sale investment. At December 31, 2007, the carrying amount of the common stock was $12.4 million and it had an estimated fair value of $54.1 million.

The carrying amount of our outstanding long-term debt at December 31, 2008 and 2007 was $32.2 million and $30.9 million, respectively. The estimated fair value of that debt was $31.2 million and $31.8 million, respectively, at December 31, 2008 and 2007.

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The fair value of our currency forward contracts is measured by the amount that would have been paid to liquidate and repurchase all open contracts and was $1.6 million and $0.1 million at December 31, 2008 and 2007, respectively. The notional amount of our currency forward contracts was $60.9 million and $41.7 million as of December 31, 2008 and 2007, respectively.

The following table summarizes changes in Level 3 assets measured at fair value on a recurring basis for the year ended December 31, 2008:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
In millions	Available for Sale Investments			Trading Investments			Auction Rate Securities Right		Suntech Warrant			Total
Balance at December 31, 2007	$	26.8		$	—		$	—	$	306.3		$	333.1
Total unrealized gains (losses):
Included in earnings		(10.2	)		(7.3	)		6.2		(292.5	)		(303.8	)
Included in other comprehensive income, net		(0.5	)		—			—		—			(0.5	)
Sales, redemptions and maturities		(12.5	)		—			—		—			(12.5	)
Transfers to Level 3, net		19.2			51.4			—		—			70.6
Balance at December 31, 2008	$	22.8		$	44.1		$	6.2	$	13.8		$	86.9

Valuations of our Level 3 trading and available for sale financial instruments were performed using a discounted cash flow model which involved making assumptions about expected future cash flows based on estimates of current market interest rates. Our models include estimates of market data, including yields or spreads of trading instruments that are believed to be similar or comparable, when available, and assumptions that are believed to be reasonable on nonobservable inputs. Such assumptions include the tax status (taxable vs. tax-exempt), type of security (type of issuer, collateralization, subordination, etc.), credit quality, duration, likelihood of redemption, insurance coverage and degree of liquidity in the current credit markets.

During 2007 and 2008, we executed two wafer agreements in which the terms of any additional consideration provided by the customers have not been finalized. If and when the terms are finalized, the estimated fair value of the additional consideration, if determinable and material will be recorded to deferred revenue and recognized to income on a pro-rata basis as wafers are shipped under the agreements.

4. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulated other comprehensive (loss) income, net of tax, were as follows:

	As of December 31,
	2008			2007
Dollars in millions
Accumulated net translation adjustment	$	21.9		$	36.1
Net unrealized loss on available-for-sale securities		(43.2	)		(4.3	)
Net actuarial loss, prior service credit, and transition obligation (net of $17.8 and $0.3 tax in 2008 and 2007, respectively)		(34.3	)		(2.0	)
Total accumulated other comprehensive (loss) income	$	(55.6	)	$	29.8

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5. INVESTMENTS

Short and long-term investments measured and recorded at fair value consist of the following:

	As of December 31, 2008										As of December 31, 2007
	Cost		Gross Unrealized Gain/(Loss) Recorded in Earnings(1)			Gross Unrealized Gain/(Loss) in Other Comprehensive Income(2)			Fair Value		Cost		Gross Unrealized Loss in Other Comprehensive Income(1)			Fair Value
Dollars in millions
Items measured at fair value on a recurring basis:
Trading securities:
Auction rate securities	$	51.4	$	(7.3	)	$	—		$	44.1	$	—	$	—		$	—
Available for sale securities:
Fixed Income Funds		200.0		2.0			(33.2	)		168.8		—		—			—
Corporate debt securities		94.6		(8.3	)		(2.3	)		84.0		135.2		(1.0	)		134.2
Asset-backed securities		46.4		(1.2	)		(4.6	)		40.6		85.8		(1.0	)		84.8
Mortgage-backed securities		47.5		(5.0	)		(7.6	)		34.9		82.8		(2.3	)		80.5
Auction rate securities		—		—			—			—		111.7		—			111.7
Beneficiary certificates bond fund		7.1		—			0.3			7.4		9.6		—			9.6
Equity investment(3)		12.4		—			4.2			16.6		—		—			—
		408.0		(12.5	)		(43.2	)		352.3		425.1		(4.3	)		420.8
Total	$	459.4	$	(19.8	)	$	(43.2	)	$	396.4	$	425.1	$	(4.3	)	$	420.8

	As of December 31,
	2008		2007
	Carrying Value		Carrying Value
Items measured at fair value on a recurring basis	$	396.4	$	420.8
Time deposits		36.4		36.3
Equity investments at cost(3)		0.3		12.7
Total investments		433.1		469.8
Less: short-term investments		148.4		457.1
Non-current investments	$	284.7	$	12.7

⁽¹⁾ Gross unrealized gains/(losses) were recorded to non-operating (income) expense in the consolidated statements of income.

⁽²⁾ The fair value of available for sale investments with unrealized loss positions was $320.9 million and $299.5 million at December 31, 2008 and 2007, respectively. We evaluated the nature of these investments and have recorded other-than-temporary impairments based on current and expected future market conditions, the duration of the impairments, the extent to which fair value is less than cost, the financial condition and near term prospects of the issuer, and our ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

⁽³⁾ Equity investments in 2007 included a $12.4 million investment of less than 10% of the common stock of Gintech, which was acquired at the same time as the execution of a long-term supply agreement with that customer. This investment was accounted for under the cost method of accounting until December 2008 when the restriction on sale became less than one year. Subsequently, this investment is accounted for at fair value and is classified as a long-term available-for-sale investment. The fair value of the investment was estimated based on the closing stock price of Gintech on December 31, 2008. In 2007, the fair value of the investment for disclosure purposes was estimated based on the closing stock price on December 31, 2007, reduced by the estimated value of a regulatory restriction on sale. The value of the regulatory restriction on sale was estimated using a Black Scholes model considering the stock price volatility, expected term, dividend yield and risk-free interest rate.

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Our investments in asset-backed securities and mortgage backed securities have all been in continuous loss positions for over twelve months as of December 31, 2008. Corporate debt securities of $76.6 million have been in continuous loss positions for over twelve months. Our remaining investments are in gain positions or have been in loss positions for less than twelve months.

There were no realized gains or losses on available for sale securities in 2008, 2007 or 2006.

As of December 31, 2008, we held $44.1 million of investments related to auction rate securities (ARS), net of other than temporary impairments of $7.3 million. These securities are classified as trading securities for accounting purposes and all changes in fair value are recorded to non-operating (income) expense, other. The ARS are comprised of interest bearing state sponsored student loan revenue bonds and municipal bonds with varying maturity periods and typically provide short-term liquidity via an auction process that also resets the applicable interest rate at predetermined calendar intervals (typically every 7, 28 or 35 days). In the event of an auction failing to settle on its respective settlement date, these funds would remain invested at a “failed” interest rate which is typically higher than the previous market rate until the next successful auction. For those auctions that fail to settle, we will not be able to access those funds until the next successful auction, another buyer is found outside of the auction process, the issuer redeems the security or the security matures. As of December 31, 2007, none of our $111.7 million of ARS had failed. Commencing in mid-February 2008, the tightening credit markets and a lesser degree of liquidity in the overall marketplace caused auctions on our ARS to fail. During 2008, we liquidated approximately $60.3 million of ARS. As of December 31, 2008, all remaining ARS were classified as non-current assets due to unsuccessful auctions coupled with current conditions in the general debt markets which have created uncertainty as to when successful auctions will be reestablished. We do not anticipate having to sell these securities in order to operate our business. As discussed in Note 3, we received an ARS Right that guaranties full redemption of the ARS at par by 2012. Upon receipt of that right, we reclassified the ARS from the available for sale category to trading and recorded a loss of $3.4 million at the time of reclassification.

As of December 31, 2008, we held $159.5 million in a portfolio comprised of corporate bonds and asset-backed and mortgage-backed securities, net of temporary impairments of $14.5 million and other than temporary impairments of $14.5 million. As of December 31, 2007, we held $299.5 million of investments, net of temporary impairments of $4.3 million. A majority of these investments maintain a floating interest rate based on a range of spreads to the one and three month LIBOR rate. While we believe the decline in fair value related to the temporary impairments to be directly attributable to the current global credit conditions, we believe the time to reach the original carrying value for certain of these investments to be greater than 12 months. Accordingly, we have classified $55.0 million of those investments as non-current assets. We do not anticipate having to sell these securities in order to operate our business.

As of December 31, 2008, we held $168.8 million in fixed income funds, net of temporary impairments of $33.2 million, with the intent of holding them for a period exceeding 12 months.

Contractual maturities of our available for sale debt securities were as follows:

	Cost		Fair Value
Dollars in millions
As of December 31, 2008
Due in one year or less	$	59.0	$	57.1
Due after one year through five years		35.6		26.9
No single maturity date(1)		93.9		75.5
	$	188.5	$	159.5

⁽¹⁾ Securities with no single maturity date include mortgage- and asset-backed securities which have been classified as current or non-current based on estimated forecasted cash flows.

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6. CREDIT CONCENTRATION

Our customers include semiconductor device and solar cell manufacturers and are located in various geographic regions including North America, Europe and the Asia Pacific region. Our customers are generally well capitalized, and the concentration of credit risk is considered minimal. Sales to specific customers exceeding 10% of consolidated net sales for the years ended December 31 were as follows:

	2008		2007		2006
Customer A	14.6	%	[1	]	[1	]
Customer B	13.0	%	13.1	%	[1	]
Customer C	10.4	%	[1	]	[1	]
Customer D	[1	]	10.2	%	[1	]

[1] Less than 10% of consolidated net sales.

7. INVENTORIES

Inventories consist of the following:

	As of December 31,
	2008		2007
Dollars in millions
Raw materials and supplies	$	18.8	$	16.2
Goods in process		6.4		6.1
Finished goods		56.1		14.1
	$	81.3	$	36.4

At December 31, 2008, we had $15.1 million of inventory held on consignment, compared to $8.4 million at December 31, 2007.

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

	As of December 31,
	2008			2007
Dollars in millions
Land	$	6.2		$	6.0
Buildings and improvements		284.8			133.3
Machinery and equipment		1,198.3			795.0
		1,489.3			934.3
Less accumulated depreciation		(478.4	)		(377.0	)
		1,010.9			557.3
Construction in progress		30.3			276.7
	$	1,041.2		$	834.0

9. DEBT

We have short-term committed loan agreements renewable annually of approximately $33.2 million at December 31, 2008, of which there were no short-term borrowings outstanding at December 31, 2008 and 2007. Of the $33.2 million committed short-term loan agreements, $10.8 million is unavailable because it relates to the issuance of third party letters of credit. Interest rates are negotiated at the time of the borrowings.

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Long-term debt consists of the following:

	As of December 31,
	2008			2007
Dollars in millions
Long-term notes with interest payable semi-annually at rates ranging from 2.1% to 2.9%, due in 2009 through 2017	$	32.2		$	30.9
Less current portion		(6.1	)		(5.3	)
	$	26.1		$	25.6

On July 21, 2005, the Company entered into a Revolving Credit Agreement with National City Bank of the Midwest (National City Bank), US Bank National Association, and such other lending institutions as may from time to time become lenders (the National City Agreement). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the LIBOR rate. Additionally, our obligations and the guaranty obligations of our subsidiaries are no longer secured by a pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200.0 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement will be payable based on the Company’s election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.00%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. We are currently in compliance with all debt covenants.

Long-term debt at December 31, 2008 totaling $32.2 million owed to a bank by our Japanese subsidiary is guaranteed by us and is secured by the land, buildings and machinery and equipment of our Japanese subsidiary. These loans mature in years ranging from 2009 to 2017. Such guarantees 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 $270.4 million at December 31, 2008, of which $32.2 million is outstanding. Of the $270.4 million committed long-term loan agreements, which expire beginning 2009 and ending 2017, $114.9 million is unavailable because it relates to the issuance of third party letters of credit. We pay commitment fees of up to 0.08 percent on the committed loan agreements.

The aggregate amounts of long-term debt maturing after December 31, 2008 are as follows:

Dollars in millions
2009	$	6.1
2010		4.3
2011		3.2
2012		3.2
2013		3.2
Thereafter		12.2
	$	32.2

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10. STOCKHOLDERS’ EQUITY

Preferred Stock

We have 50.0 million authorized shares of $.01 par value preferred stock and no shares issued and outstanding as of December 31, 2008 and 2007. The Board of Directors is authorized, without further action by the stockholders, to issue any or all of the preferred stock.

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. 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 National City Agreement. There were no dividends declared or paid during the years ended December 31, 2008, 2007 and 2006.

On May 16, 2007, our Board of Directors approved a $500.0 million stock repurchase program. On July 22, 2008, an additional $500 million was approved, increasing the size of the program to $1 billion. The stock repurchase program allows MEMC to purchase common stock from time to time on the open market or through privately negotiated transactions using available cash. The specific timing and amount of repurchases will vary based on market conditions and other factors and may be modified, extended or terminated by the Board of Directors at any time. In 2008 and 2007, we repurchased 6.2 million and 1.8 million shares of our common stock at a total cost of $321.0 million and $111.2 million, respectively. From inception through December 31, 2008, we have repurchased 8.0 million shares at a total cost of $432.2 million.

Stock-Based Compensation

We have equity incentive plans that provide for the award of non-qualified stock options, restricted stock, performance shares, and restricted stock units to employees, non-employee directors, and consultants. We issue new shares to satisfy stock option exercises. As of December 31, 2008, there were 11.5 million shares authorized for future grant under these plans. Options to employees are generally granted upon hire and annually or semi-annually, usually with four-year ratable vesting, although certain grants have three, four or five-year cliff vesting. No option has a term of more than 10 years. The exercise price of stock options granted has historically equaled the market price on the date of the grant. One million options were granted in 2006 with a market condition requiring that, at the end of a four-year term, if MEMC’s common stock price outperformed the S&P 500 market index by a specified amount over that four-year period, the options would vest. These options were forfeited during December 2008, resulting in a reversal of related stock option expense recognized in previous periods of approximately $10.5 million for the quarter ended December 31, 2008.

The following table presents information regarding outstanding stock options as of December 31, 2008 and changes during the year then ended with regard to stock options:

	Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value (in millions)		Average Remaining Contractual Life
Beginning of year	8,643,597		$	30.72
Granted	1,017,045			64.72
Exercised	(1,336,244	)		14.89
Forfeited	(2,846,793	)		32.82
Expired	(173,822	)		25.16
End of year	5,303,783		$	40.29	$	3.7	8 years
Options exercisable at year-end	1,769,289		$	26.53	$	3.3	7 years

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The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of 2008 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2008. This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised was $72.7 million, $159.9 million and $46.0 million in 2008, 2007 and 2006, respectively. Cash received from option exercises under our option plans was $19.9 million, $44.2 million and $17.1 million and the actual tax benefit realized for the tax deductions from option exercises was $22.7 million, $40.3 million and $14.8 million for 2008, 2007 and 2006, respectively.

Our weighted-average assumptions are as follows:

	Black-Scholes
	2008		2007		2006
Risk-free interest rate	2.5	%	4.6	%	4.7	%
Expected stock price volatility	50.9	%	50.5	%	64.9	%
Expected term until exercise (years)	4		4		4
Expected dividends	0.0	%	0.0	%	0.0	%

The weighted-average grant-date fair value per share of options granted was $27.81, $25.34 and $18.47 for 2008, 2007 and 2006, respectively. As of December 31, 2008, $42.4 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.5 years.

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 generally vest over a two-year period from the grant date. Restricted stock units granted to employees usually have three, four or five year cliff vesting, or four-year ratable vesting and certain grants are subject to performance conditions established at the time of grant. 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.

The following table presents information regarding outstanding restricted stock units as of December 31, 2008 and changes during the year then ended:

	Restricted Stock Units		Aggregate Intrinsic Value (in millions)		Average Remaining Contractual Life
Beginning of year	226,038
Granted	315,514
Converted	(26,063	)
Forfeited	(47,600	)
End of year	467,889		$	6.7	3 years

At December 31, 2008, there were no restricted stock units which were convertible. As of December 31, 2008, $9.7 million of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted-average period of approximately 3.0 years. The weighted-average fair value of restricted stock units on the date of grant was $63.53, $48.91 and $39.95 in 2008, 2007 and 2006, respectively. We recorded compensation expense related to restricted stock units of $5.0 million, $1.3 million and $0.6 million in 2008, 2007 and 2006, respectively.

For the years ended December 31, 2008, 2007 and 2006, we recognized $19.0 million, $40.0 million and $10.5 million of excess tax benefits from share-based payment arrangements as a cash inflow in financing activities and an operating outflow for income taxes payable.

33

Stock-based compensation expense recorded for the years ended December 31 was allocated as follows:

	2008		2007		2006
Dollars in millions
Cost of goods sold	$	6.0	$	4.7	$	4.3
Marketing and administration		19.4		25.1		13.1
Research and development		2.9		1.4		1.4
Stock-based employee compensation before related tax effects		28.3		31.2		18.8
Less: Income tax benefit		10.1		11.1		6.9
Total stock-based compensation expense, net of related tax effects	$	18.2	$	20.1	$	11.9

The amount of stock-based compensation cost capitalized into inventory at December 31, 2008 and 2007 was $0.3 million and $0.1 million.

Warrants

In November 2001, TPG acquired a beneficial ownership of approximately 72% of the outstanding stock of MEMC. Pursuant to the 2001 TPG Restructuring Agreement, TPG received warrants to purchase 16.7 million shares of our common stock. We recorded the warrants at their aggregate fair market value of less than one dollar. The warrants were exercisable at an exercise price of $3.00 per share of common stock. In 2005, TPG exercised 10.0 million warrants on a cashless basis, resulting in the retirement of 2.0 million additional warrants held by TPG which were used as payment for the exercise price. In 2007, all remaining warrants to purchase our common stock were exercised on a cashless basis, resulting in the issuance of approximately 4.5 million shares of our common stock.

11. INCOME PER SHARE

In 2008, 2007 and 2006, basic and diluted earnings per share (EPS) were calculated as follows:

	2008				2007				2006
	Basic		Diluted		Basic		Diluted		Basic		Diluted
In millions, except per share amounts
EPS Numerator:
Net income allocable to common stockholders	$	387.4	$	387.4	$	826.2	$	826.2	$	369.3	$	369.3
EPS Denominator:
Weighted-average shares outstanding		226.9		226.9		225.6		225.6		222.1		222.1
Stock options and restricted stock units		—		1.7		—		3.1		—		3.3
Warrants		—		—		—		3.6		—		4.3
Total shares		226.9		228.6		225.6		232.3		222.1		229.7
Earnings per share	$	1.71	$	1.69	$	3.66	$	3.56	$	1.66	$	1.61

In 2008, 2007, and 2006, options and restricted stock units to purchase 3.5 million, 1.0 million and 1.9 million shares, respectively, of MEMC stock were excluded from the calculation of diluted EPS because the effect was antidilutive.

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12. INCOME TAXES

Income before income tax expense and minority interests consists of the following:

	For the year ended December 31,
	2008		2007		2006
Dollars in millions
U.S.	$	215.9	$	465.5	$	321.9
Foreign		369.1		646.3		268.6
	$	585.0	$	1,111.8	$	590.5

Income tax expense (benefit) consists of the following:

	Current			Deferred		Total
Dollars in millions
Year ended December 31, 2008:
U.S. Federal	$	45.5		$	44.0	$	89.5
State and local		(2.3	)		1.0		(1.3	)
Foreign		100.4			6.8		107.2
	$	143.6		$	51.8	$	195.4
Year ended December 31, 2007:
U.S. Federal	$	150.9		$	2.7	$	153.6
State and local		(0.6	)		0.7		0.1
Foreign		113.6			14.9		128.5
	$	263.9		$	18.3	$	282.2
Year ended December 31, 2006:
U.S. Federal	$	84.7		$	28.0	$	112.7
State and local		5.8			1.9		7.7
Foreign		80.5			13.9		94.4
	$	171.0		$	43.8	$	214.8

35

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

	For the year ended December 31,
	2008		2007		2006
Income tax at federal statutory rate	35.0	%	35.0	%	35.0	%
Increase (reduction) in income taxes:
Effect of foreign operations and repatriation	2.1		(8.4	)	(0.2	)
State income taxes, net of Federal benefit	0.4		0.5		0.9
Settlements with taxing authorities	(3.7	)	—		—
Other, net	(0.4	)	(1.7	)	0.7
Effective tax rate	33.4	%	25.4	%	36.4	%

The “Effect of foreign operations and repatriation” includes the net reduced taxation of foreign profits from combining jurisdictions with rates above and below the U.S. federal statutory rate and the impact of withholding taxes. For 2008, the net increase is a result of the non-taxable loss for the mark-to-market adjustment associated with the Suntech warrant. The 2007 amount includes a benefit of $23.4 million associated with the U.S. foreign tax credit offset by an increase in expense of $29.1 million related to dividends and foreign withholding taxes. Additionally, a benefit of $77.3 million was recognized in relation to a non-taxable gain on warrant income. The 2006 amount includes a benefit of $16.9 million associated with the U.S. foreign tax credit offset by an increase in expense of $15.8 million related to dividends and foreign withholding taxes.

Certain of our Asian subsidiaries have been granted a concessionary tax rate of between 0% and 10% on all qualifying income for a five year period based on investments in certain machinery and equipment and other development and expansion activities, resulting in a tax benefit for 2008 of approximately $37.0 million. Under the awards, the income tax rate for qualifying income will be taxed at an incentive tax rate lower than the corporate tax rate. The last of these incentives will expire in 2012.

Uncertain Tax Positions. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet the recognition and measurement standards outlined in FIN 48. As a result of the adoption of FIN 48 on January 1, 2007, we recorded an increase in retained earnings and a decrease in other long-term liabilities of $0.5 million for uncertain tax positions. The total amount of unrecognized tax benefits, net of federal, state and local deductions, at the date of adoption was $49.2 million, all of which would favorably affect our effective tax rate if recognized. Uncertain tax benefits, including accrued interest and penalties, are included as a component of other long-term liabilities because we do not anticipate that settlement of the liabilities will require payment of cash within the next twelve months. At December 31, 2008 and 2007, we had $55.9 million and $95.7 million, respectively, of unrecognized tax benefits, net of federal, state and local deductions, associated with open tax years for which we are subject to audit in various federal, state and foreign jurisdictions. All of our unrecognized tax benefits at December 31, 2008 and 2007 would favorably affect our effective tax rate if recognized. The change to the reserve in 2008 is due to a decrease in the reserve of $44.0 million including related interest, reducing income tax expense by $29.5 million and increasing income taxes payable by $14.5 million, due to the closure of the Internal Revenue Service examination in the United States of the 2004 and 2005 audit years, as well as earnings generated by foreign subsidiaries whose earnings are being permanently reinvested and taxed at lower rates. The change to the reserve during 2007 was related to the deductibility of interest on senior subordinated notes stemming from the partial acquisition of common shares by TPG and subsequent debt restructuring, refinements of our positions related to the TPG acquisition from 2001 and other worldwide tax items. The entire amount would favorably affect our effective tax rate if recognized. We are subject to examination in various jurisdictions for the 2002 through 2007 tax years.

36

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	For the year ended December 31,
	2008			2007
Dollars in millions
Beginning of year	$	97.1		$	51.0
Additions based on tax positions related to the current year		0.3			1.0
(Reductions) additions for tax positions of prior years		(0.4	)		45.1
Reductions related to settlements with taxing authorities		(44.0	)		—
End of year	$	53.0		$	97.1

The accrual of interest begins in the first reporting period that interest would begin to accrue under the applicable tax law. Penalties, when applicable, are accrued in the financial reporting period in which the uncertain tax position is taken on a tax return. We recognize interest and penalties related to uncertain tax positions in income tax expense, which is consistent with our historical policy. During the years ended December 31, 2008 and 2007 we recognized approximately $2.2 million and $3.2 million, respectively, in interest and penalties and had approximately $2.7 million and $3.7 million accrued at December 31, 2008 and 2007, respectively, for the payment of interest and penalties.

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

	As of December 31,
	2008			2007
Dollars in millions
Deferred tax assets:
Inventories	$	5.1		$	1.6
Expense accruals		17.6			21.3
Property, plant and equipment		23.0			51.3
Pension, medical and other employee benefits		11.7			17.0
Net operating loss carryforwards – state and foreign		2.3			3.3
Capitalized R&D		6.8			7.5
Other		4.4			0.1
Total deferred tax assets		70.9			102.1
Deferred tax liabilities:
Other		(0.2	)		(0.8	)
Total deferred tax liabilities		(0.2	)		(0.8	)
Net deferred tax assets	$	70.7		$	101.3

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

	As of December 31,
	2008		2007
Dollars in millions
Current deferred tax assets, net (recorded in prepaids and other current assets)	$	1.0	$	12.0
Non-current deferred tax assets, net		69.7		89.3
	$	70.7	$	101.3

At December 31, 2008 and 2007, the Company had a $2.3 million and $3.3 million deferred tax asset for state income tax loss and credit carryforwards. These carryforwards are scheduled to expire in 2026 if unused.

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Federal and state income taxes have not been provided on accumulated but undistributed earnings of foreign subsidiaries aggregating approximately $933.4 million and $945.8 million at December 31, 2008 and 2007, respectively, because such earnings have been permanently reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to our undistributed earnings is not practicable.

13. EMPLOYEE-RELATED LIABILITIES

Pension and Other Post-Employment Benefit Plans

Prior to January 2, 2002, our defined benefit pension 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 non-qualified 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 non-qualified plan has also 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. During 2006, a negative plan amendment was recorded related to the clarification of contributions to be paid by MEMC, resulting in the recording of approximately $11.6 million of unrecognized prior service credit. This credit will be amortized to income using the straight-line method over the remaining life expectancy of those participants.

We adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”) as of December 31, 2006, except for the change in measurement date provisions, which was adopted as of December 31, 2008. SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. As a result of the adoption of the recognition provisions of SFAS 158 as of December 31, 2006, we reclassified $10.3 million from accrued liabilities to pension and post-employment liabilities because we had pension assets exceeding the expected beneficiary payments in 2007. In addition, we reclassified $11.5 million of unrecognized prior service credit and net unrealized gains from the pension and post-employment liabilities to accumulated other comprehensive income, which reduced our recorded liabilities. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. This requirement was effective and adopted as of December 31, 2008. As a result of the adoption, we recorded an adjustment to the 2008 beginning retained earnings of $0.8 million.

Net periodic benefit cost consists of the following:

Year ended December 31,	Pension Plans									Health Care and Other Plans
	2008			2007			2006			2008			2007			2006
Dollars in millions
Service cost	$	3.0		$	3.3		$	3.5		$	0.1		$	0.1		$	0.3
Interest cost		10.5			9.8			9.4			1.6			1.6			2.3
Expected return on plan assets		(12.6	)		(9.4	)		(8.5	)		—			—			—
Amortization of prior service cost		—			—			—			(0.5	)		(0.5	)		—
Net actuarial loss (gain)		0.7			1.8			2.1			(1.4	)		(0.9	)		(0.6	)
Settlement and curtailment charges		—			0.1			—			—			—			—
Net periodic benefit cost	$	1.6		$	5.6		$	6.5		$	(0.2	)	$	0.3		$	2.0

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To determine pension and other postretirement and post-employment benefit measurements for the plans, we used a measurement date of September 30 in 2007 and 2006 and as a result of the adoption of the SFAS 158 measurement date provision, a measurement date of December 31 was used in 2008. Net periodic benefit cost above reflects a twelve month period and does not include adjustments to the 2008 beginning retained earnings of $0.7 million and $0.1 million for the pension and post-employment plans, respectively, related to the adoption of SFAS 158.

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

Year ended December 31,	Pension Plans						Health Care and Other Plans
	2008		2007		2006		2008		2007		2006
Weighted-average assumptions:
Discount rate	6.39	%	5.75	%	5.50	%	6.00	%	5.75	%	5.50	%
Expected return on plan assets	8.30	%	8.00	%	8.00	%	NA		NA		NA
Rate of compensation increase	3.75	%	3.75	%	4.00	%	3.75	%	3.75	%	4.00	%
Current medical cost trend rate	NA		NA		NA		8.00	%	7.25	%	7.25	%
Ultimate medical cost trend rate	NA		NA		NA		5.75	%	5.25	%	5.25	%
Year the rate reaches ultimate trend rate	NA		NA		NA		2014		2009		2008

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

Year ended December 31,	Pension Plans						Health Care and Other Plans
	2008			2007			2008			2007
Dollars in millions
Change in benefit obligation:
Benefit obligation at beginning of year	$	173.9		$	180.4		$	28.7		$	29.0
Service cost		3.8			3.3			0.1			0.1
Interest cost		13.0			9.8			2.0			1.7
Plan participants’ contributions		—			—			1.5			2.5
Actuarial (gain) loss		4.4			(7.4	)		(2.4	)		1.1
Gross benefits paid		(17.7	)		(12.6	)		(3.9	)		(5.7	)
Settlements		—			(0.2	)		—			—
Currency exchange loss		1.9			0.6			—			—
Benefit obligation at end of year	$	179.3		$	173.9		$	26.0		$	28.7
Change in plan assets:
Fair value of plan assets at beginning of year	$	137.1		$	119.2		$	—		$	—
Actual return on plan assets		(31.2	)		17.8			—			—
Employer contributions		73.9			12.9			2.4			3.2
Plan participants’ contributions		—			—			1.5			2.5
Gross benefits paid		(17.7	)		(12.6	)		(3.9	)		(5.7	)
Settlements		—			(0.2	)		—			—
Currency exchange loss		(0.1	)		—			—			—
Fair value of plan assets at end of year	$	162.0		$	137.1		$	—		$	—
Net unfunded status	$	(17.3	)	$	(36.8	)	$	(26.0	)	$	(28.7	)
Contributions after measurement date		—			0.4			—			0.8
Net amount recognized	$	(17.3	)	$	(36.4	)	$	(26.0	)	$	(27.9	)
Amounts recognized in statement of financial position:
Long-term assets	$	6.0		$	—		$	—		$	—
Accrued liabilities, current		(0.8	)		(0.8	)		(2.2	)		(2.9	)
Pension and post-employment liabilities		(22.5	)		(35.6	)		(23.8	)		(25.0	)
Net amount recognized	$	(17.3	)	$	(36.4	)	$	(26.0	)	$	(27.9	)

40

Amounts recognized in accumulated other comprehensive income (before tax):

Year ended December 31,	Pension Plans				Health Care and Other Plans
	2008		2007		2008			2007
Dollars in millions
Net actuarial loss (gain)	$	68.9	$	18.8	$	(6.4	)	$	(5.5	)
Prior service (credit) cost		—		—		(10.4	)		(11.1	)
Net amount recognized	$	68.9	$	18.8	$	(16.8	)	$	(16.6	)

The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2009 are as follows:

	Pension Plans		Health Care and Other Plans
Dollars in millions
Actuarial loss (gain)	$	5.1	$	(1.8	)
Prior service (credit) cost		—		(0.5	)
	$	5.1	$	(2.3	)

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

Year ended December 31,	Pension Plans				Health Care and Other Plans
	2008		2007		2008		2007
Weighted-average assumptions:
Discount rate	6.32	%	6.15	%	6.20	%	6.00	%
Rate of compensation increase	3.75	%	3.75	%	3.75	%	3.75	%
Current medical cost trend rate	NA		NA		NA		8.00	%
Ultimate medical cost trend rate	NA		NA		NA		5.00	%
Year the rate reaches ultimate trend rate	NA		NA		NA		2013

The composition of our plans and age of our participants are such that, as of December 31, 2008, the medical cost trend rate no longer had an effect on the valuation of our health care plans.

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 December 31, 2008 and September 30, 2007 was:

Asset Category	2008 Target Allocation		Actual Allocation
			2008		2007
Equity securities	50-70	%	52	%	65	%
Fixed income securities	35-55	%	48	%	31	%
All other	0-10	%	—		4	%
Total			100	%	100	%

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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 capital 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’ intended long-term asset mix. The expected investment return assumption used for the pension plans reflects what the plans can reasonably expect to earn over a long-term period considering plan target allocations. The expected return includes an inflation assumption and adds real returns for the asset mix and a premium for active management, and subtracts expenses. While the assumed expected rate of return on plan assets in 2008 was 8.3%, the actual return experienced in our pension plan assets in the comparable period in 2008 was a loss of 17.7%. We consult with the plans’ actuaries to determine a discount rate assumption for pension and other postretirement and post-employment plans that reflects the characteristics of our plans, including expected cash outflows from our plans, and utilize an analytical tool that incorporates the concept of a hypothetical yield curve.

Our pension obligations are funded in accordance with provisions of Federal law. Contributions to our pension and post-employment plans in 2008 totaled $73.9 million and $2.4 million, respectively. During 2008, we made a $63.5 million contribution to our U.S. pension plan in excess of our minimum funding requirements, which put the plan in an overfunded status. Amounts previously recorded to Pension and post employment liabilities related to the U.S. pension plan were reduced to zero and the overfunded status of $6.0 million at December 31, 2008 was recorded to Other assets—long-term. Our foreign pension plans and health care and other plans continue to maintain an unfunded status as of December 31, 2008 and are recorded in Pension and post-employment liabilities. Except for our U.S. pension plan at the end of 2008, the accumulated benefit obligation for each of our plans exceeded the fair value of plan assets in both 2007 and 2008. As of December 31, 2008, the accumulated benefit obligation for our U.S. pension plan was $148.5 million and the fair value of plan assets was $158.9 million. We expect contributions to our pension and post-employment plans in 2009 to be approximately $1.1 million and $2.2 million, respectively.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets were as follows:

	Pension Plans
	2008		2007
Dollars in millions
Projected benefit obligation, end of year	$	179.3	$	173.9
Accumulated benefit obligation, end of year	$	167.5	$	163.4
Fair value of plan assets, end of year	$	162.0	$	137.1

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We estimate that the future benefits payable for the pension and other postretirement plans are as follows:

	Pension Plans		Health Care and Other Plans
Dollars in millions
2009	$	11.0	$	2.2
2010		11.7		2.1
2011		12.3		2.0
2012		13.2		2.0
2013		14.6		2.0
2014-2018		78.9		9.5

Defined Contribution Plans

We sponsor a defined contribution plan under Section 401(k) of the Internal Revenue Code covering all U.S. salaried and hourly employees, and a defined contribution plan in Taiwan covering most salaried and hourly employees of our Taiwan subsidiary. Our costs included in our statements of income totaled $5.7 million, $5.6 million and $5.4 million for 2008, 2007 and 2006, respectively.

Other Employee-Related Liabilities

Employees of our subsidiaries in Italy and Korea are covered by an end of service entitlement that provides payment upon termination of employment. Contributions to these plans are based on statutory requirements and are not actuarially determined. The accrued liability was $28.8 million at December 31, 2008 and $35.1 million at December 31, 2007, and is included in other long-term liabilities and accrued wages and salaries on our balance sheet. The accrued liability is based on the vested benefits to which the employee is entitled assuming employee termination at the measurement date.

14. COMMITMENTS AND CONTINGENCIES

Leases and Purchase Obligations

We lease buildings, equipment and automobiles under operating leases. Rental expense was $5.7 million, $5.2 million and $5.3 million in 2008, 2007 and 2006, respectively. The total future commitment under operating leases as of December 31, 2008 was $13.4 million, of which $12.7 million is noncancellable. Our operating lease obligations as of December 31, 2008 were as follows:

	Payments Due By Period
	Total		2009		2010		2011		2012		2013		Thereafter
Dollars in millions
Operating Leases	$	13.4	$	3.6	$	2.5	$	2.0	$	1.6	$	1.6	$	2.1

We maintain a long-term agreement with a supplier in connection with the purchase of certain raw materials. Our minimum required annual purchase under this agreement was $45.3 million in 2008 and is $48.6 million in each of the years from 2009 through 2018. During 2008 a $13.7 million charge was recorded to cost of goods sold related to the estimated shortfall to our annual purchase obligation associated with a take or pay agreement for raw material supply to our Pasadena facility.

Indemnification

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 as of December 31, 2008.

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Legal Proceedings

We are involved in various legal proceedings which arise in the ordinary course of business. Although it is not possible to predict the outcome of these matters, we believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations. In April 2008, we reached net favorable settlements in certain outstanding legal proceedings resulting in an increase to operating income of approximately $4.3 million for the year.

S.O.I.TEC Silicon on Insulator Technologies S.A. vs. MEMC Electronic Materials, Inc.

On May 19, 2008, Soitec and Commissariat A L’Energie Atomique (“CEA”) filed a complaint for patent infringement against MEMC in the U.S. District Court for the District of Delaware (Civil Action No. 08-292) alleging infringement, including willful infringement, by MEMC of three U.S. patents related to silicon-on-insulator (SOI) technology, and requested damages and an injunction preventing further infringement of the three patents listed in Soitec’s complaint. On July 9, 2008, MEMC filed a motion to dismiss the complaint, or in the alternative, for a more definite statement. On February 20, 2009, the district court denied our motion to dismiss, and as a result, our answer is due in early March 2009. Although the case is still in the initial pleading stage, we believe that Soitec’s suit against us alleging infringement of the three patents named in the complaint has no merit, and we are asserting a vigorous defense against these claims. We do not believe that this case, should it be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, the outcome of these matters are unpredictable and the results of these cases could be unfavorable for MEMC.

Semi-Materials Co., Ltd. vs. MEMC Electronic Materials, Inc. and MEMC Pasadena, Inc.

On September 28, 2006, Semi-Materials Co., Ltd. (“Semi-Materials”) filed a complaint against MEMC in the U.S. District Court for the Eastern District of Missouri (Case No. 4:06-CV-01426-FRB) alleging breach of contract, unjust enrichment, fraud, and conversion, and seeking specific performance, all related to a series of purchase orders for chunk polysilicon and polysilicon solar ingot. MEMC filed its answer in the case in December 2006. On MEMC’s motion, the Court dismissed Semi-Materials’ conversion claim.

The parties entered into settlement discussions for this case in November 2007 and December 2007. Semi-Materials claims that a binding settlement was reached as a result of those late 2007 discussions. MEMC denies Semi-Materials’ allegation that a binding settlement was reached. In January 2008, Semi-Materials moved the trial court to enforce the alleged settlement terms. On March 17, 2008, the trial court sustained Semi-Materials’ motion and found that binding settlement terms had been reached as a result of the late 2007 negotiations between Semi-Materials and MEMC. This decision was immediately appealed by MEMC to the United States Court of Appeals for the Eighth Circuit, and enforcement of the trial court’s order was stayed pending that appeal. The Eighth Circuit heard oral argument on September 26, 2008. Just prior to the September 26 oral argument, Semi-Materials informed MEMC and the Eighth Circuit that Semi-Materials no longer sought enforcement of the alleged settlement agreement (although Semi-Materials still claims that a binding settlement was reached in late 2007). Semi-Materials instead now requests that the Eighth Circuit vacate the trial court’s March 2008 order enforcing the alleged settlement agreement and remand the case back to the trial court for further proceedings. As of February 24, 2009, the Eighth Circuit had not issued a decision in the appeal.

On March 31, 2008, Semi-Materials and its affiliate SMC Shanghai (“SMC”) filed two additional lawsuits against MEMC, one in the United States District Court for the Southern District of Texas (Case No. 4:08-CV-00991) (the “Texas Action”) and another in the United States District Court for the Eastern District of Missouri (Case No. 4:08-CV-00434-JCH) (the “Missouri Action”). In both cases, SMC alleges that: (i) MEMC Pasadena, Inc. (“MEMC Pasadena”) breached an agreement with SMC for SMC to act as MEMC’s exclusive sales agent in China; (ii) MEMC Pasadena breached an agreement with Semi-Materials for Semi-Materials to act as MEMC Pasadena’s exclusive sales agent in Korea; (iii) MEMC tortiously interfered with the purported sales agency agreements between MEMC Pasadena and SMC and Semi-Materials; and (iv) MEMC tortiously interfered with a separate sales agency agreement Semi-Materials claims existed with an unrelated party. In the Missouri Action, Semi-Materials also claims that MEMC tortiously interfered with an expectancy for an on-going business relationship Semi-Materials claims existed with the unrelated party.

No discovery has been undertaken in the Texas Action, and it has been stayed pending resolution of the appeal in the first case. Discovery is ongoing in the Missouri Action.

We do not believe that the Semi-Materials cases, should they ultimately be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, the outcome of these matters are unpredictable and the results of these cases could be unfavorable for MEMC.

Minneapolis Firefighters’ Relief Association v. MEMC Electronic Materials, Inc., et al.

On September 26, 2008, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by plaintiff Minneapolis Firefighters’ Relief Association asserting claims against MEMC and Nabeel Gareeb, MEMC’s former Chief Executive Officer. On October 10, 2008, a substantially similar putative class action lawsuit was filed by plaintiff Donald Jameson against MEMC, Mr. Gareeb and Ken Hannah, MEMC’s Chief Financial Officer. These cases purportedly are brought on behalf of all persons who acquired shares of MEMC’s common stock between June 13, 2008 and July 23, 2008, inclusive (the “Class Period”). Both complaints allege that, during the Class Period, MEMC failed to disclose certain material facts regarding MEMC’s operations and performance, which had the effect of artificially inflating MEMC’s stock price in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Plaintiffs further allege that Messrs. Gareeb and Hannah are subject to liability under Section 20(a) of the Act as control persons of MEMC. Plaintiffs seek certification of the putative class, unspecified compensatory damages, interest, and costs, as well as ancillary relief. On December 12, 2008, these actions were consolidated, and the Court appointed Mahendra A. Patel as lead plaintiff. Plaintiff filed a consolidated amended complaint on February 23, 2009. Defendants must answer or move to dismiss by April 10, 2009.

Brian Larkowski v. John Marren, et al.

On November 4, 2008, Brian Larkowski, a purported shareholder of MEMC, filed a derivative action in the Circuit Court of St. Charles County, Missouri against defendants John Marren, Peter Blackmore, Nabeel Gareeb, Marshall Turner, Robert J. Boehlke, C. Douglas Marsh, William E. Stevens, James B. Williams, and Michael McNamara (collectively “Individual Defendants”) and MEMC as a nominal defendant. Each individual defendant is a current or former officer and/or director of MEMC. The lawsuit alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment, based on allegations of conduct similar to that alleged in the putative class action lawsuit described above. On December 19, 2008, the Court entered a stipulated order staying the derivative action pending resolution of any motions to dismiss in the putative class action.

On January 30, 2009, a second putative derivative plaintiff served a demand letter on the Company’s Board of Directors requesting that it investigate factual allegations similar to those underlying the Larkowski derivative action.

Jerry Jones v. MEMC Electronic Materials, Inc., et al.

On December 26, 2008, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of Missouri by plaintiff, Jerry Jones, purportedly on behalf of all participants in and beneficiaries of MEMC’s 401(k) Savings Plan (the “Plan”) between September 4, 2007 and December 26, 2008, inclusive (the “Class Period”). The complaint asserts claims against MEMC and certain of its directors, employees and/or other unnamed fiduciaries of the Plan. The complaint alleges that the defendants breached certain fiduciary duties owed under the Employee Retirement Income Security Act (“ERISA”), generally asserting that the defendants failed to make full disclosure of the risks to the Plan’s participants of investing in MEMC’s stock, to the detriment of the Plan’s participants and beneficiaries, and that Company’s stock should not have been made available as an investment alternative for the Plan’s participants. The misstatements alleged in the complaint significantly overlap with the misstatements alleged in the federal securities class action described above. The complaint seeks unspecified monetary damages, including losses the participants and beneficiaries of the Plan allegedly experienced due to their investment through the Plan in MEMC’s stock, equitable relief and an award of attorney’s fees.

MEMC believes these actions are without merit and we will assert a vigorous defense. Due to the inherent uncertainties of litigation, we cannot predict the ultimate outcome or resolution of the foregoing proceedings or estimate the amounts of, or potential range of, loss with respect to these proceedings. An unfavorable outcome could have a material adverse impact on our business, results of operations and financial condition. We have indemnification agreements with each of our present and former directors and officers, under which we are generally required to indemnify each such director or officer against expenses, including attorney’s fees, judgments, fines and settlements, arising from actions such as the lawsuits described above (subject to certain exceptions, as described in the indemnification agreements).

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15. GEOGRAPHIC SEGMENTS

We are engaged in one reportable segment—the design, manufacture and sale of silicon wafers.

Geographic financial information is as follows:

Net Sales to Customers:

	2008		2007		2006
Dollars in millions
United States	$	489.0	$	462.0	$	521.3
Foreign		1,515.5		1,459.8		1,019.3
Total	$	2,004.5	$	1,921.8	$	1,540.6

Foreign revenues were derived from sales to the following countries:

	2008		2007		2006
Dollars in millions
China	$	371.8	$	405.0	$	218.1
Japan		47.5		94.5		74.7
Korea		279.3		299.7		188.1
Taiwan		505.4		324.9		273.4
Other foreign countries		311.5		335.7		265.0
Total	$	1,515.5	$	1,459.8	$	1,019.3

Net sales are attributed to countries based on the location of the customer.

Our net sales attributable to polysilicon for the years ended December 31, 2008, 2007 and 2006 were 18.6%, 22.5% and 18.5% as a percent of total sales, respectively.

Long-Lived Assets, net of accumulated depreciation:

	2008		2007
Dollars in millions
United States	$	416.2	$	351.9
Japan		202.6		162.1
Taiwan		272.7		225.5
Italy		135.4		73.4
Other foreign countries		87.4		76.8
Total	$	1,114.3	$	889.7

16. SUBSEQUENT EVENTS

In late February 2009, we revised our estimate for the allowance for doubtful accounts as of December 31, 2008 due to the increased visibility in 2009 of adverse macroeconomic conditions existing as of December 31, 2008. Taking into account that two semiconductor wafer customers filed for bankruptcy protection during late January 2009 and early February 2009, we performed additional analysis of our at risk receivables as of December 31, 2008. Accordingly, we have increased our allowance for doubtful accounts and recorded additional bad debt expense of $4.5 million during the quarter ended December 31, 2008.

During February 2009, we amended two of our long-term solar wafer agreements. The aggregate revenues under the agreements for sales in 2009 and aggregate revenues for sales over the remaining term of the contracts remain unchanged, but volume increases and price reductions for 2009 have been effectuated. There were no changes to the requirements for security deposits or letters of credit other than to extend the time to comply fully with the 2009 letter of credit requirement for one of the agreements. The amendments did not have an impact on our 2008 consolidated results of operations and financial condition.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

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, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008. We also have audited the Company’s internal control over financial reporting as of December 31, 2008, 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 these consolidated financial statements, 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 these consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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 U.S. 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 U.S. 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.

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, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, MEMC Electronic Materials, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the COSO.

As discussed in Note 13 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006, and the measurement date provisions as of December 31, 2008.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standard No. 109, effective January 1, 2007 and SFAS No. 157, Fair Value Measurements, as of January 1, 2008.

/s/ KPMG LLP

St. Louis, Missouri

February 27, 2009

45

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation as of December 31, 2008, 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. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2008.

(b) 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, 2008, 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 in Internal Control—Integrated Framework. Based on management’s assessment utilizing these criteria, we believe that, as of December 31, 2008, our internal control over financial reporting was effective.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter and year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

46

STOCKHOLDER 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

P.O. Box A3504

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, 2008, the Company had 264 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, 2008, 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 in May 2008 and filed after our 2008 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, 2008.

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.

INVESTOR RELATIONS

Analyst and investor inquiries should be directed to:

Bill Michalek

Director, Investor & Media Relations

MEMC Electronic Materials, Inc.

501 Pearl Drive (City of O’Fallon)

St. Peters, Missouri 63376

Tel: (636) 474-5000

Fax: (636) 474-5158

Email: invest@memc.com

The graph at right compares cumulative total stockholder return with the cumulative total return (assuming reinvestment of dividends) of the S&P 500 Index and the S&P 500 Semiconductors Index. The information on the graph covers the period from December 31, 2003 through December 31, 2008. The stock price performance shown on the graph is not necessarily indicative of future stock price performance.   Prepared by Standard and Poor’s Compustat 2/23/09

EX-21

Exhibit 21

List of Subsidiaries

Subsidiary	Jurisdiction of Organization
MEMC Asia-Pacific Holdings BV	The Netherlands
MEMC Electronic Materials France SarL	France
MEMC Electronic Materials, GmbH	Germany
MEMC Electronic Materials Sales, Sdn. Bhd.	Malaysia
MEMC Electronic Materials, Sdn. Bhd.	Malaysia
MEMC Electronic Materials, S.p.A.	Italy
MEMC Electronic Materials (UK) Ltd.	United Kingdom
MEMC Enterprise Consulting Shanghai Co. Ltd.	China
MEMC Holding B.V.	The Netherlands
MEMC Holdings Corporation	Delaware
MEMC International Finance SarL	Luxembourg
MEMC International, Inc.	Delaware
MEMC Ipoh Sdn Bhd.	Malaysia
MEMC Japan Ltd.	Japan
MEMC Korea Company	South Korea
MEMC Kulim Electronic Materials, Sdn. Bhd.	Malaysia
MEMC Luxembourg SarL	Luxembourg
MEMC Pasadena, Inc.	Delaware
MEMC Singapore Pte. Ltd.	Singapore
Taisil Electronic Materials Corporation	Taiwan

EX-23

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 statements (Nos. 33-96420, 333-19159, 333-43474, 333-83624, 333-83628, 333-100404, 333-122405, and 333-142818) on Form S-8 of MEMC Electronic Materials, Inc. of our reports dated February 27, 2009, with respect to the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 annual report on Form 10-K of MEMC Electronic Materials, Inc.

As discussed in Note 13 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006, and the measurement date provisions as of December 31, 2008.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standard No. 109, effective January 1, 2007 and SFAS No. 157, Fair Value Measurements, as of January 1, 2008.

/s/ KPMG LLP

St. Louis, Missouri

February 27, 2009

EX-31.1

Exhibit 31.1

Certification

I, Marshall Turner, 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.

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 independent registered public accounting firm 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: February 27, 2009

/s/ MARSHALL TURNER

Marshall Turner

Interim Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Kenneth H. Hannah, 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.

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 independent registered public accounting firm 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: February 27, 2009

/s/ KENNETH H. HANNAH

Kenneth H. Hannah

Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

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, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Marshall Turner, Interim Chief Executive Officer of the Company, and Kenneth H. Hannah, 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: February 27, 2009

By:	/s/ Marshall Turner
Name:	Marshall Turner
Title:	Interim Chief Executive Officer MEMC Electronic Materials, Inc.

Date: February 27, 2009

By:	/s/ Kenneth H. Hannah
Name:	Kenneth H. Hannah
Title:	Senior Vice President and Chief Financial Officer MEMC Electronic Materials, Inc.