TABLE OF CONTENTS

PART I--FINANCIAL INFORMATION

PART II--OTHER INFORMATION

SIGNATURE

EXHIBIT INDEX

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share data)

(1) Nature of Operations

MEMC Electronic Materials, Inc. and subsidiaries (MEMC), is a leading worldwide producer of silicon wafers for the semiconductor industry. We have production facilities owned directly in Italy, Japan, Malaysia, South Korea, and the United States and through a joint venture in Taiwan. Our customers include virtually all major semiconductor device manufacturers including the world's largest foundries as well as the major memory, microprocessor, and application specific integrated circuit (ASIC) manufacturers.

(2) Critical Accounting Policies

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, 2001 contained in Exhibit 13 to our annual report on Form 10-K, as amended, for the fiscal year ended December 31, 2001. See also management's discussion and analysis below.

(3) Basis of Presentation

The accompanying unaudited consolidated financial statements of 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, for the fiscal year ended December 31, 2001, 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-month period ended September 30, 2002 are not necessarily indicative of the resu lts that may be expected for the year ending December 31, 2002. Certain prior period amounts have been reclassified to conform to the current period presentation.

(4) Loss per share

For the three and nine month periods ended September 30, 2002 and the three and nine month periods ended September 30, 2001, the numerator of the basic and diluted loss per share calculation was net loss allocable to common stockholders. Cumulative preferred stock dividends were not added back to the net loss, as the related conversion of the preferred stock would have been antidilutive. For these periods, the preferred stock, the warrants, and the options outstanding were not considered in computing diluted loss per share, as they were antidilutive.

At September 30, 2002, MEMC had outstanding 9,099,030 options, 16,666,667 warrants, and 560,066 shares of unvested restricted common stock.

(5) Short-term Investments

Our Korean subsidiary has short-term investments managed by various investment trust companies within Korea at September 30, 2002 and December 31, 2001 of $38,941 and $31,803, respectively.

These investments, which have been stated at their respective fair market values as of September 30, 2002 and December 31, 2001, are considered low risk and highly liquid. The underlying trust companies invest primarily in investment grade Korean company corporate bonds and debentures and to a lesser extent Korean company common stock. Unrealized gains or losses are recognized in the statement of operations as nonoperating income or expense. Unrealized holding gains at September 30, 2002 and December 31, 2001 were $1,813 and $1,953, respectively.

(6) Inventories

Inventories consist of the following:

(7) Restructuring Costs

During the nine months ended September 30, 2002, we reduced our workforce by approximately 450 salaried, hourly and temporary employees in the U.S., Italy, Korea, Malaysia and Japan. We recorded a restructuring charge of $15,300 related primarily to these workforce reductions, including $8,315 in the third quarter of 2002.

In the first quarter of 2002, we recorded an adjustment to reduce the restructuring reserve by $3,700. This amount was considered to be an adjustment to purchase accounting affecting our balance sheet at November 13, 2001, rather than as a current benefit in our statement of operations.

Of the $10,049 restructuring reserve at September 30, 2002, approximately $1,600 is expected to be paid out in 2002. Timing for utilization of the remainder of the reserve is primarily dependent on the completion of salary continuation for individuals released in third quarter 2002, the timing of lump sum severance payments and the timing of the sale of the Spartanburg facility. We expect to complete all personnel cost payments by June 2003.

(8) Comprehensive Loss

Comprehensive loss for the three months ended September 30, 2002 and 2001 was $39,356 and $66,428, respectively. Comprehensive loss for the nine months ended September 30, 2002 and 2001 was $43,812 and $441,557, respectively. MEMC's only adjustment from net loss to comprehensive loss was foreign currency translation adjustments in all periods presented.

(9) Debt

Our unsecured short-term borrowings total approximately $57,000 at September 30, 2002, under approximately $100,000 of short-term loan agreements. In addition, we have a 20 million Euro (approximately $20,000 at September 30, 2002), unsecured short-term loan with an investor group led by Texas Pacific Group (collectively, "TPG") which bears interest at 8%.

In connection with our debt restructuring on November 13, 2001, TPG retained 55 million Euro in principal amount of a note issued by our Italian subsidiary. We recorded the 55 million Euro Italian subsidiary note at its fair market value of one dollar as of November 13, 2001. We accreted this debt instrument up to its face value in less than one year, as the note was due and payable in September 2002, using the effective interest method. Interest expense related to the accretion of the 55 million Euro Italian subsidiary note was approximately $53,400 for the three months ended September 30, 2002 and approximately $54,000 for the nine months ended September 30, 2002.

On September 6, 2002, we amended the 55 million Euro note to provide for a 35 million Euro principal repayment on or before September 25, 2002 and a 20 million Euro principal repayment on or before April 15, 2003. The amended Euro note is unsecured and bears interest at 8%. Consistent with the terms of the amended Euro note, on September 24, 2002, we paid 35 million Euro to TPG.

In connection with the amendment to the Euro note, TPG agreed to provide the Company with a new $35,000 secured revolving credit facility. The new $35,000 revolving credit facility will have a five-year term, bear interest at LIBOR plus 10%, be secured by substantially the same collateral base that secures the Company's $150,000 revolving credit facility with Citibank and UBS AG (the "Citibank/UBS Facility") and contain substantially the same covenants as the Citibank/UBS Facility. As a condition to any borrowings under the new $35,000 revolving credit facility, the Company must have repaid the amended Euro note in full and must have borrowed in full all amounts available under the Citibank/UBS Facility.

We have long-term committed loan agreements of approximately $283,000 at September 30, 2002 and a new $35,000 secured revolving credit facility commitment from TPG, which has not yet been executed. Approximately $203,000 is outstanding on the committed loan agreements. In addition, we have recorded $50,000 of senior subordinated secured notes at their fair market value of one dollar as of November 13, 2001. These notes mature in November 2007. We will accrete the notes up to their face value during the six years preceding their maturity using the effective interest rate method. Assuming these notes remain outstanding until their maturity, interest expense related to the accretion of the notes and related stated interest expense will be less than $1,000 in each of the years 2002 through 2005, and approximately $6,698 and $91,445 in 2006 and 2007, respectively. In the event these notes are redeemed prior to their maturity, on the redemption date we would recognize interest expense equal to the remaining una ccreted face value of the notes and the related accrued but unpaid stated interest. At September 30, 2002, the accreted value of these notes was less than $1; however, the face of these notes plus accrued but unpaid stated interest approximated $54,000.

(10) Income Taxes

For the nine months ended September 30, 2002, we recognized income tax expense of $13,235, as compared to an income tax expense of $239,381 for the nine months ended September 30, 2001 In the first nine months of 2001, we increased our valuation allowance for deferred tax assets to reserve all net deferred tax assets in tax jurisdictions with a net deferred tax asset position. In making this determination, we considered the deterioration in our liquidity at the time, the reduction in the trading price range of our stock at that time, the uncertainty at the time surrounding the terms and structure of the divestiture by E.ON of its interest in MEMC and possible limitations for federal income tax purposes on our ability to use tax loss carryforwards under IRC Section 382.

Income tax expense in the nine months ended September 30, 2002 relates to tax jurisdictions in which we expect to owe current taxes and foreign withholding taxes.

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 of E.ON's debt and equity holdings in MEMC. As a result of the TPG transaction, approximately $861,000 of our U.S. net operating loss carryforwards was applied to reduce our tax attributes under IRC Section 108(b). Our remaining pre-2002 U.S. net operating losses of approximately $39,000 have a negligible value under the restrictions of Section 382. To the extent that any U.S. or foreign net operating loss carryforwards remain, we have recognized a valuation allowance to fully offset any associated deferred tax assets. Accordingly, as of September 30, 2002, our net operating loss carryforwards do not carry any value in our consolidated balance sheet.

(11) Goodwill and Other Intangible Assets

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The statement requires, among other things, the discontinuation of goodwill amortization for business combinations before July 1, 2001 and completion of a transitional goodwill impairment test. If a reporting unit's carrying amount exceeds its estimated fair value, a goodwill impairment is recognized to the extent that the reporting unit's carrying amount of goodwill exceeds the implied fair value of the goodwill. The amount of impairment, if any, identified in performing the transitional impairment test is required to be recognized as a cumulative effect of change in accounting principle. We believe there is no indication of impairment at September 30, 2002 and have recorded no impairment charges for the nine months ended September 30, 2002.

(12) Long-Lived Assets and Long-Lived Assets to be Disposed Of

Effective January 1, 2002, we adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, that replaces SFAS No. 121. The provisions of SFAS No. 144 are effective for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. We have measured long-lived assets to be disposed of by sale (which consist solely of our Spartanburg facility) at the lower of carrying amount or fair value less cost to sell.

(13) Deferred Compensation

At September 30, 2002, we reported $9,267 in deferred compensation as a separate component of equity. This amount represents the unamortized portion of compensation expense for the various equity incentive programs of the Company. Compensation expense is being recognized in the statement of operations for each of these programs on an accelerated basis over the respective vesting periods of the underlying equity instruments, ranging from 2 to 7 years. For the nine months ended September 30, 2002, the Company recognized non-cash compensation expense of $6,682 related to its equity incentive programs.

(14) Preferred Stock Conversion

On July 10, 2002, TPG converted 260,000 shares of preferred stock plus cumulative unpaid preferred dividends into approximately 125 million common shares. The conversion increased the Company's total outstanding shares to approximately 196 million, of which TPG owns approximately 90%. As a result of the conversion, effective July 11, 2002 there is no further preferred dividend requirement. Cumulative preferred dividends of $934 and $17,027 were recognized in the three and nine months ended September 30, 2002, respectively.

(15) Subsequent Event

In September 1998, we granted Tokuyama Corporation, Marubeni Corporation and Marubeni America Corporation an option to acquire a majority interest in MEMC Pasadena, Inc., our granular polysilicon subsidiary, in exchange for a $15,000 option payment. At September 30, 2002, the option payment was included in accrued liabilities. This option will expire on October 31, 2002, as the parties have decided not to extend the option. As a result, under the terms of the option agreement, we will retain $7,500 of the $15,000 option payment and return the remaining $7,500 to Tokuyama and Marubeni in November 2002. The $7,500 one-time gain by MEMC will be recorded as other income in the 2002 fourth quarter.

Net Sales.

Our net sales increased by 58% to $190 million in third quarter 2002 from $121 million in third quarter 2001. This increase was primarily caused by an 82% increase in product volumes, partially offset by a significant decline in average selling prices. Beginning in 2002, we transitioned our 300 millimeter operations from a pilot line to full-scale production. Consequently, beginning in 2002, 300 millimeter revenues and associated production costs are presented in net sales and cost of goods sold, respectively. Product volumes increased across all product diameters during third quarter 2002 compared to third quarter 2001. Average selling prices declined across all product diameters during the 2002 third quarter as compared to the same period in 2001.

For the nine months ended September 30, 2002, our net sales increased to $501 million from $497 million for the nine months ended September 30, 2001. This increase was primarily caused by a 22% increase in product volumes, almost fully offset by a significant decline in average selling prices. Product volumes increased across all product diameters except 100 millimeter, which was relatively flat. Average selling prices declined across all product diameters.

Gross Margin.

In the third quarter 2002, our gross margin was $53 million compared to negative $35 million in the third quarter 2001. This increase was the result of a substantial increase in product volumes partially offset by a significant decline in average selling prices, plus the effects of lower depreciation and amortization resulting from pushdown accounting and the benefits realized from headcount reductions and yield and productivity improvements over the past year. Our total cost of sales decreased $18 million, or 12%, in the third quarter of 2002 versus the third quarter of 2001. As result of our continued cost reduction and manufacturing improvement programs, cash cost of sales, which is cost of sales before depreciation and amortization, in the 2002 third quarter only increased approximately $13 million or approximately 11% despite the 82% increase in product volumes. Cost of sales also benefited in the third quarter of 2002 compared to the third quarter of 2001 from a decrease in depreciation and amortiza tion of approximately $31 million as a result of pushdown accounting.

In the nine months ended September 30, 2002, our gross margin was $119 million compared to negative $24 million in the nine months ended September 30, 2001. The increase in gross margin resulted from the 22% increase in product volumes combined with reductions in depreciation and amortization resulting from pushdown accounting and continued benefits realized from our cost reduction and manufacturing improvement programs, partially offset by significant declines in average selling prices. Our total cost of sales decreased $139 million, or 27%, compared to the first nine months of 2001. As result of our continued cost reduction and manufacturing improvement programs, cash cost of sales in the first nine months of 2002 decreased approximately $42 million or approximately 10% while product volumes increased 22%. Cost of sales also benefited in the first nine months of 2002 compared to the first nine months of 2001 from a decrease in depreciation and amortization of approximately $97 million as a result of pus hdown accounting.

Research and Development.

Our research and development expenses decreased in the nine months ended 2002 to $20 million compared to $48 million in the year ago period. Approximately half of the decline in R&D year-over-year is a result of lower depreciation from the application of push-down accounting. The other half is a result of reduced costs as we have fine-tuned our focus in R&D over the last year. In addition, certain process improvement activities included in R&D in 2001 have now been moved into production, thereby reducing our R&D costs. We intend to redeploy some of the savings from the overhead reductions in the 2002 third quarter to R&D, increasing our R&D expenses modestly.

Restructuring Charges.

In the third quarter 2002, we recorded a restructuring charge of $8 million compared to almost no restructuring charges in the third quarter 2001. The restructuring charge in the third quarter 2002 related primarily to a reduction of our workforce of approximately 300 employees, principally in overhead and temporary positions. We expect annualized cost savings from the third quarter restructuring activities to total approximately $15 million. At this time, we do not expect any further significant restructuring charges in the near term.

In the nine months ended September 30, 2002, we recorded restructuring charges of $15 million compared to restructuring charges of $22 million in the nine months ended September 30, 2001. The restructuring charges in the nine months ended September 30, 2002 primarily related to worldwide workforce reductions. The restructuring charges in the nine months ended September 30, 2001 primarily related to the closure of a small diameter wafer line at MEMC Southwest Inc., and included charges for asset impairment and write-off, dismantling and related costs, and personnel costs.

Interest Expense.

Effective November 13, 2001, MEMC and an investor group led by Texas Pacific Group (collectively, "TPG") restructured MEMC's debt acquired by TPG from E.ON, resulting in a substantial decrease in our outstanding debt. As of September 30, 2002, the book value of our debt outstanding totaled $280 million, compared to $1,147 million at September 30, 2001.

In connection with the debt restructuring, TPG retained 55 million Euro in principal amount of a note issued by our Italian subsidiary. We recorded the 55 million Euro Italian subsidiary note at its fair market value of one dollar as of November 13, 2001. We accreted this debt instrument up to its face value in less than one year, as the note was due and payable in September 2002, using the effective interest method. Interest expense related to the accretion of the 55 million Euro Italian subsidiary note was approximately $53 million for the three months ended September 30, 2002 and approximately $54 million for the nine months ended September 30, 2002.

In connection with the debt restructuring, we issued to TPG $50 million of senior subordinated secured notes maturing in November 2007. These notes were recorded at their fair market value of one dollar as of November 13, 2001. We will accrete the notes up to their face value during the six years preceding their maturity using the effective interest rate method. Assuming these notes remain outstanding until their maturity, interest expense related to the accretion of the notes and related stated interest expense will be less than $1 million in each of the years 2002 through 2005, and approximately $7 million and $91 million in 2006 and 2007, respectively. In the event these notes are redeemed prior to their maturity, on the redemption date we would recognize interest expense equal to the remaining unaccreted face value of the notes and the related accrued but unpaid stated interest. At September 30, 2002, the accreted value of these notes was less than one thousand dollars; however, the face value of thes e notes plus accrued stated interest approximated $54 million.

In nine months ended September 30, 2002, our interest expense increased to $69 million from $68 million for the nine months ended September 30, 2001. Interest expense for the nine months ended September 30, 2002 included non-cash accretion of $57 million primarily related to the 55 million Euro note. Excluding non-cash accretion, interest expense for the nine months ended September 30, 2002 would have been $12 million compared to $68 million for the nine months ended September 30, 2001. This decrease was attributable to a significant reduction in debt outstanding as a result of the November 13, 2001 debt restructuring, and to a lesser extent a reduction of the average interest rate on the debt outstanding.

Income Taxes.

For the nine months ended September 30, 2002, we recognized income tax expense of $13 million, as compared to an income tax expense of $239 million for the first nine months of 2001. In the first nine months of 2001, we increased our valuation allowance for deferred tax assets to reserve all net deferred tax assets in tax jurisdictions with a net deferred tax asset position. In making this determination, we considered the deterioration in our liquidity at the time, the reduction in the trading price range of our stock at that time, the uncertainty at the time surrounding the terms and structure of the divestiture by E.ON of its interest in MEMC and possible limitations for federal income tax purposes on our ability to use tax loss carryforwards under IRC Section 382.

Income tax expense in the first nine months of 2002 relates to tax jurisdictions in which we expect to owe current taxes and foreign withholding taxes.

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 of E.ON's debt and equity holdings in MEMC. As a result of the TPG transaction, approximately $861 million of our U.S. net operating loss carryforwards was applied to reduce our tax attributes under IRC Section 108(b). Our remaining pre-2002 U.S. net operating losses of approximately $39 million have a negligible value under the restrictions of Section 382. To the extent that any U.S. or foreign net operating loss carryforwards remain, we have recognized a valuation allowance to fully offset any associated deferred tax assets. Accordingly, as of September 30, 2002, our net operating loss carryforwards do not carry any value in our consolidated balance sheet.

Outlook.

Looking forward, based on the current market demand and the potential for inventory corrections by some customers in the upcoming fourth quarter, we expect our sales in the 2002 fourth quarter to be within a range of flat to down 5% sequentially, barring any major holiday surprises. Even if our revenues are down five percent in the 2002 fourth quarter relative to the 2002 third quarter, our target is to maintain both our gross margin and our operating income at about the same percentage of sales as our 2002 third quarter, excluding restructuring charges, by aggressively continuing to improve our cost structure and productivity. This obviously assumes no significant deterioration in the pricing environment, which is not evident at this stage.

Liquidity and Capital Resources.

The silicon wafer industry is highly capital intensive. Our capital needs depend on numerous factors, including our profitability and investment in capital expenditures and research and development. As almost all semiconductors are manufactured from silicon wafers, the strength of the silicon wafer industry is highly correlated to the performance of the semiconductor industry. The semiconductor device industry historically has been a high-growth, cyclical industry. The cyclical nature of the semiconductor industry can cause wide fluctuations in our product volumes, average selling prices, operating results, and cash flows.

At September 30, 2002, we had $137 million of cash and cash equivalents and short-term investments compared to $107 million at December 31, 2001. Our consolidated subsidiary, MEMC Korea Company ("MKC") had cash and cash equivalents and short-term investments at September 30, 2002 and December 31, 2001 of approximately $98 million and $73 million, respectively. Under Korean law there are some restrictions on MKC's ability to freely transfer its cash and cash equivalents and short-term investments outside Korea.

Cash flows provided by operating activities were $44 million for the nine months ended September 30, 2002, compared to cash used in operating activities of $11 million for the nine months ended September 30, 2001. The first nine months of 2002 operating cash flows reflect significantly improved operating results over the first nine months of 2001.

Accounts receivable of $100 million at September 30, 2002 increased $33 million, or 48%, from $67 million at December 31, 2001. This increase was primarily attributable to the 58% increase in net sales during third quarter 2002 compared to the fourth quarter of 2001. Days' sales outstanding were 48 days and 51 days, respectively, at September 30, 2002 and at December 31, 2001, based upon annualized sales for the respective immediately preceding quarters.

Our inventories increased $12 million, or 16%, from December 31, 2001 to $81 million at September 30, 2002. Total related inventory reserves for obsolescence, lower of cost or market issues, or other impairments were $13 million and $17 million at September 30, 2002, and December 31, 2001, respectively. Quarter-end inventories as a percentage of annualized quarterly net sales decreased to 11% for the period ended September 30, 2002 compared to 15% for the period ended December 31, 2001.

Our net deferred tax assets totaled $30 million as of September 30, 2002 and December 31, 2001. We provide for income taxes on a quarterly basis based on an estimated annual effective tax rate. Management believes it is more likely than not that, with its projections of future taxable income and after consideration of the valuation allowance, MEMC will generate sufficient taxable income to realize the benefits of the net deferred tax assets existing at September 30, 2002.

Our cash used in investing activities decreased $26 million to $19 million in the nine months ended September 30, 2002 compared to $45 million in the nine months ended September 30, 2001, primarily as a result of decreased capital expenditures. Our capital expenditures in the first nine months of 2002 primarily related to maintenance capital. We expect full year 2002 capital expenditures to be less than $30 million. At September 30, 2002, we had less than $10 million of committed capital expenditures related to various manufacturing and technology projects.

Cash flows used in financing activities was $9 million in the nine months ended September 30, 2002 compared to $84 million provided by financing activities in the nine months ended September 30, 2001. These cash flows are principally attributable to net long-term and short-term borrowings during the respective periods. Because of improved operating results in the nine months ended September 30, 2002, the Company was able to reduce its new borrowing while also making payments of principal on debt that became due during the nine months ended September 30, 2002. During the 2001 period, net proceeds from borrowings were needed to fund the operating cash needs of the Company.

Our unsecured short-term borrowings total approximately $57 million at September 30, 2002, under approximately $100 million of short-term loan agreements. In addition, we have a 20 million Euro (approximately $20 million at September 30, 2002), unsecured short-term loan with TPG, which bears interest at 8%.

In connection with our debt restructuring on November 13, 2001, TPG retained 55 million Euro in principal amount of a note issued by our Italian subsidiary. We recorded the 55 million Euro Italian subsidiary note at its fair market value of one dollar as of November 13, 2001. We accreted this debt instrument up to its face value in less than one year, as the note was due and payable in September 2002, using the effective interest method. Interest expense related to the accretion of the 55 million Euro Italian subsidiary note was approximately $53 million for the three months ended September 30, 2002 and approximately $54 million for the nine months ended September 30, 2002. On September 6, 2002, we amended the 55 million Euro note to provide for a 35 million Euro principal repayment on or before September 25, 2002 and a 20 million Euro principal repayment on or before April 15, 2003. The amended Euro note is unsecured and bears interest at 8%. Consistent with the terms of the amended Euro note, on Septemb er 24, 2002, we paid 35 million Euro to TPG.

In connection with the amendment of the Euro note, TPG agreed to provide the Company with a new $35 million secured revolving credit facility. The new $35 million revolving credit facility will have a five-year term, bear interest at LIBOR plus 10%, be secured by the same collateral base that secures the $150 million revolving credit facility with Citibank and UBS AG (the "Citibank/UBS Facility") and contain substantially the same covenants as the Citibank/UBS Facility. As a condition to any borrowings under the new $35 million revolving credit facility, the Company must have repaid the Euro note obligation in full and must have borrowed all amounts available under the Citibank/UBS Facility.

We have long-term committed loan agreements of approximately $283 million at September 30, 2002 and a commitment from TPG for a new $35 million secured revolving credit facility, which has not yet been executed. Approximately $203 million is outstanding on the committed loan agreements. In addition, we have recorded $50 million of senior subordinated secured notes at their fair market value of one dollar as of November 13, 2001. These notes mature in November 2007. We will accrete the notes up to their face value during the six years preceding their maturity using the effective interest rate method. Assuming these notes remain outstanding until their maturity, interest expense related to the accretion of the notes and related stated interest expense will be less than $1 million in each of the years 2002 through 2005, and approximately $7 million and $91 million in 2006 and 2007, respectively. In the event these notes are redeemed prior to their maturity, on the redemption date we would recognize interest expense equal to the remaining unaccreted face value of the notes and the related accrued but unpaid stated interest. At September 30, 2002, the accreted value of these notes was less than one thousand dollars, however; the face value of these notes plus accrued but unpaid stated interest approximated $54 million.

As part of the purchase and restructuring transactions on November 13, 2001, TPG committed to provide us with a five-year $150 million revolving credit facility. That revolving credit facility has been replaced with a revolving credit facility with Citibank and UBS AG, guaranteed by TPG. Loans under this facility bear interest at a rate of LIBOR plus 1.5% or alternate base rate plus 0.5% per annum. Loans can be made under this credit facility subject to certain conditions and the following aggregate lending limitations:

At September 30, 2002, we had drawn $70 million against this credit facility.

The Citibank/UBS revolving credit facility and the indenture for our senior subordinated secured notes contain certain highly restrictive covenants, including covenants to maintain minimum quarterly consolidated EBITDA; 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 $8 million in the fourth quarter of 2002. Thereafter, the minimum quarterly consolidated EBITDA covenant progressively increases to $25 million, $35 million, $44 million, $52 million and $60 million at the end of the last quarter of 2003, 2004, 2005, 2006, and 2007, respectively. The minimum monthly consolidated backlog covenant was 30 million square inches (msi) in January 2002 and progressively increases to 38 msi, 53 msi, 63 msi, 74 msi, 81 msi and 92 msi in the last month of 2002, 2003, 2004, 2005, 2006 and 2007, respectively. The min imum monthly consolidated revenues covenant was $34 million in January 2002 and progressively increases to $48 million, $56 million, $67 million, $76 million, $84 million and $92 million in the last month of 2002, 2003, 2004, 2005, 2006, and 2007, respectively. Finally, the maximum annual capital expenditures covenant is $45 million and $50 million for 2002 and 2003, respectively, and increases to $55 million for each of 2004 through 2007. In the event that we were in violation of these covenants, which in our highly cyclical industry could occur in a sudden or sustained downturn, the loan commitments under the revolving credit facility may terminate and the loans and accrued interest then outstanding under the facility, the senior subordinated secured notes, and the Euro note and related accrued interest may be due and payable immediately.

The Citibank/UBS Facility is guaranteed by TPG. The terms of the various guaranties are shorter than the term of the revolving credit facility. Certain affiliates of Texas Pacific Group have guaranteed 60% of our obligations under the revolving credit facility. The Texas Pacific Group guaranty terminates on December 21, 2003. TCW/Crescent Mezzanine Partners III, L.P. and certain of its affiliates have guaranteed 20% of our obligations under the revolving credit facility. The TCW/Crescent guaranty terminates on December 20, 2002. Finally, certain affiliates of Leonard Green & Partners, L.P. have guaranteed the remaining 20% of our obligations under the revolving credit facility. The Leonard Green guaranty terminates December 20, 2002. We have been informed that both TCW/Crescent and Leonard Green intend to renew their respective guaranties on or before the December 20, 2002 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 on 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 facilities 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. Accordingly, we could be required to pay higher interest rates on any replacement financing provided by the guarantors. In addition, the guarantors may not have sufficient funds and assets to provide this replacement financing and we may be required to obtain replacement financing from third parties. We cannot be certain that we would be able to obtain the replacement financing on a timely basis or at all.

The Citibank/UBS 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:

In such event, we may not have sufficient funds to repay the outstanding loans and accrued interest under the Citibank/UBS Facility, repurchase the senior subordinated secured notes, and/or repay the Euro note and we would need to seek and obtain replacement financing. We cannot be certain that we would be able to refinance these amounts.

On July 10, 2002, TPG converted all of our outstanding preferred stock into 125,010,556 shares of our common stock. As a result, effective July 11, 2002, there is no further preferred dividend requirement as the preferred stock is no longer outstanding.

In September 1998, we granted Tokuyama Corporation, Marubeni Corporation and Marubeni America Corporation an option to acquire a majority interest in MEMC Pasadena, Inc., our granular polysilicon subsidiary, in exchange for a $15 million option payment. At September 30, 2002, the option payment was included in accrued liabilities. This option will expire on October 31, 2002, and the parties have decided not to extend the option. As a result, under the terms of the option agreement, we will retain $7.5 million of the $15 million option payment and return the remaining $7.5 million to Tokuyama and Marubeni in November 2002. The $7.5 million one-time gain by MEMC will be recorded as other income in the 2002 fourth quarter.

We believe that we have the financial resources needed to meet business requirements for the next twelve 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.

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, 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. On July 10, 2002, TPG converted all of the preferred stock and the related accrued but unpaid dividends into approximately 125 million shares of our common stock. TPG now owns approximately 90% of our outstanding common stock. We applied purchase accounting at November 13, 2001 with the expectation that this conversion would eventually take place.

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, approximately 90% 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, investments in joint ventures, and property, plant and equipment.

This revaluation resulted in a net decrease to assets of approximately $800 million and a net decrease to liabilities of approximately $900 million. The allocation of the purchase price to our assets and liabilities is subject to further adjustment and refinement.

The net decrease in assets reflects the write-down of goodwill, certain intangible assets, investments in joint ventures, and property, plant and equipment to reflect TPG's nominal purchase price. We expect the write-down of property, plant and equipment, goodwill, and intangible assets to result in a reduction in our depreciation and amortization of approximately $150 million in 2002. Actual results may differ from these estimates.

Inventory Reserves

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

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of

We review long-lived assets to assess recoverability from future operations using future net cash flows. When necessary, we record charges for impairments at the amount by which the present value of the future cash flows is less than the carrying value of the assets. Assets to be disposed of are valued at the carrying amount or at fair value, less costs to sell, if lower.

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 statement of operations). A valuation allowance is recorded because some items recorded as deferred tax assets may not be deductible or creditable. We provide for U.S. income taxes 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 (IRC) restricts the utilization of net operating losses and other carryover tax attributes upon the occurrence of an ownership change. Such an ownership change occurred during 2001 as a result of the acquisition by TPG of all of E.ON's debt and equity interest in MEMC. Approximately $861 million of our pre-2002 U.S. net operating loss carryforwards was applied to reduce our tax attributes under IRC Section 108(b) as a result of the transactions with TPG. We have recognized a valuation allowance to fully offset the remaining U.S. and foreign net operating loss carryfowards and any associated deferred tax assets. Accordingly, as of September 30, 2002, our net operating loss carryforwards do not carry any value in our consolidated balance sheet.

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.

Revenue Recognition

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

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: the amount of the restructuring reserve expected to be paid out in 2002; our expectation that we will complete all personnel cost payments included in the restructuring reserve by June 2003; our intention to increase our R&D expenses modestly; our present expectation that we will not have any further significant restructuring charges in the near term; the expected annualized costs savings from the third quarter 2002 restructuring activities of approximately $15 million; our expectation that 2002 fourth quarter revenues will be within a range of flat to down 5% sequentially, barring any major holiday surprises; our expectation that even if our revenues were to decline 5% in the 2002 fourth quarter relative to the 2002 third quarter, our target is to maintain both our gross margin and our operating income at about the same percentage of sale s as our 2002 third quarter, excluding restructuring charges by aggressively continuing to improve our cost structure and productivity; our expectation that we will recognize $7.5 million of other income in the 2002 fourth quarter as a result of the expiration of the option agreement with Tokuyama and Marubeni; our expectation that we will generate sufficient taxable income to realize the benefits of net deferred tax assets existing at September 30, 2002; our expectation that 2002 capital expenditures will be less than $30 million; our expectation that the write-down of property, plant and equipment, goodwill and intangible assets will result in a reduction in our depreciation and amortization of approximately $150 million in 2002; our understanding that both TCW/Crescent and Leonard Green intend to renew their respective guaranties and our belief that we have the financial resources needed to meet business requirements for the next twelve months are forward-looking statements. Such statements involve certai n 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 silicon wafers; customer acceptance of our new products; utilization of manufacturing capacity; our ability to reduce manufacturing costs; inventory levels of our customers; demand for semiconductors generally; changes in the pricing environment; actions by our competitors, customers and suppliers; changes in interest and foreign currency exchange rates; the impact of competitive products and technologies; technological changes; changes in financial market conditions; actions by third parties including Citibank, UBS, TCW/Crescent and Leonard Green; and other risks described in MEMC's filing with the Securities and Exchange Commission, including MEMC's annual report on Form 10-K, as amended, for the year ended December 31, 2001.

Recently Issued Accounting Pronouncements.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective prospectively to exit and disposal activities initiated after December 31, 2002.

We do not believe the implementation of Statements No. 143 or 146 will have a material effect on our financial condition or results of operations.

Market risks relating to MEMC's operations result primarily from changes in foreign exchange rates and changes in interest rates. MEMC enters into currency forward contracts to minimize its transactional currency risks. MEMC does not use derivative financial instruments for speculative or trading purposes. There have been no significant changes in MEMC's holdings of interest rate sensitive or foreign currency exchange rate sensitive instruments since December 31, 2001.

At September 30, 2002, the Company's had unhedged Yen exposure represented by a loan to its Japanese consolidated subsidiary, of approximately $71 million.

1. Our chief executive officer and chief financial officer have evaluated MEMC's disclosure controls and procedures within ninety days of the filing of this quarterly report on Form 10-Q and have concluded that those controls and procedures are effective to ensure that information required to be disclosed is disclosed on a timely basis in the reports MEMC files under the Exchange Act
2. There have been no significant changes in MEMC's internal controls or in other factors that could significantly affect these controls subsequent to the date our chief executive officer and chief financial officer conducted the evaluation referred to above.

On July 10, 2002, in a transaction exempt under Section 4(2) of the Securities Act of 1933, TPG exercised its right to convert 260,000 shares of Series A Cumulative Convertible Preferred Stock and the related accumulated and unpaid preferred dividends and the Company issued to TPG a total of 125,010,556 shares of the Company's common stock.

The following matters were voted upon at a Special Meeting of Stockholders held on July 10, 2002 and received the votes set forth below:

1. A proposal to approve the issuance of 260,000 shares of Series A Cumulative Convertible Preferred Stock, warrants to purchase 16,666,667 shares of common stock and the common stock issuable upon conversion of such preferred stock and exercise of such warrants was approved, receiving 62,003,990.64 votes FOR and 2,413,090.22 votes AGAINST, with 250,354.37 abstentions.

2. A proposal to approve an amendment to the Company's restated certificate of incorporation authorizing a one-for-two reverse split of the Company's common stock was approved, receiving 62,685,097.65 votes FOR and 1,797,815.05 votes AGAINST, with 184,522.53 abstentions.

3. A proposal to approve an amendment to the Company's restated certificate of incorporation authorizing an increase in authorized capital stock from 200,000,000 shares of common stock to 300,000,000 shares of common stock was approved, receiving 62,473,311.79 votes FOR and 1,069,702.75 votes AGAINST, with 1,124,420.69 abstentions.

4. A proposal to approve a future merger between the Company and TPG Wafer Holdings LLC was approved, receiving 64,139,460.97 votes FOR and 335,707.94 votes AGAINST, with 192,266.32 abstentions.

The following matters were voted upon at the Annual Meeting of Stockholders held on July 25, 2002 and received the votes set forth below:

1. All of the following persons nominated were elected to serve as directors for terms expiring in 2005 and received the number of votes set forth opposite their respective names:

2. A proposal to approve the Company's 2001 Equity Incentive Plan was approved, receiving 60,337,552 votes FOR and 2,953,403 votes AGAINST, with 1,276,540 abstentions and 4,349,785 broker non-votes.

Certification

I, Nabeel Gareeb, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MEMC Electronic Materials, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Certification

I, James M. Stolze, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MEMC Electronic Materials, Inc.;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.