MEMC Electronic Materials (WFR)

LIQUIDITY AND CAPITAL RESOURCES

In the three months ended March 31, 2009, cash used in operating activities was $14.6 million compared to $197.2 million provided by operating activities in the three months ended March 31, 2008. This decrease was a result of a decrease in operating income and changes in working capital. The change in working capital was primarily attributable to a buildup of inventories and payments for accrued liabilities and accounts payable.

Cash used in investing activities decreased to $15.4 million in the three months ended March 31, 2009 compared to $57.9 million in the three months ended March 31, 2008, primarily as a result of a decrease in capital expenditures. Capital expenditures in 2009 primarily relate to increasing our polysilicon capacity and expanding capability for our next generation products.

Cash used in financing activities was $51.7 million in the three months ended March 31, 2009 compared to $45.3 million in the three months ended March 31, 2008. The increase in cash used in financing activities was mainly due to approximately $36.0 million of repayments of customer deposits related to supply agreements in the first quarter of 2009 compared to $17.5 million received in the first quarter of 2008. Additionally, $0.1 million was received in connection with stock option exercises, compared to $9.3 million in the three months ended March 31, 2008 and there were no excess tax benefits from share-based payment arrangements during the first three months of 2009, compared to $6.5 million for the same period in 2008. The decreases were offset by repurchases of our common stock of $15.8 million for the first three months of 2009 compared to $78.6 million for the same period in 2008.

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We have short-term committed loan agreements renewable annually of approximately $17.2 million at March 31, 2009, of which there were no short-term borrowings outstanding. Of the $17.2 million committed short-term loan agreements, $8.9 million is unavailable because it relates to the issuance of third party letters of credit. Interest rates are negotiated at the time of the borrowings. We have long-term committed loan agreements of approximately $263.4 million at March 31, 2009, of which $30.1 million is outstanding. Of the $263.4 million committed long-term loan agreements, $114.9 million is unavailable because it relates to the issuance of third party letters of credit.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest (now a part of PNC Bank) (“National City Bank”), US Bank National Association, and such other lending institutions as may from time to time become lenders (the “National City Agreement”). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the applicable LIBOR rate, as set forth in the agreement. Additionally, our obligations and the guaranty obligations of our subsidiaries are no longer secured by a pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200.0 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At March 31, 2009, there were no borrowings under this credit facility, however, credit available under the facility has been reduced by $114.2 million related to the issuance of third party letters of credit. We are currently in compliance with all debt covenants.

As of March 31, 2009, we held $174.6 million in fixed income funds, net of temporary impairments of $34.8 million, with the intent of holding these funds for a period exceeding 12 months. As of December 31, 2008, these funds had a value of $168.8 million, net of temporary impairments of $33.2 million.

As of March 31, 2009, we held $129.9 million in a portfolio comprised of corporate bonds and asset-backed and mortgage-backed securities, net of temporary impairments of $11.3 million and other than temporary impairments of $16.8 million. As of December 31, 2008, we held $159.5 million of these investments, net of temporary impairments of $14.5 million and other than temporary impairments of $14.5 million. A majority of these investments maintain a floating interest rate based on a range of spreads to the one and three month LIBOR rate. While we believe the decline in fair value related to the temporary impairments to be directly attributable to the current global credit conditions, we believe the time to reach the original carrying value for certain of these investments to be greater than 12 months. Accordingly, we have classified $53.5 million of those investments as non-current assets. We do not anticipate having to sell these securities in order to operate our business.

As of March 31, 2009, we held $45.9 million of investments related to auction rate securities (ARS), net of unrealized losses of $1.5 million. As of December 31, 2008, we held $44.1 million of investments related to auction rate securities (ARS), net of unrealized losses of $7.3 million. These securities are classified as trading securities and all changes in fair value are recorded to non-operating (income) expense, other. The ARS are comprised of interest bearing state sponsored student loan revenue bonds and municipal bonds with varying maturity periods and typically provide short-term liquidity via an auction process that also resets the applicable interest rate at predetermined calendar intervals (typically every 7, 28 or 35 days). The student loan revenue bonds are collateralized and serviced by underlying student loans and the municipal bonds are serviced through revenue generated by the issuing municipal entity. In the event of an auction failing to settle on its respective settlement date, these funds remain invested at a “failed” interest rate which is typically higher than the previous market rate until the next successful auction. For those auctions that fail to settle, we will not be able to access those funds until the next successful auction, another buyer is found outside of the auction process, the issuer redeems the security or the security matures. As of March 31, 2009, all ARS were classified as non-current assets due to unsuccessful auctions coupled with current conditions in the general debt markets which have created uncertainty as to when successful auctions will be reestablished. We do not anticipate having to sell these securities below our cost in order to operate our business. The ARS are insured through two different monoline insurers that presently maintain a credit rating of AAA or similar designation by S&P, Moody’s and/or Fitch as of March 31, 2009 or by a U.S. government backed student loan program. During November 2008, we accepted an offer by our investment broker to receive an ARS Right that would substantially ensure recovery to par of our ARS between June 2010 and July 2012.

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The credit ratings for our investments in debt securities as of March 31, 2009 are as follows:

We take into consideration the credit ratings of the individual securities when evaluating the financial condition and near term prospects of the issuer in determining whether the impairment is temporary or other than temporary. See Critical Accounting Policies and Estimates related to our process of evaluating investments for impairment and balance sheet classification included in Exhibit 13 to our annual report on Form 10-K for the fiscal year ended December 31, 2008.

We believe that, based on our current cash, cash equivalents and investment balances of approximately $1.3 billion at March 31, 2009 and expected operating cash flows, the current liquidity concerns in the credit and capital markets will not have a material impact on our liquidity, cash flow, financial flexibility or our ability to fund our operations. We believe that we have the financial resources needed to meet business requirements for at least the next 12 months, including capital expenditures and working capital requirements.

LIQUIDITY AND CAPITAL RESOURCES

In the six months ended June 30, 2008, we generated $402.2 million of cash from operating activities compared to $412.1 million in the six months ended June 30, 2007. This decrease was primarily the result of increases in working capital.

Cash used in investing activities decreased to $96.5 million in the six months ended June 30, 2008 compared to $202.7 million in the six months ended June 30, 2007. Capital expenditures in 2008 primarily relate to increasing our capacity and capability for polysilicon production and our next generation products. For the six months ended June 30, 2008, approximately $169.2 million was spent on capital expenditures. This outflow was offset by proceeds from redemptions or sales of our investments of approximately $72.7 million.

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Cash used in financing activities was $75.3 million in the six months ended June 30, 2008 compared to $96.7 million of cash provided in the six months ended June 30, 2007. The change in cash from financing activities was primarily related to cash used to repurchase our common stock of $154.9 million during the first six months of 2008 and lower net proceeds received from refundable customer deposits related to long-term supply agreements of $15.2 million. These deposits are returnable to the customer after two years, although such deposits are replaced each year with new deposits based on increased volume commitments stated in the agreements to reduce our risks associated with non-fulfillment of the agreements by the customers. In the first six months of 2008, the customers provided additional deposits of $130.1 million, and $81.6 million of deposits collected in prior years were returned to the customers in accordance with the agreements. The receipt and payment of the deposits for each customer were netted into one cash transaction because the amounts receivable and payable were due at the same time. On July 22, 2008, our Board of Directors approved an additional $500 million increase in the size of our share repurchase program, increasing the total amount of the share repurchase program to $1 billion.

We had no short-term borrowings outstanding at June 30, 2008, under approximately $51.7 million of short-term loan agreements. Of the $51.7 million committed short-term loan agreements, $14.6 million is unavailable because it relates to the issuance of third party letters of credit and foreign currency forward contracts. Long-term borrowings outstanding were $30.2 million at June 30, 2008, under $272.7 million of committed long-term loan agreements. Of the $272.7 million committed long-term loan agreements, $112.6 million is unavailable because it relates to the issuance of third party letters of credit and foreign currency forward contracts. Our weighted average cost of borrowing was 2.2% at June 30, 2008 and December 31, 2007.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest, US Bank National Association, and such other lending institutions as may from time to time become lenders (the “National City Agreement”). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the LIBOR rate, and to remove the pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200.0 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At June 30, 2008, there were no borrowings outstanding under this credit facility, however, credit available under the facility has been reduced by $112.1 million related to the issuance of third party letters of credit.

As of June 30, 2008, we held $76.1 million of investments related to auction rate securities (ARS), net of temporary impairments of $1.6 million. The ARS are comprised of interest bearing state sponsored student loan revenue bonds and municipal bonds with varying maturity periods and typically provides short-term liquidity via an auction process that also resets the applicable interest rate at predetermined calendar intervals (typically every 7, 28 or 35 days). The student loan revenue bonds are collateralized and serviced by underlying student loans and the municipal bonds are serviced through revenue generated by the issuing municipal entity. In the event of an auction failing to settle on its respective settlement date, these funds would remain invested at a “failed” interest rate which is typically higher than the previous market rate until the next successful auction. For those auctions that failed to settle, we will not be able to access those funds until the next successful auction, another buyer is found outside of the auction process, the issuer redeems the security or the security matures. As of December 31, 2007, none of our ARS had failed. Beginning in mid-February 2008, $61.8 million of our ARS did not successfully settle due to tightening credit markets and a lesser degree of liquidity in the overall marketplace. As of June 30, 2008, MEMC has classified $64.0 million of ARS as non-current assets due to unsuccessful auctions coupled with current conditions in the general debt markets which have created uncertainty as to when successful auctions will be reestablished. We do not anticipate having to sell these securities below amortized cost in order to operate our business. The ARS are insured through two different monoline insurers that presently maintain a credit rating of AAA by S&P, Moody’s and/or Fitch as of June 30, 2008 or by a U.S. government backed student loan program.

As of June 30, 2008, we held $245.2 million of investments, net of temporary impairments of $7.5 million, in a strategic investment portfolio with a major banking institution, primarily invested in corporate bonds and asset-backed and mortgage-backed securities. As of December 31, 2007, we held $299.5 million of investments, net of temporary impairments of $4.3 million. A majority of these investments maintain a floating interest rate based on a range of spreads to the one and three month LIBOR rate. We believe the decline in fair value to be directly attributable to the current global credit conditions which we believe are temporary. However, for certain securities, we believe the time to reach the original carrying value to be greater than 12 months. Accordingly, we have classified $33.0 million of the portfolio as non-current assets. We do not anticipate having to sell these securities below amortized cost in order to operate our business. The asset backed securities are collateralized by various types of assets including auto, consumer, home equity, student loan and credit card loans. The collateralized mortgage obligations are collateralized primarily by residential mortgages. Many of these issuances have varying tranches and subordinations. Our investments are typically in investment grade and more senior, higher priority tranches.

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

The credit ratings for our investments in debt instruments as of June 30, 2008 are as follows:

See Critical Accounting Policies and Estimates related to our process of evaluating investments for impairment and balance sheet classification included in Exhibit 13 to our annual report on Form 10-K for the fiscal year ended December 31, 2007.

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The current liquidity concerns in the credit and capital markets will not have a material impact on our liquidity and we believe that we have the financial resources needed to meet our business requirements for at least the next 12 months, including capital expenditures and working capital requirements.

LIQUIDITY AND CAPITAL RESOURCES

In the three months ended March 31, 2008, we generated $197.2 million of cash from operating activities compared to $214.5 million in the three months ended March 31, 2007. This decrease was a result of changes in working capital offset by the increase in operating income. The change in working capital was primarily attributable to the timing of income tax payments as well as the utilization of additional tax attributes carried forward from prior years.

Cash used in investing activities increased to $57.9 million in the three months ended March 31, 2008 compared to $45.4 million in the three months ended March 31, 2007, primarily as a result of an increase in capital expenditures offset by an increase in net proceeds from investments. Capital expenditures in 2008 primarily relate to increasing our capacity and capability for polysilicon production and our next generation products.

Cash used in financing activities was $45.3 million in the three months ended March 31, 2008 compared to $86.0 million of cash provided in the three months ended March 31, 2007. The change in cash from financing activities was primarily related to repurchases of our common stock of $78.6 million during the first three months of 2008, partially offset by net proceeds received from refundable customer deposits related to long-term supply agreements of $17.5 million. Approximately $63.7 million was received in the quarter ended March 31, 2007 in connection with customer deposits related to long-term supply agreements. These deposits are returnable to the customer after two years, although such deposits are replaced each year with new deposits based on increased volume commitments stated in the agreements to reduce our risks associated with non-fulfillment of the agreements by the customers. In the first three months of 2008, the customers provided additional deposits of $99.1 million and $81.6 million of deposits collected in prior years were returned to the customers in accordance with the agreements. The receipt and payment of the deposits for each customer were netted into one cash transaction because the amounts receivable and payable were due at the same time.

We had no short-term borrowings outstanding at March 31, 2008, under approximately $52.5 million of short-term loan agreements. Of the $52.5 million committed short-term loan agreements, $18.0 million is unavailable because it relates to the

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issuance of third party letters of credit and forward contracts. Long-term borrowings outstanding were $35.0 million at March 31, 2008, under $277.7 million of committed long-term loan agreements. Of the $277.7 million committed long-term loan agreements, $112.4 million is unavailable because it relates to the issuance of third party letters of credit and forward contracts. Our weighted average cost of borrowing was 2.2% at March 31, 2008 and December 31, 2007.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest, US Bank National Association, and such other lending institutions as may from time to time become lenders (the “National City Agreement”). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the LIBOR rate, and to remove the pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200.0 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At March 31, 2008, there were no borrowings outstanding under this credit facility, however, credit available under the facility has been reduced by $112.0 million related to the issuance of third party letters of credit.

As of March 31, 2008, we held $95.7 million of investments related to auction rate securities (ARS), net of temporary impairments of $1.6 million. The ARS are comprised of interest bearing state sponsored student loan revenue bonds and municipal bonds with varying maturity periods and typically provides short-term liquidity via an auction process that also resets the applicable interest rate at predetermined calendar intervals (typically every 7, 28 or 35 days). In the event of an auction failing to settle on its respective settlement date, these funds would remain invested at a “failed” interest rate which is typically higher than the previous market rate until the next successful auction. For those auctions that failed to settle, we will not be able to access those funds until the next successful auction, another buyer is found outside of the auction process, the issuer redeems the security or the security matures. As of March 31, 2008, MEMC reclassified $68.1 million of ARS from current assets to non-current assets due to unsuccessful auctions coupled with current conditions in the general debt markets which have created uncertainty as to when successful auctions will be reestablished. We do not anticipate having to sell these securities below par value in order to operate our business.

As of March 31, 2008, we held $272.9 million of investments, net of temporary impairments of $8.2 million, in a strategic investment portfolio with a major banking institution, primarily invested in corporate bonds and asset-backed and mortgage-backed securities. We believe the decline in fair value to be directly attributable to the current global credit conditions which we believe are temporary. However, for certain securities, we believe the time to reach the original carrying value to be greater than 12 months. Accordingly, we have reclassified $50.9 million of the portfolio from current assets to non-current assets.

See Critical Accounting Policies and Estimates related to our process of evaluating investments for impairment and balance sheet classification included in Exhibit 13 to our annual report on Form 10-K for the fiscal year ended December 31, 2007.

The current liquidity concerns in the credit and capital markets will not have a material impact on our liquidity and we believe that we have the financial resources needed to meet our business requirements for at least the next 12 months, including capital expenditures and working capital requirements.

LIQUIDITY AND CAPITAL RESOURCES

In the nine months ended September 30, 2007, we generated $678.7 million of cash from operating activities, compared to $375.4 million in the nine months ended September 30, 2006. This increase was a result of our improved operating results discussed previously, collections on accounts receivable, decreases in inventory and an increase in customer deposits received. In addition, cash from operating activities includes an increase of $31.5 million in outflows for excess tax benefits from stock-based compensation in the current period versus the same period in the prior year.

Cash used in investing activities was $283.8 million for the nine months ended September 30, 2007 compared to $94.1 million for the nine months ended September 30, 2006 due to an increase of $110.0 million of net purchases of investments as well as an increase in capital expenditures of $76.3 million to $173.1 million for the nine months ended September 30, 2007. Capital expenditures in 2007 primarily relate to increasing our capacity and capability for polysilicon and 300 millimeter production and our next generation products.

Cash provided by financing activities was $114.1 million in the nine months ended September 30, 2007 versus $7.0 million in the nine months ended September 30, 2006. The change in cash from financing activities was primarily related to $111.8 million received in connection with customer deposits related to long-term supply agreements, compared to $21.2 million in the same period of 2006. These deposits are generally refundable to the customer over two years, although such deposits are replaced each year with new deposits based on increased volume commitments stated in the supply agreements to reduce our risks associated with non-fulfillment of the supply agreements by the customers. Also contributing to the increase in cash from financing activities was the excess tax benefits from stock-based compensation arrangements as

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discussed above and $26.8 million received in connection with stock option exercises, compared to $6.3 million in the first nine months of 2006. Additionally, repayments on borrowings in the first nine months of 2007 were $2.5 million compared to $15.9 million in the same period of 2006.

We had no short-term borrowings outstanding at September 30, 2007 under approximately $51.0 million of short-term loan agreements. Of the $51.0 million committed short-term loan agreements, $8.4 million is unavailable because it relates to the issuance of third party letters of credit and forward contracts. Long-term borrowings outstanding were $32.9 million at September 30, 2007, under $271.2 million of committed long-term loan agreements. Of the $271.2 million committed long-term loan agreements at September 30, 2007, $113.8 million was unavailable because it relates to the issuance of third party letters of credit and forward contracts. Our weighted average cost of borrowing was 2.3% both at September 30, 2007 and December 31, 2006.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest, US Bank National Association, and such other lending institutions as may from time to time become lenders, as amended (the National City Agreement). The National City Agreement provides for a $200 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At September 30, 2007, there were no borrowings under this credit facility, however, credit available under the facility has been reduced by $113.4 million related to the issuance of third party letters of credit.

On April 30, 2007, we entered into a long-term agreement with a supplier in connection with the purchase of raw materials. Our minimum annual purchases under this agreement total $8.1 million in 2007, $46.6 million in 2008 and $48.6 million in each of the years from 2009 through 2018.

As of September 30, 2007, $89.3 million of unrecognized tax benefits were included as a component of other long-term liabilities. Due to the inherent uncertainty of the underlying tax positions, we are unable to reasonably estimate in which future periods these unrecognized tax benefits will be settled.

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

LIQUIDITY AND CAPITAL RESOURCES

In the six months ended June 30, 2007, we generated $412.1 million of cash from operating activities, compared to $235.0 million in the six months ended June 30, 2006. This increase was a result of our improved operating results discussed above. In addition, cash from operating activities includes an increase in outflows for excess tax benefits from stock-based compensation of $28.1 million in the current period versus the same period in the prior year.

Cash used in investing activities was $202.7 million for the six months ended June 30, 2007 compared to $61.7 million for the six months ended June 30, 2006 due to an increase of $101.9 million of net purchases of investments as well as an increase in capital expenditures of $39.0 million to $101.8 million for the six months ended June 30, 2007. Capital expenditures in 2007 primarily relate to increasing our capacity and capability for polysilicon and 300 millimeter production and our next generation products.

Cash provided by financing activities was $96.7 million in the six months ended June 30, 2007 versus $16.0 million used in the six months ended June 30, 2006. The change in cash from financing activities was primarily related to $63.7 million received in the quarter ended March 31, 2007 in connection with customer deposits related to long-term supply agreements. These deposits are generally returnable to the customer after two years, although such deposits are replaced each year with new deposits based on increased volume commitments stated in the supply agreements to reduce our risks associated with non-fulfillment of the supply agreements by the customers. Also contributing to the increase in cash from financing activities was the excess tax benefits from stock-based compensation arrangements as discussed above and $18.4 million received in connection with stock option exercises, compared to $5.3 million in the first six months of 2006. Additionally, repayments on borrowings in the first half of 2007 were $2.5 million compared to $15.7 million in the same period of 2006.

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We had no short-term borrowings at June 30, 2007 under approximately $58.7 million of short-term loan agreements. Of the $58.7 million committed short-term loan agreements, $7.3 million is unavailable as it relates to the issuance of third party letters of credit and forward contracts. Long-term borrowings outstanding were $30.8 million at June 30, 2007, under $267.3 million of committed long-term loan agreements. Of the $267.3 million committed long-term loan agreements at June 30, 2007, $113.7 million was unavailable as it related to the issuance of third party letters of credit and forward contracts. Our weighted average cost of borrowing was 2.3% at June 30, 2007 and December 31, 2006.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest, US Bank National Association, and such other lending institutions as may from time to time become lenders, as amended (the “National City Agreement”). The National City Agreement provides for a $200 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At June 30, 2007, there were no borrowings under this credit facility, however, credit available under the facility has been reduced by $113.4 million related to the issuance of third party letters of credit.

On April 30, 2007, we entered into a long-term agreement with a supplier in connection with the purchase of raw materials. Our minimum annual purchases under this agreement total $8.1 million in 2007, $46.6 million in 2008 and $48.6 million in each of the years from 2009 through 2018.

As of June 30, 2007, $74.8 million of unrecognized tax benefits were included as a component of other long-term liabilities. Due to the inherent uncertainty of the underlying tax positions, we are unable to reasonably estimate in which future periods these unrecognized tax benefits will be settled.

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

LIQUIDITY AND CAPITAL RESOURCES

In the three months ended March 31, 2007, we generated $214.5 million of cash from operating activities compared to $120.3 million in the three months ended March 31, 2006. This increase was a result of our improved operating results discussed above. In addition, cash from operating activities includes an increase in outflows for excess tax benefits from stock-based compensation of $12.1 million in the current period versus the same period in the prior year.

Cash used in investing activities increased to $45.4 million in the three months ended March 31, 2007 compared to $28.2 million in the three months ended March 31, 2006, primarily as a result of an increase in capital expenditures. Capital expenditures in 2007 primarily relate to increasing our capacity and capability for polysilicon production and our next generation products.

Cash provided by financing activities was $86.0 million in the three months ended March 31, 2007 compared to $9.7 million of cash used in the three months ended March 31, 2006. Approximately $63.7 million was received in the quarter ended March 31, 2007 in connection with customer deposits related to long-term supply agreements. These deposits are returnable to the customer after two years, although such deposits are replaced each year with new deposits based on increased volume commitments stated in the

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agreements to reduce our risks associated with non-fulfillment of the agreements by the customers. Additionally, there were no repayments on borrowings in the first quarter of 2007 compared to $13.0 million in the same period of 2006. Also contributing to the increase in cash from financing activities was the excess tax benefits from stock-based compensation arrangements as discussed above and $10.2 million received in connection with stock option exercises, compared to $3.3 million in the first quarter of 2006.

We had no short-term borrowings at March 31, 2007, under approximately $58.0 million of short-term loan agreements. Of the $58.0 million committed short-term loan agreements, $4.3 million is unavailable as it relates to the issuance of third party letters of credit and forward contracts. Long-term borrowings outstanding were $34.7 million at March 31, 2007, under $270.7 million of committed long-term loan agreements. Of the $270.7 million committed long-term loan agreements, $50.6 million is unavailable as it relates to the issuance of third party letters of credit and forward contracts. Our weighted average cost of borrowing was 2.3% at March 31, 2007 and December 31, 2006. Our total debt to capital ratio was 3% at March 31, 2007 and December 31, 2006.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest, US Bank National Association, and such other lending institutions as may from time to time become lenders (the “National City Agreement”). The National City Agreement provides for a $200 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries. At March 31, 2007, there were no borrowings under this credit facility, however, credit available under the facility has been reduced by $48.7 million related to the issuance of third party letters of credit.

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