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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

Or

For the transition period from              to             

Commission File Number: 001-13828

MEMC ELECTRONIC MATERIALS, INC.

(Exact name of registrant as specified in its charter)

(636) 474-5000

(Registrant’s telephone number, including area code)

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.    x  Yes    ¨  No

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

The number of shares of the registrant’s common stock outstanding at October 29, 2004 was 207,880,168.

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PART I— FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II— OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits

SIGNATURES

EXHIBIT INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

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MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

See accompanying notes to consolidated financial statements.

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MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Dollars in thousands)

See accompanying notes to consolidated financial statements.

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MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share data)

(1) Nature of Operations

We are a leading worldwide producer of wafers for the semiconductor industry. We are one of the top four wafer suppliers in the world, with each having more than a 10% share of the overall market. We operate manufacturing facilities in every major semiconductor manufacturing region throughout the world, including Europe, Japan, Malaysia, South Korea, Taiwan and the United States. Our customers include virtually all of the major semiconductor device manufacturers in the world, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world’s largest foundries. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) and in four general categories: prime polished, annealed, epitaxial and test/monitor. A prime polished wafer is a highly refined, pure wafer with an ultra-flat and ultra-clean surface. An annealed wafer is a prime polished wafer with near surface crystalline defects dissolved during a high-temperature thermal treatment. An epitaxial wafer consists of a thin, silicon layer grown on the polished surface of the wafer. A test/monitor wafer is substantially the same as a prime polished wafer, but with some less rigorous specifications.

(2) Significant Accounting Policies

Accounting Estimates

In connection with the adjustment to property, plant and equipment caused by the Texas Pacific Group contingent performance purchase price payment in August 2003 (see Note 13), effective with the third quarter of 2003, we reevaluated our accounting estimates related to the useful lives for most of our machinery and equipment, buildings and building improvements. As a result of this evaluation, we concluded that the useful lives of certain of our assets should be extended to better reflect their economic life. This reevaluation had a favorable impact on gross margin for the three and nine months ended September 30, 2004 of approximately $1,600 and $5,400, respectively. The increase to net income was approximately $1,300 and $4,500 for the three and nine months ended September 30, 2004, respectively. The favorable impact on basic and diluted earnings per share was less than 1 cent for the three months ended September 30, 2004. The favorable impact on basic and diluted earnings per share was each approximately 2 cents for the nine months ended September 30, 2004.

Stock-Based Compensation

We account for our stock-based compensation under Accounting Principles Board Opinion No. 25 (Opinion 25), “Accounting for Stock Issued to Employees”, and related interpretations. We record compensation expense related to restricted stock awards and units over the vesting periods of the awards and units and reflect the unearned portion of deferred compensation as a separate component of stockholders’ equity.

No compensation cost has been recognized for non-qualified stock options granted under the plans when the exercise price of the stock options equals the market price on the date of grant. Compensation expense equal to the intrinsic value of the options has been recognized over the vesting periods for options granted at a price below market price on the grant date and deferred compensation has been recorded for the unearned portion of the options as a separate component of stockholders’ equity. Had compensation cost been determined for our non-qualified stock options based on the fair value at the grant dates, as determined using the Black-Scholes option pricing model, consistent with the alternative method set forth under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” we would have reported the amounts indicated below:

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A summary of our significant accounting policies is presented in our audited financial statements and related management’s discussion and analysis for the fiscal year ended December 31, 2003 contained in Exhibit 13 to our annual report on Form 10-K, as amended on Form 10-K/A, for the fiscal year ended December 31, 2003. See also management’s discussion and analysis below.

(3) Basis of Presentation

The accompanying unaudited consolidated financial statements of MEMC Electronic Materials, Inc. and subsidiaries (MEMC ), in our opinion, include all adjustments (consisting of normal, recurring items) necessary to present fairly MEMC’s financial position and results of operations and cash flows for the periods presented. We have presented the consolidated financial statements in accordance with the requirements of Regulation S-X and consequently do not include all disclosures required by accounting principles generally accepted in the United States of America. This report on Form 10-Q, including unaudited consolidated financial statements, should be read in conjunction with our annual report on Form 10-K, as amended on Form 10-K/A, for the year ended December 31, 2003, which contains MEMC’s audited financial statements for such year and the related management’s discussion and analysis of financial condition and results of operations. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

(4) Earnings per share

For the three months ended September 30, 2004 and 2003, basic and diluted earnings per share (EPS) were calculated as follows:

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For the nine months ended September 30, 2004 and 2003, basic and diluted earnings per share were calculated as follows:

At September 30, 2004, MEMC had outstanding 9,545,560 options and 16,666,667 warrants.

(5) Inventories

Inventories consist of the following:

(6) Comprehensive Income

Comprehensive income for the three months ended September 30, 2004 and 2003 was $57,721 and $27,041, respectively. Comprehensive income for the nine months ended September 30, 2004 and 2003 was $156,187 and $74,830, respectively. MEMC’s only adjustment from net income to comprehensive income was foreign currency translation adjustments in each period presented.

(7) Debt

Our short-term unsecured borrowings from banks total approximately $1,014 at September 30, 2004, under approximately $54,389 of short-term loan agreements.

We have long-term credit facilities of approximately $266,366 of which $141,365 is outstanding at September 30, 2004. Of the $266,366 of long-term credit facilities, $3,417 is unavailable as it relates to the issuance of third party letters of credit. We are accreting the $50,000 senior subordinated secured notes up to their face value plus related stated interest over the six years preceding their maturity using the effective interest method. At September 30, 2004, the accreted value of these notes was approximately $5,000; however, the face value of these notes plus accrued stated interest was approximately $65,532 at September 30, 2004. Assuming the senior subordinated secured notes remain outstanding until their maturity, interest expense expected to be recorded in our Consolidated Statement of Operations related to the accretion of the notes and related stated interest expense is expected to be $3,900, $10,200, $26,400, and $55,600 in the years 2004 through 2007, respectively.

(8) Income Taxes

For the nine months ended September 30, 2004, we recognized income tax expense of $21,644, as compared to $28,142 for the nine months ended September 30, 2003. In the three months ended June 30, 2004, we reversed $25,325 in valuation allowances against deferred tax assets as we believe that it is more likely than not that certain deferred tax assets will be realized taking into consideration all available evidence including historical pre-tax and taxable income (losses), projected future pre-tax and taxable

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income (losses) and the expected timing of the reversals of existing temporary differences by taxable jurisdiction. The reversal of this valuation allowance was limited to $25,325 based upon limitations on our ability to forecast future pre-tax and taxable income by taxable jurisdiction on a long-term basis given the cyclicality of the silicon wafer industry. As of September 30, 2004, we had valuation allowances of $201,946 reducing our net deferred tax assets to $47,574.

(9) Benefit Plans

Net periodic benefit cost consists of the following:

(10) Commitments and Contingencies

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.

(11) Acquisitions

On January 30, 2004, we closed on the first of two closings of our acquisition of shares of Taisil Electronic Materials Corporation (Taisil) that we did not already own. The second of the two closings occurred on February 4, 2004. The acquisition was structured as a stock purchase for cash. The selling stockholders were China Steel Corporation, Chiao Tung Bank, China Development Industrial Bank and Robina Finance & Lease Corporation, Ltd. (Robina). The purchase price was negotiated on an arms-length basis and totaled approximately $60,000. This purchase price was net of approximately $7,000 that was paid by Robina to Taisil on February 4, 2004 simultaneously with our purchase of the Taisil shares from Robina. This amount was paid by Robina to Taisil in the form of a return of a deposit that Taisil had previously advanced to Robina at the time Robina originally acquired the Taisil shares. In order to finance the acquisition, we borrowed $60,000 under the Citibank/UBS Facility. We now own 99.97% of the outstanding shares of Taisil, with the remaining 0.03% being held by approximately 12 individuals who were participants in an earlier round of Taisil equity financing. As a result of these transactions, the financial results of Taisil were consolidated with MEMC effective as of February 1, 2004.

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

These unaudited pro forma amounts are not necessarily indicative of what the actual combined results of operations might have been if the acquisition had been effective at the beginning of 2003. As discussed in Note 12 below, the results for the nine months ended September 30, 2004 were affected by losses from a small fire at Taisil and the related business interruption insurance recovery.

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

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

(12) Business Interruption Insurance Recovery

In December 2003, Taisil experienced a small fire. As a result, Taisil incurred losses from property damage and business interruption in December 2003 and January 2004. Taisil recognized a business interruption insurance recovery relating to the fire of approximately $3,300. As the loss related to an event prior to the acquisition discussed in Note 11 above, 45% of the claim was recognized as income in our Consolidated Statement of Operations as Other, net in Nonoperating income (expense) for the nine months ended September 30, 2004. The remaining 55% was included as an asset as part of the purchase accounting for our acquisition of the remaining interest in Taisil.

(13) TPG Contingent Performance Purchase Price Payment to E.ON

On November 13, 2001, an investor group led by Texas Pacific Group (TPG) purchased from E.ON and its affiliates (E.ON) all of E.ON’s debt and equity holdings in MEMC for a nominal purchase price of 6 dollars. In addition, on that date MEMC and TPG restructured MEMC’s debt acquired by TPG from E.ON. In connection with such transactions, we applied purchase accounting and pushed down TPG’s nominal basis in MEMC to our accounting records, reflected in our consolidated financial statements subsequent to November 13, 2001.

In accordance with the terms and conditions of the purchase agreement between E.ON and TPG, TPG agreed to a contingent performance purchase price payment to E.ON based on MEMC’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), as defined, for fiscal year 2002. Due to the uncertainty as to which level of contingent performance purchase price might have been paid, if any, we did not consider this contingency in applying purchase accounting as of November 13, 2001.

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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Net Sales.

Net sales increased by 41% to $275.3 million in the third quarter of 2004 from $195.9 million in the third quarter of 2003. This increase was due to a 45% increase in product volumes, partially offset by a 1% decline in overall average selling prices.

For the nine months ended September 30, 2004, net sales increased by 32% to $759.6 million from $576.1 million for the nine months of 2003. This increase was due to a 40% increase in product volumes, partially offset by a 4% decline in overall average selling prices.

The increase in product volumes for the three and nine month periods ended September 30, 2004 was primarily the result of increased volumes across substantially all diameters and the Taisil acquisition. Taisil’s financial results were consolidated with MEMC effective February 1, 2004. The decline in average selling prices for the three and nine months ended September 30, 2004 was primarily the result of decreases in selling prices partially offset by the favorable impact of currency fluctuations.

Gross Margin.

In the 2004 third quarter, our gross margin was $110.7 million compared to $58.5 million in the 2003 third quarter. As a percentage of net sales, gross margin improved to 40.2% in the 2004 third quarter from 29.9% in the third quarter of 2003.

For the nine months ended September 30, 2004, our gross margin was $271.2 million compared to $168.3 million for the nine months of 2003. As a percentage of net sales, gross margin improved to 35.7% in 2004 from 29.2% in 2003.

The improved gross margin was primarily a result of higher product volumes, continued cost reductions resulting in better leverage on fixed costs and a favorable change in the mix of products sold. Beginning July 1, 2003, we reevaluated the accounting estimates related to the useful lives for most of our machinery and equipment, buildings and building improvements. This change in accounting estimate had a $1.6 million and $5.4 million favorable impact on gross margin for the three and nine months ended September 30, 2004, respectively. See Note 2 to the Consolidated Financial Statements herein.

Marketing and Administration.

Marketing and administration expenses increased to $17.8 million for the three months ended September 30, 2004 compared to $13.6 million for the three months ended September 30, 2003. As a percentage of net sales, marketing and administration decreased to 6.5% for the three months ended September 30, 2004 from 6.9% for the three months ended September 30, 2003. For the nine months ended September 30, 2004, marketing and administration expenses increased to $52.8 million from $41.1 million for the nine months ended September 30, 2003. As a percentage of net sales, marketing and administration decreased to 7.0% for the nine months ended September 30, 2004 from 7.1% for the nine months ended September 30, 2003.

The increase in marketing and administration expenses was primarily due to freight expenses, which were reclassified from cost of goods sold to administration expense effective in the 2003 fourth quarter. The remainder of the increase was a result of the financial consolidation of Taisil, improvements in quality systems and increased efforts devoted to sales and customer service.

Research and Development.

Our research and development (R&D) expenses increased to $9.4 million for the three months ended September 30, 2004 versus $8.4 million for the three months ended September 30, 2003. As a percentage of net sales, R&D expenses decreased to 3.4% for the three months ended September 30, 2004 from 4.3% for the three months ended September 30, 2003. For the nine months ended September 30, 2004, R&D expenses increased to $27.6 million from $24.3 million for the nine months ended September 30, 2003. As a percentage of net sales, R&D expenses decreased to 3.6% for the nine months ended September 30, 2004 from 4.2% for the nine months ended September 30, 2003. The higher research and development expenses were primarily due to increasing our capability for next-generation products to improve flatness and particles.

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Operating Income.

Operating income increased to $83.6 million in the third quarter of 2004 compared to $36.5 million in the 2003 third quarter. For the nine months ended September 30, 2004, operating income increased to $190.9 million from $102.9 million for the nine months ended September 30, 2003. The improved operating results were primarily a result of the increases in net sales and gross margin discussed above.

Nonoperating (Income) Expense.

Interest Expense.

For the three months ended September 30, 2004, interest expense increased to $3.4 million from $2.7 million in the year ago quarter. For the nine months ended September 30, 2004, interest expense increased to $10.3 million from $10.0 million in the year ago period. An increase in interest expense in the 2004 periods resulting from non-cash interest accretion on the senior subordinated secured notes due TPG was substantially offset by lower interest expense from lower outstanding indebtedness at our foreign subsidiaries. Interest accretion recorded on the TPG notes for the three months ended September 30, 2004 was $1.1 million compared to $0.2 million for the 2003 third quarter. For the nine months ended September 30, 2004, interest accretion on the TPG notes was $2.6 million compared to $0.2 million for the nine months ended September 30, 2003.

Interest Income.

For the three months ended September 30, 2004, interest income decreased to $1.0 million from $1.9 million in the year ago quarter. For the nine months ended September 30, 2004, interest income decreased to $4.0 million from $5.8 million in the year ago period. The decrease is primarily the result of the sale of marketable securities of approximately $33.8 million throughout 2004 and the use of the funds to pay down our South Korean debt.

Royalty Income.

Substantially all of the royalty income relates to royalties received from Taisil. As a result of the financial consolidation of Taisil, these royalties were no longer recognized effective February 1, 2004.

Currency (Gains) Losses.

Currency losses for the three months ended September 30, 2004 were $0.4 million compared to currency gains of $11.7 million in the comparable 2003 period. Currency losses for the nine months ended September 30, 2004 were $1.5 million compared to currency gains of $10.6 million in the comparable 2003 period. The currency gains and losses were primarily associated with the revaluation of a Yen-based intercompany loan. On July 1, 2004, we designated this Yen-based intercompany loan as a long-term investment with settlement not planned or anticipated in the foreseeable future. Since we no longer expect settlement of the intercompany loan, foreign currency gains and losses from this loan are no longer being recorded in the Consolidated Statement of Operations.

Other, Net.

Other nonoperating income was $2.5 million for the three months ended September 30, 2004 versus $0.2 million for the three months ended September 30, 2003. For the nine months ended September 30, 2004, other nonoperating income increased to $4.8 million compared to $0.3 million for the nine months ended September 30, 2003. Included in the 2004 periods was a $1.7 million gain recorded from the termination of a customer supply arrangement in August 2004 and a $1.5 million gain recorded from a business interruption insurance recovery in February 2004 relating to a small fire at Taisil.

Income Taxes.

For the three months ended September 30, 2004, income tax expense was $20.8 million versus $12.2 million for the three months ended September 30, 2003. For the nine months ended September 30, 2004, we recognized income tax expense of $21.6 million versus $28.1 million for the nine months ended September 30, 2003.

In the three months ended June 30, 2004, we reversed $25.3 million in valuation allowances against deferred tax assets as we believe that it is more likely than not that certain deferred tax assets will be realized taking into consideration all available evidence including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences by taxable jurisdiction.

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We expect the effective income tax rate to be approximately 25% for the remainder of 2004, excluding the impact of any additional reversals of valuation allowance based on changes in judgement of projected future pre-tax and taxable income (losses) by taxable jurisdiction.

Outlook.

We are targeting approximately flat revenues in the 2004 fourth quarter in comparison to the 2004 third quarter. However, due to the uncertainty of short-term inventory corrections by our customers, our net sales in the 2004 fourth quarter could be down by as much as five percentage points compared to the 2004 third quarter. In the third quarter, we exceeded our gross margin target due in part to a richer mix of products. In addition, inventory was up slightly as of September 30, 2004 due to softer orders than anticipated in the month of September. In the fourth quarter, we will try to optimize inventory and anticipate a slightly less rich mix of products as compared to the third quarter. These factors may cause our gross margin percentage in the 2004 fourth quarter to be down from the level achieved in the third quarter by approximately two percentage points.

Liquidity and Capital Resources.

For the nine months ended September 30, 2004, we generated $175.9 million of cash from operating activities, compared to $80.4 million for the nine months ended September 30, 2003. This improvement was primarily due to our improved operating results. Working capital increased to $205.6 million at September 30, 2004 from $121.3 million at December 31, 2003.

The short-term investments of $33.8 million at December 31, 2003 were liquidated throughout 2004 to pay down our South Korean debt. The reduction in debt is primarily reflected in short-term borrowings and current portion of long-term debt, which decreased by $49.9 million to $21.9 million at September 30, 2004 from $71.8 million at December 31, 2003.

Accounts receivable of $151.9 million at September 30, 2004 increased $48.9 million from $103.0 million at December 31, 2003. This increase was primarily due to the increase in sales for the three months ended September 30, 2004 compared to the three months ended December 31, 2003. The increase in sales and accounts receivable was partially due to the acquisition of Taisil in February 2004. Days’ sales outstanding increased to 50 at September 30, 2004 compared to 45 days at December 31, 2003 based upon annualized sales for the respective immediately preceding quarter. This increase in days’ sales outstanding was primarily attributable to late customer payments and the mix of customers.

Our inventories of $119.8 million at September 30, 2004 increased $10.3 million from $109.5 million at December 31, 2003. Approximately one-half of the increase can be attributed to the incremental inventories resulting from the Taisil acquisition. Annualized inventory turns, calculated as the ratio of annualized respective quarterly cost of goods sold divided by the period-end inventory balance, were approximately 5.5 turns for the three month period ended September 30, 2004 and approximately 5.1 turns for the three month period ended December 31, 2003. At September 30, 2004, we had approximately $23.0 million of inventory held on consignment, compared to $24.9 million at December 31, 2003. Related inventory reserves for obsolescence, lower of cost or market issues, or other impairments were $10.8 million at September 30, 2004 as compared to $5.4 million at December 31, 2003. In connection with a refinement to our existing obsolescence reserve analysis, inventory product obsolescence reserves were increased in the three months ended June 30, 2004 by approximately $7.0 million to provide for specific inventory items for which agings and usage analysis indicated risk of loss.

At December 31, 2003, our investment in joint venture related to our 45% interest in Taisil. Effective February 1, 2004, we acquired the remaining interest in Taisil, as discussed in Note 11 above, and Taisil was consolidated with MEMC’s financial results.

Our net deferred tax assets totaled $47.6 million at September 30, 2004 (of which $4.0 million is included in prepaid and other current assets at September 30, 2004), compared to $20.2 million at December 31, 2003. We provide for income taxes on a quarterly basis based on an estimated annual effective income tax rate. In the three months ended June 30, 2004, we reversed $25.3 million in valuation allowances against deferred tax assets as we believe that it is more likely than not that certain deferred tax assets will be realized. As of September 30, 2004, we have valuation allowances of $201.9 million reducing our net deferred tax assets to $47.6 million.

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Other assets increased to $55.4 million at September 30, 2004 from $46.6 million at December 31, 2003. The increase was primarily due to a reduction in the reserve for spare parts and to the acquisition of Taisil. In 2004, we refined our policy regarding obsolescence reserves for spare parts whereby a reserve is only established for specifically identified spare parts if the related machinery and equipment is no longer in service. This refinement of the obsolescence reserve analysis resulted in a $7.0 million decrease in the spare parts reserve in the 2004 second quarter.

In the 1990s and in 2000, we entered into customer deposit arrangements with certain customers to reserve capacity. These customer deposits, including both short-term and long-term portions, of $8.2 million at September 30, 2004 decreased $11.0 million from December 31, 2003 as a result of purchases of wafers by these customers.

Pension and similar liabilities decreased to $112.4 million at September 30, 2004 from $126.4 million at December 31, 2003 primarily reflecting the funding of $19.8 million of minimum required contributions to our defined benefit pension plan for the 2003 plan year and part of the 2004 plan year.

Our cash used in investing activities increased to $155.2 million for the nine months ended September 30, 2004 compared to $62.2 million for the nine months ended September 30, 2003, primarily as a result of increased capital expenditures and the acquisition of the remaining interest in Taisil in February 2004. At September 30, 2004, we had approximately $57.7 million of committed capital expenditures. Capital expenditures and committed capital expenditures in 2004 primarily relate to increasing our capacity and capability for our next generation products, including 300 millimeter, by making incremental changes to our existing manufacturing facilities and manufacturing lines. The existing facilities may be modified to permit the manufacture of greater quantities of current products. Alternatively, with incremental improvements, the existing facilities may be modified to become capable of manufacturing next generation products.

For the nine months ended September 30, 2004, cash used by financing activities was $14.8 million. Net activity under short-term borrowing arrangements resulted in the net payment of $30.6 million. Payments under long-term credit facilities were $41.9 million. We also made a dividend payment to a minority interest of $4.8 million. These cash uses were partially offset by the borrowing of $60.0 million to finance the acquisition of the remaining interest in Taisil and $2.4 million from stock option exercises.

Our unsecured short-term borrowings totaled approximately $1.0 million at September 30, 2004, under approximately $54.4 million of short-term loan agreements. We have long-term credit facilities of approximately $266.4 million, of which $141.4 million was outstanding at September 30, 2004. Of the $266.4 million of long-term credit facilities, $3.4 million is unavailable as it relates to the issuance of third party letters of credit. Our weighted average cost of borrowing, excluding accretion, was 3.3% at September 30, 2004 and 4.1% at December 31, 2003. Our total debt to capital ratio was 26% at September 30, 2004 and 34% at December 31, 2003.

As a result of the restructuring of MEMC’s debt in 2001, an investor group led by Texas Pacific Group (TPG) acquired $50 million in principal amount of our senior subordinated secured notes maturing in November 2007. We are accreting the senior subordinated secured notes up to their face value over their maturity using the effective interest method. Assuming these notes remain outstanding until their maturity, interest expense expected to be recorded in our Consolidated Statement of Operations related to accretion of the notes and related stated interest expense is expected to be $4 million, $10 million, $26 million, and $56 million in the years 2004 through 2007, respectively. In the event these notes are redeemed prior to their maturity or exchanged to pay the exercise price of our outstanding warrants, on the redemption or exercise date we will recognize interest expense equal to the remaining unaccreted face value of the notes and the related accrued but unpaid stated interest. At September 30, 2004, the accreted value of these notes was approximately $5.0 million; however, the face value of these notes plus accrued stated interest was approximately $65.5 million.

As part of the purchase and restructuring transactions, TPG committed to provide a five-year $150 million revolving credit facility to MEMC. That revolving credit facility was replaced with a five-year $150 million revolving credit facility from Citibank/UBS (the Citibank/UBS Facility), guaranteed by TPG. However, credit available under the facility has been reduced by $3.4 million related to the issuance of third party letters of credit. Loans under this facility bear interest at a rate of LIBOR plus 1.5% or an alternate base rate plus 0.5% per annum. At September 30, 2004, our borrowings under this credit facility totaled $60.0 million.

TPG has also provided us with a five-year $35 million revolving credit facility (the TPG Facility) bearing interest at a rate of LIBOR plus 10% or an alternate base rate plus 9%. As a condition to any borrowings under the TPG Facility, we must have borrowed all amounts available under the Citibank/UBS Facility. The commitments under the TPG Facility terminate and any outstanding loans under the facility, together with any accrued interest thereon, will become due and payable upon the closing and funding of a debt or equity financing in which the net proceeds to MEMC equal or exceed $100 million. At September 30, 2004, we had no outstanding balance against the TPG Facility.

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The Citibank/UBS Facility, the TPG Facility, and the indenture for our senior subordinated secured notes contain certain highly restrictive covenants, including covenants to maintain minimum quarterly consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), as defined; minimum monthly consolidated backlog; minimum monthly consolidated revenues; maximum annual capital expenditures; and other covenants customary for revolving loans and indentures of this type and size. The minimum quarterly consolidated EBITDA covenant is $35 million in the fourth quarter of 2004. Thereafter, the minimum quarterly consolidated EBITDA covenant progressively increases to $44 million, $52 million and $60 million in the last quarter of 2005, 2006 and 2007, respectively. The minimum monthly consolidated backlog covenant was 58 million square inches (msi) in January 2004, progressively increasing to 63 msi, 74 msi, 81 msi and 92 msi in the last month of 2004, 2005, 2006 and 2007, respectively. The minimum monthly consolidated revenue covenant was $61 million in January 2004, progressively increasing to $67 million, $76 million, $84 million and $92 million in the last month of 2004, 2005, 2006 and 2007, respectively. Finally, the maximum annual capital expenditures covenant is $55 million for each of the years 2004 through 2007. For 2004, our lenders have consented to increase the covenant for maximum annual capital expenditures to $150 million. In the event that we violate these covenants, which in our highly cyclical industry could occur in a sudden or sustained downturn, the loan commitments under the revolving credit facilities may terminate and the loans and accrued interest then outstanding under the facilities and the senior subordinated secured notes and related accrued interest may be due and payable immediately. At September 30, 2004, we were in compliance with all of these debt covenants.

The Citibank/UBS Facility is guaranteed by TPG. The various guaranties terminate in November 2004 and November 2005, prior to the expiration of the Citibank/UBS Facility. We have been informed that the various TPG entities intend to renew their respective guarantees on or before the November 2004 termination date. In addition, each guarantor may terminate its guaranty for any reason. In the event that a guarantor terminates its guaranty, or does not renew its guaranty and in the case of a non-renewal the lenders have not received cash collateral or a replacement guaranty executed by a replacement guarantor satisfactory to the lenders, then the loan commitments under the revolving credit facility will terminate and we will be required to repay all outstanding loans and accrued interest under this facility. Likewise, if any guarantor defaults under its guaranty, then the guarantor’s default will constitute an event of default under this revolving credit facility. In such event, the loan commitments under this revolving credit facility may terminate and the loans and accrued interest under the facility may be due and payable immediately.

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

The Citibank/UBS Facility, the TPG Facility, and the indenture for the senior subordinated secured notes contain change in control provisions. Under these instruments, if (1) TPG’s ownership interest in us is reduced below 15% (or, in the case of the indenture, 30%) of our total outstanding equity interests, (2) another person or group acquires ownership of a greater percentage of our outstanding equity than TPG, or (3) a majority of our Board of Directors is neither nominated by our Board of Directors nor appointed by directors so nominated, then:

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

Critical Accounting Policies and Estimates.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates of certain amounts included in the financial statements. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. MEMC’s significant accounting policies are more fully discussed in Exhibit 13 to our annual report on Form 10-K, as amended, for the fiscal year ended December 31, 2003.

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Push-down Accounting

As a result of the purchase of E.ON’s equity interest in MEMC by TPG and the rights possessed by TPG through its ownership of the preferred stock as of November 13, 2001, we applied purchase accounting and pushed down TPG’s nominal basis in MEMC to our accounting records, reflected in our consolidated financial statements subsequent to November 13, 2001. We assumed that on November 13, 2001, upon full conversion of the preferred stock, excluding any accrued but unpaid dividends, TPG would have owned 89.4% of MEMC’s common stock.

To revalue our assets and liabilities, we first estimated their fair market values. To the extent the fair market value differed from the book value, 89.4% of that difference was recorded as an adjustment to the carrying value of the respective asset or liability. To the extent the adjusted net carrying value of assets and liabilities exceeded the pushed down basis of TPG’s investment in MEMC, negative goodwill was generated. The negative goodwill was then allocated to the bases of existing goodwill and other identifiable intangible assets, investment in joint venture, and property, plant and equipment.

In accordance with terms and conditions of the purchase agreement between E.ON and TPG, TPG agreed to a contingent performance purchase price payment to E.ON based on MEMC’s Earnings Before Interest, Taxes, Depreciation and Amortization, as defined, for fiscal year 2002. On August 19, 2003, TPG agreed to pay E.ON $25 million to settle their dispute over the amount of contingent performance purchase price owed by TPG to E.ON. The payment resulted in an increase in TPG’s basis in MEMC that was pushed down to our accounting records. We allocated the $25 million payment to our assets proportionately as a reversal of a portion of the write-down originally recorded in November 2001. We allocated the payment to our liabilities and equity in proportion to all instruments issued in conjunction with the original transaction. To the extent that the instruments were no longer in existence, as in the case of the 55 million Euro note, we allocated the related credit to additional paid-in capital. We determined the allocations to the various instruments based on their relative values at November 2001, using the traded value for common stock, the stated value for the debt, the if-converted value for the preferred stock, and the Black-Scholes options valuation for the warrants. This increased our property, plant and equipment and the value of our investment in joint venture and decreased our net deferred tax assets. Additionally, the value assigned to the common stock and warrants acquired by TPG was increased, and the value assigned to the senior subordinated secured notes held by TPG was increased.

Inventory

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

Property, Plant and Equipment

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

Income Taxes

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

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taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversal of existing temporary differences. In arriving at these judgements, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified.

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

Section 382 of the Internal Revenue Code restricts the utilization of net operating losses and other carryover tax attributes upon the occurrence of an ownership change, as defined. Such an ownership change occurred during 2001 as a result of the acquisition by TPG.

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

Employee-related Liabilities

We have a long-term liability for our defined benefit pension plans. Our pension obligation is funded in accordance with provisions of federal law.

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

Revenue Recognition

We record revenue from product sales when the goods are shipped and title passes to the customer. We conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped.

Stock-based Compensation

We account for our stock-based compensation under Accounting Principles Board Opinion No. 25 (Opinion 25), “Accounting for Stock Issued to Employees”, and related interpretations. We record compensation expense related to restricted stock awards and units over the vesting periods of the awards and units and reflect the unearned portion of deferred compensation as a separate component of stockholders’ equity.

No compensation cost has been recognized for non-qualified stock options granted under the plans when the exercise price of the stock options equals the market price on the date of the grant. Compensation expense equal to the intrinsic value of the options has been recognized over the vesting periods for options granted at a price below the market price on the date of the grant and deferred compensation has been recorded for the unearned portion of the options as a separate component of stockholders’ equity.

Recently Issued Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. (FIN) 46 (revised December 2003), Consolidation of Variable Interest Entities (VIEs), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. We are required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interest in VIEs created before January 1, 2004, FIN 46R will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE. The adoption of FIN 46R did not have an effect on our financial condition or results of operations.

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In May 2004, the FASB issued FASB Staff Position (FSP) No. FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Staff Position”). The Staff Position clarifies the accounting for the benefits attributable to new government subsidies for companies that provide prescription drug benefits to retirees. We are currently determining whether benefits provided by our plan are actuarially equivalent to Medicare Part D and current disclosures of net periodic postretirement costs do not reflect any amount associated with the subsidy. Our current understanding, based on our current benefit plan provisions, is that Medicare Part D will have minimal impact on our consolidated financial statements.

Cautionary Statement Regarding Forward-Looking Statements.

This Form 10-Q contains “forward-looking” statements within the meaning of the Securities Litigation Reform Act of 1995, including those concerning our expectation that our effective income tax rate in 2004 will be approximately 25% excluding the impact of any additional reversals of valuation allowance based on changes in judgement of projected future pre-tax and taxable income (losses) by taxable jurisdiction; our belief that it is more likely than not that certain deferred tax assets will be realized; our targeting of approximately flat revenues in the 2004 fourth quarter in comparison to the 2004 third quarter; our expectation that due to the uncertainty of short-term inventory corrections by our customers, our net sales in the 2004 fourth quarter could be down as much as five percentage points compared to the 2004 third quarter; our anticipation that gross margin may be down by approximately two percentage points from the 2004 third quarter due to a slightly less rich mix of products and our efforts to optimize inventory; interest expense we expect to record in our Consolidated Statement of Operations related to accretion of our senior subordinated secured notes in each of the years 2004 through 2007; our expectation that the government subsidies from Medicare Part D will not be significant to our consolidated financial statements; and our belief that we have the financial resources needed to meet business requirements for the next twelve months including capital expenditure and working capital requirements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include such factors as: market demand for wafers and semiconductors; customer acceptance of our new products; utilization of manufacturing capacity; our ability to reduce manufacturing and operating costs; inventory levels of our customers; changes in the pricing environment; general economic conditions; the accuracy of our assumptions regarding projected future pre-tax and taxable income and the expected timing of the reversal of existing temporary differences by taxable jurisdiction; actions by our competitors, customers and suppliers; the impact of competitive products and technologies; technological changes; changes in product specifications and manufacturing processes; changes in financial market conditions; changes in interest and currency exchange rates; changes in the composition of worldwide taxable income; and other risks described in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, as amended on Form 10-K/A, for the year ended December 31, 2003.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risks relating to our operations result primarily from changes in interest rates and changes in foreign exchange rates. We enter into currency forward contracts to minimize our transactional currency risks. We do not use derivative financial instruments for speculative or trading purposes. There have been no significant changes in our holdings of interest rate sensitive or foreign currency exchange rate sensitive instruments since December 31, 2003.

At September 30, 2004 our Taiwan subsidiary had unhedged Yen exposure represented by a loan to our wholly owned Japanese subsidiary of approximately $7.0 million. At September 30, 2004, we also had a $41.8 million unhedged Won exposure represented by our South Korean subsidiary’s net Won financial assets and $18.4 million of unhedged Taiwan Dollar exposure represented by our Taiwan subsidiary’s net Taiwan Dollar financial assets. Our South Korean and Taiwan subsidiaries utilize the U.S. Dollar as their functional currency.

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

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Item 4. Controls and Procedures.

We carried out an evaluation, 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 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2004. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a–15(f) under the Exchange Act) that occurred during the third quarter of 2004 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

On December 14, 2001, MEMC filed a lawsuit against Sumitomo Mitsubishi Silicon Corporation (“SUMCO”) and several of its affiliates in the Northern District of California alleging infringement of one of MEMC’s U.S. patents. The California lawsuit is still pending. On July 13, 2004, however, SUMCO and certain of its affiliates filed a lawsuit against MEMC in Delaware District Court in a case captioned Sumitomo Mitsubishi Silicon Corporation, aka SUMCO, a corporation of Japan and SUMCO USA Corporation, a Delaware corporation, v. MEMC Electronic Materials, Inc., a Delaware corporation, Civil Action No. 04-852-SLR. In the Delaware lawsuit, plaintiffs allege that MEMC violated the antitrust laws by attempting to control sales of low defect silicon wafers in the United States through its patent policies and enforcement of its patents related to low defect silicon wafers. Plaintiffs also seek a declaratory judgment that plaintiffs’ wafers do not infringe the claims of two MEMC patents and that these MEMC patents are invalid and unenforceable. Finally, plaintiffs allege that these two MEMC patents are void and unenforceable because of MEMC’s alleged patent misuse. Plaintiffs seek treble damages in an unspecified amount, and attorneys’ fees and costs incurred by plaintiffs in the Delaware lawsuit and in the California lawsuit.

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

Item 6. Exhibits

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SIGNATURE

Pursuant to the requirements 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.

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EXHIBIT INDEX

The exhibits below are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.