fy08-10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended August
28, 2008
OR
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period
from to
Commission
file number 1-10658
Micron
Technology, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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75-1618004
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(State
or other jurisdiction of
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(IRS
Employer
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incorporation
or organization)
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Identification
No.)
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8000
S. Federal Way, Boise, Idaho
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83716-9632
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
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(208)
368-4000
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Securities
registered pursuant to Section 12(b) of the Act:
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|
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $.10 per share
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
(Title of
Class)
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes x No
¨
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act. Yes ¨ No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act:
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
(Do
not check if a smaller reporting company)
|
Smaller
Reporting Company o
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
The aggregate market value of the
voting stock held by non-affiliates of the registrant, based upon the closing
price of such stock on February 28, 2008, as reported by the New York Stock
Exchange, was approximately $3.6 billion. Shares of common stock held
by each executive officer and director and by each person who owns 5% or more of
the outstanding common stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
The number of outstanding shares of
the registrant’s common stock as of October 17, 2008, was
763,759,118.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for
registrant’s 2008 Annual Meeting of Shareholders to be held on December 11,
2008, are incorporated by reference into Part III of this Annual Report on Form
10-K.
PART
I
Item
1. Business
The following discussion contains trend
information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not
limited to, statements such as those made in “Overview” regarding the costs and
impact of restructure plans, the Company’s DRAM development costs relative to
Nanya, royalty payments from Inotera production, capital commitments for the
Company’s joint ventures with Nanya Technology Corporation, the supply of DRAM
wafers from Inotera Memories, Inc. and manufacturing plans for CMOS image
sensors; “Products” regarding new product offerings in 2009, increased sales of
DDR3 DRAM products and growth in demand for NAND Flash and solid-state drives,
and market growth for CMOS image sensors; and in “Manufacturing” regarding the
transition to smaller line-width process technologies and the supply of DRAM
wafers from Inotera Memories, Inc . The Company’s actual results
could differ materially from the Company’s historical results and those
discussed in the forward-looking statements. Factors that could cause
actual results to differ materially include, but are not limited to, those
identified in “Item 1A. Risk Factors.” All period references are to the
Company’s fiscal periods unless otherwise indicated.
Corporate
Information
Micron Technology, Inc., and its
subsidiaries (hereinafter referred to collectively as the “Company”), a Delaware
corporation, was incorporated in 1978. The Company’s executive
offices are located at 8000 South Federal Way, Boise, Idaho 83716-9632 and its
telephone number is (208) 368-4000. Information about the Company is
available on the internet at www.micron.com. Copies of the Company’s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as any amendments to these reports, are available through
the Company’s website as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange Commission
(the “SEC”). Materials filed by the Company with the SEC are also
available at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
D.C. 20549. Information on the operation of the Public Reference Room
is available by calling 1-800-SEC-0330. Also available on the
Company’s website are its: Corporate Governance Guidelines,
Governance Committee Charter, Compensation Committee Charter, Audit Committee
Charter and Code of Business Conduct and Ethics. Any amendments or
waivers of the Company’s Code of Business Conduct and Ethics will also be posted
on the Company’s website at www.micron.com within four business days of the
amendment or waiver. Copies of these documents are available to
shareholders upon request. Information contained or referenced on the
Company’s website is not incorporated by reference and does not form a part of
this Annual Report on Form 10-K. In January 2008, the Company’s Chief
Executive Officer certified to the New York Stock Exchange that he was not aware
of any violation by the Company of the NYSE’s Corporate Governance Listing
Standards.
Overview
The Company is a global manufacturer
and marketer of semiconductor devices, principally DRAM and NAND Flash memory
and CMOS image sensors. The Company’s products are offered in a wide
variety of package and configuration options, architectures and performance
characteristics tailored to meet application and customer
needs. Individual devices take advantage of the Company’s advanced
semiconductor processing technology and manufacturing expertise. The
Company aims to continually introduce new generations of products that offer
lower costs per unit and improved performance characteristics. The
Company operates in two segments, Memory and Imaging. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Segment Information.”)
In 2008 and 2007 the semiconductor
memory industry experienced a severe downturn due to a significant oversupply of
products. Average selling prices per gigabit for the Company’s DRAM
products and NAND Flash products in 2008 were down approximately 50% and 65%,
respectively, as compared to 2007 and down approximately 65% and 85%,
respectively, as compared to 2006. As a result of these market
conditions, the Company and other semiconductor memory manufacturers have
reported negative gross margins and substantial losses in recent
periods. In 2008, the Company reported a net loss of $1.6 billion and
many of its competitors reported negative cash flows from
operations. In response to these market conditions, on October 9,
2008 the Company announced a plan to restructure its memory
operations. The Company’s IM Flash joint venture with Intel
Corporation (“Intel”) will discontinue its production of 200mm wafer NAND flash
memory products at Micron’s Boise facility. The NAND Flash production
shutdown will reduce IM Flash’s NAND flash production by approximately 35,000
200mm wafers per month. In addition, the Company and Intel agreed to
suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore
wafer fabrication plant. As part of this restructuring, the Company
plans to reduce its global workforce by approximately 15 percent during 2009 and
2010. Cash costs for restructuring and other related expenses
incurred
in connection with this restructuring are anticipated to be approximately $60
million, and the benefit to the Company’s cash operating results for 2009 is
expected to exceed $175 million.
The effects of the worsening global
economy and the tightening credit market are also making it increasingly
difficult for semiconductor memory manufacturers to obtain external sources of
financing to fund their operations. Although the Company believes
that it is better positioned than some of its peers, it faces challenges in the
current and near term that require it to continue to make significant
improvements in its competitiveness. The Company is pursuing
financing alternatives, delaying capital expenditures and implementing further
cost-cutting initiatives.
Memory: The
Memory segment’s primary products are DRAM and NAND Flash, which are key
components used in a broad array of electronic applications, including personal
computers, workstations, network servers, mobile phones, Flash memory cards, USB
storage devices, MP3/4 players and other consumer electronics
products. The Company sells primarily to original equipment
manufacturers, distributors and retailers located around the world.
The Company is focused on improving its
Memory segment’s competitiveness by developing new products, advancing its
technology and reducing costs. In addition, the Company increased its
manufacturing capacity in 2008 and 2007 by ramping NAND Flash production at two
300mm wafer fabrication facilities and converting another facility to 300mm DRAM
wafer fabrication.
In the third quarter of 2008, the
Company and Nanya Technology Corporation (“Nanya”) formed MeiYa, a joint venture
to manufacture stack DRAM products and sell those products exclusively to the
Company and Nanya. As part of this transaction, the Company
transferred and licensed certain intellectual property to Nanya and licensed
certain intellectual property from Nanya. The Company and Nanya also
agreed to jointly develop process technology and designs to manufacture stack
DRAM products with each party bearing its own development costs until such time
that the development costs exceed a specified amount, following which such costs
would be shared. The Company’s development costs are expected to
exceed Nanya’s development costs by a significant
amount. Under
this arrangement, the Company is to receive an aggregate of $232 million from
Nanya and MeiYa through 2010 for licensing and technology transfer
fees, of which the Company realized $40 million of revenue in
2008. The Company will also receive royalties from Nanya on the sale
of stack DRAM products manufactured by or for Nanya.
On October 12, 2008, the Company
announced that it had entered into an agreement to acquire Qimonda AG’s 35.6%
ownership stake in Inotera Memories, Inc. (“Inotera”), a Taiwanese DRAM memory
manufacturer, for $400 million in cash. The Company received
commitments for $285 million of term loans to fund this acquisition in
part. Inotera is expected to implement the Company’s stack DRAM
process technology, and it is anticipated that the Company will receive
royalties on Inotera’s production that is delivered to Nanya, a 35.6%
stakeholder in Inotera. The Company will eventually gain access to
approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s
output. In connection with this acquisition, the Company
expects to enter into a series of agreements with Nanya to restructure
MeiYa. It is anticipated that both parties will cease future resource
commitments to MeiYa and redirect those resources to Inotera. (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Joint Ventures – DRAM Joint Ventures with Nanya
Technology Corporation.”)
Imaging: The
Company’s Imaging segment operates under the Aptina brand
name. Imaging’s primary products are CMOS image sensors, which are
key components used in a broad array of electronic applications, including
mobile phones, digital still cameras, webcams and other consumer, security and
automotive applications. The Company’s primary customers are camera
module integrators located around the world. The Company is exploring
partnering arrangements with outside parties regarding the separation of its
Aptina imaging business to an independent entity in which the Company would
retain a significant minority ownership interest. To that end, the
Company began operating its Imaging business as a separate wholly-owned
subsidiary in October 2008. Under the arrangements being considered,
the Company expects that it will continue to manufacture CMOS image sensors for
some period of time.
Products
Memory: The
Company’s Memory segment has two primary product types: DRAM and NAND
Flash. Sales of Memory products were 89%, 88% and 86% of the
Company’s total net sales in 2008, 2007 and 2006, respectively.
Dynamic
Random Access Memory (“DRAM”): DRAM products are
high-density, low-cost-per-bit, random access memory devices that provide
high-speed data storage and retrieval. DRAM products were 54%, 65%
and 76% of the Company’s total net sales in 2008, 2007 and 2006,
respectively. The Company offers DRAM products with a variety of
performance, pricing and other characteristics including high-volume DDR2 and
DDR3 products as well as specialty DRAM memory products including DDR, SDRAM,
Mobile DRAM and PSRAM.
DDR2 and DDR3: DDR2
and DDR3 are standardized, high-density, high-volume, DRAM products that are
sold primarily for use as main system memory in computers and
servers. DDR2 and DDR3 products offer high speed and high bandwidth
at a relatively low cost compared to other DRAM products. DDR2
products were the highest volume parts in the DRAM market in 2008 and were 28%,
32% and 25% of the Company’s total net sales in 2008, 2007 and 2006,
respectively. The Company began volume production of DDR3 products in
2008 and expects that sales of these products will increase significantly in
2009.
The Company offers DDR2 products in 256
megabit (“Mb”), 512 Mb, 1 Gb and 2 Gb densities. The Company offers
DDR3 products in 1 Gb and 2 Gb densities. The Company expects that
these densities will be necessary to meet future customer demands for a broad
array of products. The Company also offers its DDR2 and DDR3 products
in multiple configurations, speeds and package types.
DDR: In 2008, DDR
was primarily used in networking devices, servers, consumer electronics,
communications equipment and computer peripherals as well as memory upgrades to
legacy computers. Sales of DDR products were 9%, 15% and 26% of the
Company’s total net sales in 2008, 2007 and 2006, respectively. DDR
sales have declined as personal computer manufacturers have transitioned to DDR2
and DDR3 products. The Company offers 128 Mb, 256 Mb and 512 Mb and 1
Gb DDR products.
Synchronous DRAM
(“SDRAM”): In 2008, 2007 and 2006, SDRAM was primarily used in
networking devices, servers, consumer electronics, communications equipment and
computer peripherals as well as memory upgrades to legacy
computers. Sales of SDRAM products were 9%, 11% and 16% of the
Company’s total net sales in 2008, 2007 and 2006, respectively. SDRAM
sales have declined as personal computer manufacturers have transitioned to DDR
and DDR2 products. The decline has been partially offset by increased
usage of SDRAM products in other applications. The Company offers 64
Mb, 128 Mb, 256 Mb and 512 Mb SDRAM products.
Other Specialty DRAM Memory
Products: The Company also offers other specialty memory
products including Mobile DRAM, Pseudo-static RAM (“PSRAM”) and Reduced Latency
DRAM (“RLDRAM”). Mobile DRAM products are specialty DRAM memory
devices designed for applications that demand minimal power consumption, such as
personal digital assistants (PDAs), smart phones, GPS devices, digital still
cameras and other handheld electronic devices. The Company sells
SDRAM and DDR mobile memory products in 64 Mb, 128 Mb, 256 Mb, 512 Mb and 1Gb
densities. The Company’s mobile DRAM products feature its proprietary
Endur-IC™ technology, which the Company believes provides distinct advantages to
its customers in terms of low power, high quality and high
reliability. PSRAM products, marketed by the Company under the
proprietary brand name CellularRAM™, are DRAM products with an SRAM-like
interface. PSRAM combines the minimal power consumption of SRAM with
a much lower cost-per-bit to provide an economical alternative to
SRAM. PSRAM products are used primarily in cellular phone
applications. RLDRAM products are low-latency DRAM memory devices
with high clock rates targeted at network applications.
NAND
Flash Memory (“NAND”): NAND products are
electrically re-writeable, non-volatile semiconductor memory devices that retain
content when power is turned off. NAND sales were 35%, 23% and 6% of
the Company’s total net sales in 2008, 2007 and 2006,
respectively. NAND is ideal for mass-storage devices due to its
faster erase and write times, higher density, and lower cost per bit than NOR
Flash, which is the primary competing Flash architecture. The market
for NAND products has grown rapidly and the Company expects it to continue to
grow due to demand for removable and embedded storage
devices. Removable storage devices such as USB and Flash memory cards
are used with applications such as personal computers, digital still cameras,
MP3/4 players and mobile phones. Embedded NAND-based storage devices
are utilized in MP3/4 players, mobile phones, computers and other personal and
consumer applications.
NAND and DRAM share common
manufacturing processes, enabling the Company to leverage its product and
process technologies and manufacturing infrastructure across these two product
lines. The Company’s NAND designs feature a small cell structure that
allows for higher densities for demanding applications. The Company
offers Single-Level Cell (“SLC”) products and Multi-Level Cell (“MLC”) NAND
products, which have double the bit density of SLC products. In 2008,
the Company offered SLC NAND products in 1 Gb, 2 Gb, and 4 Gb
densities. In 2008, the Company offered 8 Gb and 16 Gb MLC NAND
products. In 2008, the Company began sampling 32 Gb MLC NAND products
manufactured using industry-leading 34 nanometer (“nm”) process
technology. In 2008, the Company announced development of
new high-speed NAND products that can reach speeds up to 200 megabytes per
second (MB/s) for reading data and 100 MB/s for writing data as compared to 40
MB/s for reading data and less than 20 MB/s for writing data conventional SLC
NAND. The high speeds are achieved by leveraging the new ONFI 2.0
specification and a four-plane architecture with higher clock
speeds. In 2008, the Company introduced next-generation RealSSD™
solid-state drives for enterprise server and notebook applications which offer
higher performance, reduced power consumption and enhanced reliability as
compared to typical hard disk drives. Using Micron's MLC NAND process
technology, the solid-state drives will be offered in 2.5-inch and 1.8-inch form
factors, with densities up to 256 gigabytes for the 2.5 inch form factor and
from 32 gigabytes to 128 gigabytes in the 1.8-inch form factor. The
Company expects that demand for solid-state drives will increase significantly
over the next few years.
The Company’s Lexar subsidiary sells
high-performance digital media products and other flash-based storage products
through retail and original equipment manufacturing (OEM)
channels. The Company’s digital media products include a variety of
Flash memory cards with a range of speeds, capacities and value-added
features. The Company’s digital media products also include its
JumpDrive™ products, which are high-speed, portable USB flash drives for
consumer applications that serve a variety of uses, including floppy disk
replacement and digital media accessories such as card readers and image rescue
software. The Company offers Flash memory cards in all major media
formats currently used by digital cameras and other electronic host devices,
including: CompactFlash, Memory Stick and Secure Digital
Cards. Many of CompactFlash, Memory Stick and Memory Stick PRO
products sold by the Company incorporate its patented controller
technology. Other products, including Secure Digital Card Flash
memory cards and some JumpDrive products, incorporate third party
controllers. The Company also resells Flash memory products that are
purchased from suppliers. The Company offers Flash memory cards in a
variety of speeds and capacities. The Company sells products under
its Lexar™ brand and also manufactures products that are sold under other brand
names. The Company has a multi-year agreement with Eastman Kodak to
sell digital media products under the Kodak brand name.
Imaging: Complementary
Metal-Oxide Semiconductor (“CMOS”) image sensors are the primary product of the
Company’s Imaging segment. CMOS image sensors are semiconductor
devices that capture and process images into pictures or video for a variety of
consumer and industrial applications. The Company’s CMOS image
sensors are used in products such as cellular phone cameras, digital still
cameras, pill cameras for medical use, and in automotive and other emerging
applications. The Company offers image sensors in a range of pixel
resolutions from its VGA (video graphics array) products to its higher
resolution 9-megapixel products. The Company manufactures a number of
CMOS image sensors featuring an advanced pixel size of 1.4 square microns that
enables a smaller form factor product. Image sensors are sold either
as individual components or combined with integrated circuitry to create
complete camera system-on-a-chip (“SOC”) solutions.
The Company’s CMOS image sensors
incorporate its DigitalClarity™ technology, featuring “active pixels” that
enable better sensor performance that produces higher-quality images at faster
frame rates. The Company’s CMOS image sensors’ active-pixel design
architecture enabled the Company to achieve CMOS image sensor performance that
in 2008 was comparable to high-end CCD sensors. The Company’s CMOS
image sensors consume substantially less power than CCD devices, providing an
advantage in battery-dependent portable device applications where most image
sensors are used. By combining all camera functions on a single chip,
from the capture of photons to the output of digital bits, CMOS image sensors
reduce the part-count of a digital camera system, which in turn increases
reliability, eases miniaturization, and enables on-chip programming of frame
size, windowing, exposure and other camera parameters. The Company’s
CMOS image sensors are also capable of producing high-quality images in
low-light conditions. The Company’s low-leakage DRAM processes are
particularly well-suited for the manufacture of CMOS image sensors.
The Company conducts its Imaging
operations under the Aptina brand name. Sales of Imaging products
were 11%, 12% and 14% of the Company’s total net sales in 2008, 2007 and 2006,
respectively. The overall market for image sensors is expected to
increase over the next several years due to the growth forecasted for
applications such as phone cameras and digital still cameras. CMOS
image sensors are also expected to capture an increasing percentage of the
overall image sensor market.
Manufacturing
The Company’s manufacturing facilities
are located in the United States, China, Italy, Japan, Puerto Rico and
Singapore. The Company’s manufacturing facilities generally operate
24 hours per day, 7 days per week. Semiconductor manufacturing is
extremely capital intensive, requiring large investments in sophisticated
facilities and equipment. Most semiconductor equipment must be
replaced every three to five years with increasingly advanced
equipment.
The Company’s process for manufacturing
semiconductor products is complex, involving a number of precise steps,
including wafer fabrication, assembly and test. Efficient production
of semiconductor products requires utilization of advanced semiconductor
manufacturing techniques and effective deployment of these techniques across
multiple facilities. The primary determinants of manufacturing cost
are die size, number of mask layers, number of fabrication steps and number of
good die produced on each wafer. Other factors that contribute to
manufacturing costs are wafer size, cost and sophistication of manufacturing
equipment, equipment utilization, process complexity, cost of raw materials,
labor productivity, package type and cleanliness of the manufacturing
environment. The Company is continuously enhancing its production
processes, reducing die sizes and transitioning to higher density
products. In 2008, the Company manufactured most of its DRAM products
using its 78nm and 68nm line-width process technology and began transferring its
DRAM production to 58nm line-width process technology. The Company
expects to continue to transfer more of its DRAM production to 58nm line-width
process technology in 2009. In 2008, the Company manufactured most of
its NAND Flash memory products using its 50nm line-width process technology and
began transferring its NAND production to 34nm line-width process
technology. The Company expects that in 2009 the majority of its NAND
Flash memory products will be manufactured using its 34nm line-width process
technology. In 2008 and 2007, the Company significantly increased its
300mm wafer production as IM Flash ramped production at two 300mm wafer
fabrication facilities and the Company’s TECH joint venture converted its DRAM
production to 300mm wafers.
Wafer fabrication occurs in a highly
controlled, clean environment to minimize dust and other yield- and
quality-limiting contaminants. Despite stringent manufacturing
controls, dust particles, equipment errors, minute impurities in materials,
defects in photomasks and circuit design marginalities or defects can lead to
wafers being scrapped and individual circuits being
nonfunctional. Success of the Company’s manufacturing operations
depends largely on minimizing defects to maximize yield of high-quality
circuits. In this regard, the Company employs rigorous quality
controls throughout the manufacturing, screening and testing
processes. The Company is able to recover many nonstandard devices by
testing and grading them to their highest level of functionality.
After fabrication, silicon wafers are
separated into individual die. The Company sells semiconductor
products in both packaged and unpackaged (i.e. “bare die”) forms. For
packaged products, functional die are sorted, connected to external leads and
encapsulated in plastic packages. The Company assembles products in a
variety of packages, including TSOP (thin small outline package), TQFP (thin
quad flat package) and FBGA (fine pitch ball grid array). Bare die
products address customer requirements for smaller form factors and higher
memory densities and provide superior flexibility. Bare die products
are used in packaging technologies such as systems-in-a-package (SIPs) and
multi-chip packages (MCPs), which reduce the board area required.
The Company tests its products at
various stages in the manufacturing process, performs high temperature burn-in
on finished products and conducts numerous quality control inspections
throughout the entire production flow. In addition, the Company uses
its proprietary AMBYX™ line of intelligent test and burn-in systems to perform
simultaneous circuit tests of DRAM die during the burn-in process, capturing
quality and reliability data and reducing testing time and cost.
The Company assembles a significant
portion of its memory products into memory modules. Memory modules
consist of an array of memory components attached to printed circuit boards
(“PCBs”) that insert directly into computer systems or other electronic
devices. The Company’s Lexar subsidiary contracts with an independent
foundry and assembly and testing organizations to manufacture flash media
products such as memory cards and USB devices.
The Company is pursuing alternatives to
reduce its assembly, test and module assembly costs, including relocation of
current operations to lower cost locations and outsourcing. These
alternatives could affect the Company’s manufacturing processes in future
periods.
In recent years the Company has
produced an increasingly broad portfolio of products, which enhances the
Company’s ability to allocate resources to its most profitable products but
increases the complexity of its manufacturing process. Although new
product lines such as NAND Flash, CMOS image sensors and specialty memory can be
manufactured using processes that are very similar to the processes for the
Company’s predominant DRAM products, frequent conversions to new products and
the allocation of manufacturing capacity to more complex, smaller-volume parts
can affect the Company’s cost efficiency.
NAND Flash Joint
Ventures with Intel Corporation: The Company has formed two
joint ventures with Intel to manufacture NAND Flash memory products for the
exclusive benefit of the partners: IM Flash Technologies, LLC and IM
Flash Singapore LLP (collectively, “IM Flash”). IM Flash manufactures
NAND Flash memory products pursuant to NAND Flash designs developed by the
Company and Intel and licensed to the Company. The parties share the
output of IM Flash generally in proportion to their investment in IM
Flash. The Company owned a 51% interest in IM Flash at August 28,
2008. IM Flash’s financial results are included in the consolidated
financial statements of the Company.
On October 9, 2008, the Company
announced that IM Flash will discontinue production of 200mm wafer NAND flash
memory products at Micron’s Boise facility. The NAND Flash production
shutdown will reduce IM Flash’s NAND flash production by approximately 35,000
200mm wafers per month. The Company will continue to manufacture a
significantly reduced level of NAND Flash at the Boise facility outside of the
IM Flash joint venture. In the first quarter of 2009, IM Flash
substantially completed construction of a new 300mm wafer fabrication facility
structure in Singapore. The Singapore facility has not been equipped
and in October 2009 the Company and Intel agreed to suspend tooling and the ramp
of NAND Flash production at the facility. (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Joint Ventures – NAND Flash Joint Ventures with Intel.”)
TECH
Semiconductor Singapore Pte. Ltd. (“TECH”): TECH is a memory
manufacturing joint venture in Singapore among Micron Technology, Inc., Canon
Inc. and Hewlett-Packard Company. The Company owned an approximate
73% interest in TECH at August 28, 2008. TECH’s semiconductor
manufacturing facilities use the Company’s product and process
technology. Subject to specific terms and conditions, the Company has
agreed to purchase all of the products manufactured by TECH. In 2008,
TECH accounted for approximately 12% of the Company’s total wafer
production. TECH completed its conversion of its manufacturing
production from 200mm to 300mm wafers in 2008. TECH’s financial
results were included in the consolidated financial statements of the Company
beginning in the third quarter of 2006. (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)
DRAM Joint
Ventures with Nanya: On October 12, 2008,
the Company announced that it had entered into an agreement to acquire Qimonda’s
35.6% ownership stake in Inotera, a Taiwanese DRAM memory
manufacturer. Inotera is expected to implement the Company’s stack
DRAM process technology. The Company will eventually gain access to
approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s
output. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Joint Ventures – DRAM Joint
Ventures with Nanya Technology Corporation.”)
MP Mask
Technology Center, LLC (“MP Mask”): The Company produces
photomasks for leading-edge and advanced next generation semiconductors through
MP Mask, a joint venture with Photronics, Inc. (“Photronics”). The
Company and Photronics have 50.01% and 49.99% interest, respectively, in MP
Mask. The Company and Photronics also have supply arrangements
wherein the Company purchases a substantial majority of the reticles produced by
MP Mask. The financial results of MP Mask are included in the
consolidated financial results of the Company. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Joint Ventures – MP Mask Technology Center, LLC.”)
Availability
of Raw Materials
The Company’s production processes
require raw materials that meet exacting standards, including several that are
customized for, or unique to, the Company. The Company generally has
multiple sources and sufficient availability of supply; however, only a limited
number of suppliers are capable of delivering certain raw materials that meet
the Company’s standards. Various factors could reduce the
availability of raw materials such as silicon wafers, photomasks, chemicals,
gases, lead frames, molding compound and other materials. In
addition, any transportation problems could delay the Company’s receipt of raw
materials. Although raw materials shortages or transportation
problems have not interrupted the Company’s operations in the past, shortages
may occur from time to time in the future. Also, lead times for the
supply of raw materials have been extended in the past. If the
Company’s supply of raw materials is interrupted, or lead times are extended,
results of operations could be adversely affected.
Marketing
and Customers
The Company’s products are sold into
computing, consumer, networking, telecommunications, and imaging
markets. Approximately 50% of the Company’s net sales for 2008 were
to the computing market, including desktop PCs, servers, notebooks and
workstations. Sales to Intel, primarily for NAND Flash from the IM
Flash joint ventures, were 19% of the Company’s net sales in
2008. Sales to Hewlett-Packard Company were 10% of the Company’s net
sales in 2007.
The Company’s Memory products are
offered under the Micron, Lexar, SpecTek and Crucial brand names and private
labels. The Company’s Imaging products are offered under the Aptina
brand name. The Company markets its semiconductor products primarily
through its own direct sales force and maintains sales offices in its primary
markets around the world. The Company maintains inventory at
locations in close proximity to certain key customers to facilitate rapid
delivery of product shipments. The Company’s Lexar subsidiary sells
NAND Flash memory products through retail and OEM channels. The
Company’s Crucial Technology division sells memory products through a web-based
customer direct sales channel. The Company’s products are also
offered through independent sales representatives and
distributors. Independent sales representatives obtain orders subject
to final acceptance by the Company and are compensated on a commission
basis. The Company makes shipments against these orders directly to
the customer. Distributors carry the Company’s products in inventory
and typically sell a variety of other semiconductor products, including
competitors’ products.
The Company offers products designed to
meet the diverse needs of computing, server, automotive, networking, security,
commercial/industrial, consumer electronics, medical and mobile
applications. Many of the Company’s customers require a thorough
review or qualification of semiconductor products, which may take several
months. As the Company further diversifies its product lines and
reduces the die sizes of existing products, more products become subject to
qualification which may delay volume introduction of specific devices by the
Company.
Backlog
Because of volatile industry conditions
customers are reluctant to enter into long-term, fixed-price
contracts. Accordingly, new order volumes for the Company’s
semiconductor products fluctuate significantly. Orders are typically
accepted with acknowledgment that the terms may be adjusted to reflect market
conditions at the date of shipment. Customers can change delivery
schedules or cancel orders without significant penalty. For these
reasons, the Company does not believe that its order backlog as of any
particular date is a reliable indicator of actual sales for any succeeding
period.
Product
Warranty
Because the design and manufacturing
process for semiconductor products is highly complex, it is possible that the
Company may produce products that do not comply with customer specifications,
contain defects or are otherwise incompatible with end uses. In
accordance with industry practice, the Company generally provides a limited
warranty that its products are in compliance with Company specifications
existing at the time of delivery. Under the Company’s general terms
and conditions of sale, liability for certain failures of product during a
stated warranty period is usually limited to repair or replacement of defective
items or return of, or a credit with respect to, amounts paid for such
items. Under certain circumstances the Company may provide more
extensive limited warranty coverage and general legal principles may impose more
extensive liability than that provided under the Company’s general terms and
conditions.
Competition
The Company faces intense competition
in the semiconductor memory markets from a number of companies, including Elpida
Memory, Inc.; Hynix Semiconductor Inc.; Qimonda AG; Samsung Electronics Co.,
Ltd; SanDisk Corporation; Toshiba Corporation and emerging companies in Taiwan
and China. Some of the Company’s competitors are large corporations
or conglomerates that may have greater resources to withstand downturns in the
semiconductor markets in which the Company competes, invest in technology and
capitalize on growth opportunities. The Company’s competitors seek to
increase silicon capacity, improve yields, reduce die size and minimize mask
levels in their product designs. These factors have significantly
increased worldwide supply and put downward pressure on prices.
The Company faces competition in the
image sensor market from a number of suppliers of CMOS image sensors including
OmniVision Technologies, Inc.; Samsung Electronics Co., Ltd; Sony Corporation;
STMicroelectronics NV; Toshiba Corporation and from a number of suppliers of CCD
image sensors including Matsushita Electric Industrial Co., Ltd.; Sharp
Corporation and Sony Corporation. In recent periods, a number of new
companies have entered the CMOS image sensor market. Competitors
include many large domestic and international companies that may have greater
presence in key markets, better access to certain customer bases, greater name
recognition and more established strategic and financial relationships than the
Company.
Research
and Development
The Company’s process technology
research and development (“R&D”) efforts are focused primarily on
development of successively smaller line-width process technologies which are
designed to facilitate the Company’s transition to next generation memory
products and CMOS image sensors. Additional process technology
R&D efforts focus on advanced computing and mobile memory architectures and
new manufacturing materials. Product design and development efforts
are concentrated on the Company’s 1 Gb and 2 Gb DDR2 and DDR3 products as well
as high density and mobile NAND Flash memory (including MLC technology),
specialty memory products, memory systems and CMOS image sensors. The
Company’s R&D expenses were $680 million, $805 million and $656 million in
2008, 2007 and 2006, respectively.
To compete in the semiconductor memory
industry, the Company must continue to develop technologically advanced products
and processes. The Company believes that expansion of its
semiconductor product offerings is necessary to meet expected market demand for
specific memory and imaging solutions. The Company has several
product design centers around the world, the largest located at its corporate
headquarters in Boise, Idaho. In addition, the Company develops
leading edge photolithography mask technology at its MP Mask joint venture
facility in Boise.
R&D expenses vary primarily with
the number of development wafers processed, the cost of advanced equipment
dedicated to new product and process development, and personnel
costs. Because of the lead times necessary to manufacture its
products, the Company typically begins to process wafers before completion of
performance and reliability testing. The Company deems development of
a product complete once the product has been thoroughly reviewed and tested for
performance and reliability. R&D expenses can vary significantly
depending on the timing of product qualification. The Company and
Intel share R&D process and design costs for NAND Flash
equally. The Company and Nanya also jointly develop process
technology and designs to manufacture stack DRAM products with each party
bearing its own development costs until such time that the development costs
exceed a specified amount, following which such costs would be
shared. The Company’s development costs are expected to exceed
Nanya’s development costs by a significant amount. Product
development costs are recorded as R&D expense.
Geographic
Information
Sales to customers outside the United
States totaled $4.4 billion for 2008 and included $1.4 billion in sales to
China, $559 million in sales to Europe, $441 million in sales to Japan and $1.7
billion in sales to the Asia Pacific region (excluding China and
Japan). International sales totaled $4.0 billion for 2007 and $3.6
billion for 2006. As of August 28, 2008, the Company had net
property, plant and equipment of $6.0 billion in the United States, $2.3 billion
in Singapore, $259 million in Italy, $171 million in Japan and $32 million in
other countries. (See “Item 8. Financial Statements and Supplementary
Data – Notes to Consolidated Financial Statements – Geographic Information” and
“Item 1A. Risk Factors.”)
Patents
and Licenses
In recent years, the Company has been
recognized as a leader in volume and quality of patents issued. As of
August 28, 2008, the Company owned approximately 17,300 U.S. patents and 2,600
foreign patents. In addition, the Company has numerous U.S. and
foreign patent applications pending. The Company’s patents have terms
expiring through 2026.
The Company has a number of patent and
intellectual property license agreements. Some of these license
agreements require the Company to make one time or periodic
payments. The Company may need to obtain additional patent licenses
or renew existing license agreements in the future. The Company is
unable to predict whether these license agreements can be obtained or renewed on
acceptable terms.
In recent years, the Company has
recovered some of its investment in technology through sales of intellectual
property rights to joint venture partners and other third
parties. The Company is pursing further opportunities to recover its
investment in intellectual property through partnering
arrangements.
Employees
As of August 28, 2008, the Company had
approximately 22,800 employees, including approximately 12,300 in the United
States, 5,900 in Singapore, 2,100 in Italy, 1,500 in Japan, 500 in China and 300
in the United Kingdom. The Company’s employees include 2,300
employees in its IM Flash joint ventures that are located in the United States
and Singapore and 2,200 employees in its TECH joint venture that are located in
Singapore. Approximately 400 of the Company’s employees in Italy are
represented by labor organizations that have entered into national and local
labor contracts with the Company. The Company’s employment levels can
vary depending on market conditions and the level of the Company’s production,
research and product and process development. Many of the Company’s
employees are highly skilled, and the Company’s continued success depends in
part upon its ability to attract and retain such employees. The loss
of key Company personnel could have a material adverse effect on the Company’s
business, results of operations or financial condition.
Environmental
Compliance
Government regulations impose various
environmental controls on raw materials and discharges, emissions and solid
wastes from the Company’s manufacturing processes. In 2008, the
Company’s wafer wholly-owned fabrication facilities continued to conform to the
requirements of ISO 14001 certification. To continue certification,
the Company met annual requirements in environmental policy, compliance,
planning, management, structure and responsibility, training, communication,
document control, operational control, emergency preparedness and response,
record keeping and management review. While the Company has not
experienced any materially adverse effects on its operations from environmental
regulations, changes in the regulations could necessitate additional capital
expenditures, modification of operations or other compliance
actions.
Directors
and Executive Officers of the Registrant
Officers of the Company are appointed
annually by the Board of Directors. Directors of the Company are
elected annually by the shareholders of the Company. Any directors
appointed by the Board of Directors to fill vacancies on the Board serve until
the next election by the shareholders. All officers and directors
serve until their successors are duly chosen or elected and qualified, except in
the case of earlier death, resignation or removal.
As of August 28, 2008, the following
executive officers and directors of the Company were subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended.
Name
|
Age
|
Position
|
|
Mark
W. Adams
|
44
|
Vice
President of Worldwide Sales
|
Steven
R. Appleton
|
48
|
Chairman
and Chief Executive Officer
|
Kipp
A. Bedard
|
49
|
Vice
President of Investor Relations
|
D.
Mark Durcan
|
47
|
President
and Chief Operating Officer
|
Ronald
C. Foster
|
57
|
Vice
President of Finance and Chief Financial Officer
|
Jay
L. Hawkins
|
48
|
Vice
President of Operations
|
Roderic
W. Lewis
|
53
|
Vice
President of Legal Affairs, General Counsel and Corporate
Secretary
|
Patrick
T. Otte
|
46
|
Vice
President of Human Resources
|
Brian
J. Shields
|
47
|
Vice
President of Worldwide Wafer Fabrication
|
Brian
M. Shirley
|
39
|
Vice
President of Memory
|
Teruaki
Aoki
|
67
|
Director
|
James
W. Bagley
|
69
|
Director
|
Robert
L. Bailey
|
51
|
Director
|
Mercedes
Johnson
|
54
|
Director
|
Lawrence
N. Mondry
|
48
|
Director
|
Robert
E. Switz
|
62
|
Director
|
Mark W. Adams joined the
Company in June 2006. From January 2006 until he joined the Company,
Mr. Adams was the Chief Operating Officer of Lexar Media, Inc. Mr.
Adams served as the Vice President of Sales and Marketing for Creative Labs,
Inc. from December 2002 to January 2006. From March 2000 to September
2002, Mr. Adams was the Chief Executive Officer of Coresma, Inc. Mr.
Adams holds a BA in Economics from Boston College and an MBA from Harvard
Business School.
Steven R. Appleton joined the
Company in February 1983 and has served in various capacities with the Company
and its subsidiaries. Mr. Appleton first became an officer of the
Company in August 1989 and has served in various officer positions with the
Company since that time. From April 1991 until July 1992 and since
May 1994, Mr. Appleton has served on the Company’s Board of
Directors. From September 1994 to June 2007, Mr. Appleton served as
the Chief Executive Officer, President and Chairman of the Board of Directors of
the Company. In June 2007, Mr. Appleton relinquished his position as
President of the Company but retained his positions of Chief Executive Officer
and Chairman of the Board. Mr. Appleton is a member of the Board of
Directors of National Semiconductor Corporation. Mr. Appleton holds a
BA in Business Management from Boise State University.
Kipp A. Bedard joined the
Company in November 1983 and has served in various capacities with the Company
and its subsidiaries. Mr. Bedard first became an officer of the
Company in April 1990 and has served in various officer positions since that
time. Since January 1994, Mr. Bedard has served as Vice President of
Investor Relations for the Company. Mr. Bedard holds a BBA in
Accounting from Boise State University.
D. Mark Durcan joined the
Company in June 1984 and has served in various technical positions with the
Company and its subsidiaries since that time. Mr. Durcan was
appointed Chief Operating Officer in February 2006 and President in June
2007. Mr. Durcan has been an officer of the Company since
1996. Mr. Durcan holds a BS and MChE in Chemical Engineering from
Rice University.
Ronald C. Foster joined the
Company in April 2008 after serving as a member of the Board of Directors from
June 2004 to April 2005. From March 2005 to March 2008, he was the
Chief Financial Officer for FormFactor, Inc. Mr. Foster previously
served in senior financial management positions for Hewlett-Packard, Applied
Materials, Novell and JDS Uniphase. Mr. Foster holds an MBA from the
University of Chicago and a BA in Economics from Whitman College.
Jay L. Hawkins joined the
Company in March 1984 and has served in various manufacturing positions for the
Company and its subsidiaries. Mr. Hawkins served as Vice President,
Manufacturing Administration from February 1996 through June 1997, at which time
he became Vice President of Operations. Mr. Hawkins holds a BBA in
Marketing from Boise State University.
Roderic W. Lewis joined the
Company in August 1991 and has served in various capacities with the Company and
its subsidiaries. Mr. Lewis has served as Vice President of Legal
Affairs, General Counsel and Corporate Secretary since July 1996. Mr.
Lewis holds a BA in Economics and Asian Studies from Brigham Young University
and a JD from Columbia University School of Law.
Patrick T. Otte has served as
the Company's Vice President of Human Resources since March 2007. Mr.
Otte joined Micron in 1987 and has served in various positions of increasing
responsibility, including Production Manager in several of Micron’s fabrication
facilities, Operations Manager for Micron Technology Italia S.r.l. and, Site
Director for the Company's facility in Manassas, Virginia. Mr. Otte holds a
Bachelor of Science degree from St. Paul Bible College in Minneapolis,
Minnesota.
Brian J. Shields joined the
Company in November 1986 and has served in various operational positions with
the Company. Mr. Shields first became an officer of the Company in
March 2003.
Brian M. Shirley joined the
Company in August 1992 and has served in various technical positions with the
Company. Mr. Shirley became an officer of the Company in February
2006. Mr. Shirley holds a BS in Electrical Engineering from Stanford
University.
Teruaki Aoki has served as
Vice Chairman of Sony Foundation for Education since July 2008. Dr.
Aoki has been associated with Sony since 1970 and has held various executive
positions, including Senior Executive Vice President and Executive Officer of
Sony Corporation as well as President and Chief Operating Officer of Sony
Electronics, a U.S. subsidiary. Dr. Aoki holds a Ph.D. in Material
Sciences from Northwestern University as well as a BS in Applied Physics from
the University of Tokyo. He was elected as an IEEE Fellow in 2003 and
serves as Advisory Board Member of Kellogg School of Management of Northwestern
University. Dr. Aoki also serves on the board of Citizen Holdings
Co., Ltd. Dr. Aoki is the Chairman of the Board’s Governance
Committee.
James W. Bagley became the
Executive Chairman of Lam Research Corporation (“Lam”), a supplier of
semiconductor manufacturing equipment, in June 2005. From August 1997
through June 2005, Mr. Bagley served as the Chairman and Chief Executive Officer
of Lam. Mr. Bagley is a member of the Board of Directors of Teradyne,
Inc. He has served on the Company’s Board of Directors since June
1997. Mr. Bagley holds a MS and BS in Electrical Engineering from
Mississippi State University.
Robert L. Bailey was the
President and Chief Executive Officer of PMC-Sierra (“PMC”) from July 1997 until
May 2008. PMC is a leading provider of broadband communication and
storage semiconductor solutions for the next-generation Internet. Mr.
Bailey has been a director of PMC since October 1996. Mr. Bailey
served as PMC’s President and Chief Executive Officer from July 1997 to May
2008. He has been Chairman of PMC’s Board of Directors since 2005 and
also served as PMC’s Chairman from February 2000 until February
2003. Mr. Bailey served as President, Chief Executive Officer and
director of PMC-Sierra, Ltd., PMC's Canadian operating subsidiary since December
1993. Mr. Bailey was employed by AT&T-Microelectronics (now a
division of LSI Logic) from August 1989 to November 1993, where he served as
Vice President and General Manager, and at Texas Instruments in various
management positions from June 1979 to August 1989. Mr. Bailey holds
a BS degree in Electrical Engineering from the University of Bridgeport and an
MBA from the University of Dallas.
Mercedes Johnson was the
Senior Vice President and Chief Financial Officer of Avago Technologies Limited,
a semiconductor company, from December 2005 to August 2008. Prior to
that, she served as the Senior Vice President, Finance, of Lam from June 2004 to
January 2005 and as Lam’s Chief Financial Officer from May 1997 to May
2004. Before joining Lam, Ms. Johnson spent 10 years with Applied
Materials, Inc., where she served in various senior financial management
positions, including Vice President and Worldwide Operations
Controller. Ms. Johnson holds a degree in Accounting from the
University of Buenos Aires and currently serves on the Board of Directors for
Intersil Corporation.
Lawrence N. Mondry was the
President and Chief Executive Officer of CSK Auto Corporation, (“CSK”), a
specialty retailer of automotive aftermarket parts, from June 2006 to July
2008. Prior to his appointment at CSK, Mr. Mondry served as the Chief
Executive Officer of CompUSA Inc. from November 2003 to May 2006. Mr.
Mondry joined CompUSA in 1990. Mr. Mondry currently serves on the
Board of Directors of CSK. Mr. Mondry is the Chairman of the Board’s
Compensation Committee.
Robert E. Switz is currently
Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc.,
(“ADC”), a supplier of network infrastructure products and
services. Mr. Switz has been with ADC since 1994 and prior to his
current position, served ADC as Executive Vice President and Chief Financial
Officer. Mr. Switz holds an MBA from the University of Bridgeport as
well as a degree in Marketing/Economics from Quinnipiac
University. Mr. Switz also serves on the Board of Directors for ADC
and Broadcom Corporation. Mr. Switz is the Chairman of the Board’s
Audit Committee.
There is no family relationship between
any director or executive officer of the Company.
Item
1A. Risk
Factors
In addition to the factors discussed
elsewhere in this Form 10-K, the following are important factors which could
cause actual results or events to differ materially from those contained in any
forward-looking statements made by or on behalf of the Company.
We
have experienced dramatic declines in average selling prices for our
semiconductor memory products which have adversely affected our
business.
For 2008 average selling prices of DRAM
products and NAND Flash products decreased approximately 50% and 65%,
respectively, as compared to 2007. For 2007, average selling prices
of DRAM products and NAND Flash products decreased 23% and 56%, respectively, as
compared to 2006. In other recent years, we also have experienced
significant annual decreases in per gigabit average selling prices for our
memory products including: 34% in 2006, 24% in 2005, 17% in 2003, 53% in 2002
and 60% in 2001. At times, average selling prices for our memory
products have been below our costs. We recorded inventory write-downs
of $282 million in 2008 and $20 million in 2007 as a result of significant
decreases in average selling prices for our semiconductor memory
products. If the estimated market values of products held in finished
goods and work in process inventories at a quarter end date are below the
manufacturing cost of these products, we recognize charges to cost of goods sold
to write down the carrying value of our inventories to market
value. Future charges for inventory write-downs could be
significantly larger than the amount recorded in 2008 and 2007. If
average selling prices for our memory products remain depressed or decrease
faster than we can decrease per gigabit costs, as they recently have, our
business, results of operations or financial condition could be materially
adversely affected.
We
may be unable to generate sufficient cash flows or obtain access to external
financing necessary to fund our operations and make adequate capital
investments.
Our cash flows from operations depend
primarily on the volume of semiconductor memory sold, average selling prices and
per unit manufacturing costs. To develop new product and process
technologies, support future growth, achieve operating efficiencies and maintain
product quality, we must make significant capital investments in manufacturing
technology, facilities and capital equipment, research and development, and
product and process technology. We currently estimate our capital
spending to approximate between $1.0 billion to $1.3 billion for
2009. Cash and investments of IM Flash and TECH are generally not
available to finance our other operations. In the past we have
utilized external sources of financing and access to capital markets has
historically been very important to us. As a result of the severe
downturn in the semiconductor memory market, the downturn in general economic
conditions, and the adverse conditions in the credit markets, financing
instruments that we have used in the past are currently not available to us and
may not be available to us for extended periods. There can be no
assurance that we will be able to generate sufficient cash flows or find other
sources of financing to fund our operations; make adequate capital investments
to remain competitive in terms of technology development and cost efficiency; or
access capital markets. Our inability to do the foregoing could have
a material adverse effect on our business and results of
operations.
We
may be unable to reduce our per gigabit manufacturing costs at the rate average
selling prices decline.
Our gross margins are dependent upon
continuing decreases in per gigabit manufacturing costs achieved through
improvements in our manufacturing processes, including reducing the die size of
our existing products. In future periods, we may be unable to reduce
our per gigabit manufacturing costs at sufficient levels to increase gross
margins due to factors, including, but not limited to, strategic product
diversification decisions affecting product mix, the increasing complexity of
manufacturing processes, changes in process technologies or products that
inherently may require relatively larger die sizes. Per gigabit
manufacturing costs may also be affected by the relatively smaller production
quantities and shorter product lifecycles of certain specialty memory
products.
The
semiconductor memory industry is highly competitive.
We face intense competition in the
semiconductor memory market from a number of companies, including Elpida Memory,
Inc.; Hynix Semiconductor Inc.; Qimonda AG; Samsung Electronics Co., Ltd.;
SanDisk Corporation; Toshiba Corporation and from emerging companies in Taiwan
and China, who have significantly expanded the scale of their
operations. Some of our competitors are large corporations or
conglomerates that may have greater resources to withstand downturns in the
semiconductor markets in which we compete, invest in technology and capitalize
on growth opportunities.
Our competitors seek to increase
silicon capacity, improve yields, reduce die size and minimize mask levels in
their product designs. The transitions to smaller line-width process
technologies and 300mm wafers in the industry have resulted in significant
increases in the worldwide supply of semiconductor memory and will likely lead
to future increases. Increases in worldwide supply of semiconductor
memory also result from semiconductor memory fab capacity expansions, either by
way of new facilities, increased capacity utilization or reallocation of other
semiconductor production to semiconductor memory production. We and
several of our competitors have significantly increased production in recent
periods through construction of new facilities or expansion of existing
facilities. Increases in worldwide supply of semiconductor memory, if
not accompanied with commensurate increases in demand, would lead to further
declines in average selling prices for our products and would materially
adversely affect our business, results of operations or financial
condition.
Our
NAND Flash memory operations involve numerous risks.
As a result of severe oversupply in the
NAND Flash market, our average selling prices of NAND Flash products for 2008
decreased approximately 65% as compared to 2007 after decreasing 56% for 2007 as
compared to 2006. As a result, we experienced negative gross margins
on sales of our NAND Flash products in 2008. In October 2008, we
announced that our IM Flash joint venture with Intel Corporation will
discontinue production of 200mm wafer NAND flash memory at Micron’s Boise
facility. The NAND Flash production shutdown will reduce IM Flash’s
NAND flash production by approximately 35,000 200mm wafers per
month. In addition, we and Intel agreed to suspend tooling and the
ramp of production NAND Flash at IM Flash’s Singapore wafer fabrication
plant. A continuation of the challenging conditions in the NAND Flash
market will materially adversely affect our business, results of operations and
financial condition.
Our joint ventures and strategic partnerships involve numerous risks.
We have entered into partnering
arrangements to manufacture products and develop new manufacturing process
technologies and products. These arrangements include our IM Flash
NAND flash joint ventures with Intel, our DRAM joint ventures with Nanya, our
TECH DRAM joint venture and our MP Mask joint venture with
Photronics. These strategic partnerships and joint ventures are
subject to various risks that could adversely affect the value of our
investments and our results of operations. These risks include the
following:
·
|
our interests could diverge from our partners in the future or we may not be able to agree with partners on the amount, timing or nature of further investments in our joint venture;
|
·
|
due to financial constraints, our partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
|
·
|
the terms of our arrangements may turn out to be unfavorable;
|
·
|
cash flows may be inadequate to fund increased capital requirements;
|
·
|
we may experience difficulties in transferring technology to joint ventures;
|
·
|
we may experience difficulties and delays in ramping production from joint ventures;
and
|
·
|
political or economic instability may occur in the countries where our joint ventures and/or partners are
located.
|
If our joint ventures and strategic partnerships are unsuccessful our business,
results of operations or financial
condition may be adversely affected.
Economic
conditions may harm our business.
Economic and business conditions,
including a continuing downturn in the semiconductor memory industry or the
overall economy could adversely affect our business. Adverse
conditions may affect consumer demand for devices that incorporate our products
such as mobile phones, personal computers, Flash memory cards and USB
devices. Reduced demand for our products could result in market
oversupply and significant decreases in our selling prices. A
continuation of conditions in credit markets would limit our ability to obtain
external financing to fund our operations and capital
expenditures. In addition, we may experience losses on our holdings
of cash and investments due to failures of financial institutions and other
parties. Difficult economic conditions may also result in a higher
rate of losses on our accounts receivables due to credit defaults. As
a result, our business, results of operations or financial condition could be
materially adversely affected.
We
may incur additional restructure charges or not realize the expected benefits of
new initiatives to reduce costs across our operations.
On October 9, 2008 we announced a plan
to restructure our memory operations including IM Flash’s shutdown of 200mm
wafer NAND flash memory production at our Boise facility. The NAND
Flash production shutdown will reduce IM Flash’s NAND flash production by
approximately 35,000 200mm wafers per month. In addition, we and
Intel agreed to suspend tooling and the ramp of production at IM Flash’s
Singapore wafer fabrication plant. As part of this restructuring, we
plan to reduce our global workforce by approximately 15 percent during 2009 and
2010. Cash costs for restructuring and other related expenses
incurred in connection with this restructuring are anticipated to be
approximately $60 million, and the benefit to our cash operating results for
2009 is expected to exceed $175 million. We may incur additional
restructure costs or not realize the expected benefits of these new
initiatives. As a result of these initiatives, we expect to lose
production output, incur restructuring or other infrequent charges and we may
experience disruptions in our operations, loss of key personnel and difficulties
in delivering products timely.
Our
acquisition of a 35.6% interest in Inotera Memories, Inc. involves numerous
risks.
On October 12, 2008, we announced that
we had entered into an agreement to acquire Qimonda AG’s 35.6% ownership stake
in Inotera Memories, Inc., a Taiwanese DRAM memory manufacturer, for $400
million in cash. We received commitments of $285 million of term
loans to fund this acquisition in part. Inotera is expected to
implement the Company’s stack process technology. We expect to
eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50%
of Inotera’s output. Our acquisition of an interest in Inotera
involves numerous risks including the following:
·
|
difficulties
in converting Inotera production from Qimonda’s trench technology to our
stack technology;
|
·
|
difficulties
in obtaining financing for capital expenditures necessary to convert
Inotera production to our stack
technology;
|
·
|
increasing
debt to finance the acquisition;
|
·
|
uncertainties
around the timing and amount of wafer supply
received;
|
·
|
obligations
during the technology transition period to procure product based on a
competitor’s technology which may be difficult to sell and provide product
support for due to our limited understanding of the
technology;
|
·
|
uncertainties
relating to Qimonda’s purchase of certain agreed quantities of products
made using Qimonda’s trench technology during the technology transition
period;
|
·
|
uncertainties
relating to Qimonda’s financial stability prior to and after the final
closing of the transaction; and
|
·
|
the
inability to reach satisfactory joint venture
agreements.
|
As a result of these risks, we may be
unable to complete the Inotera acquisition or achieve our objectives for the
acquisition, which may materially adversely affect our business, results of
operations or financial condition.
An
adverse result in our litigation matters could materially adversely affect our
business, results of operations or financial condition.
On January 13, 2006, Rambus, Inc.
(“Rambus”) filed a lawsuit against us in the U.S. District Court for the
Northern District of California. Rambus alleges that certain of our
DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as eighteen Rambus
patents and seeks monetary damages, treble damages, and injunctive
relief. The accused products account for a significant portion
of our net sales. On June 2, 2006, we filed an answer and
counterclaim against Rambus alleging, among other things, antitrust and fraud
claims. Trial on the patent phase of that case is currently scheduled
to begin January 19, 2009.
On May 5, 2004, Rambus filed a lawsuit
in the Superior Court of the State of California (San Francisco County) against
us and other DRAM suppliers. The complaint alleges various causes of
action under California state law including conspiracy to restrict output and
fix prices on Rambus DRAM ("RDRAM"), and unfair competition. The
complaint seeks treble damages, punitive damages, attorneys’ fees, costs, and a
permanent injunction enjoining the defendants from the conduct alleged in the
complaint. Trial is currently scheduled to begin in March
2009. (See “Item 3. Legal Proceedings” for additional
details on these cases and other Rambus matters pending in Europe and
Delaware.)
We are unable to predict the outcome of
these lawsuits. The adverse resolution of these lawsuits could result
in significant liability and could have a material adverse effect on our
business, results of operations or financial condition.
An
adverse determination that our products or manufacturing processes infringe the
intellectual property rights of others could materially adversely affect our
business, results of operations or financial condition.
We are engaged in patent litigation
with Mosaid Technologies, Inc. ("Mosaid") in the U.S. District Court for the
Northern District of California. Mosaid alleges that certain of our
DRAM and CMOS image sensor products infringe up to twelve Mosaid patents and
seeks monetary damages, treble damages, and injunctive relief. The
accused products account for a significant portion of our net
sales. Trial is currently scheduled for June 5, 2009. (See
“Item 3. Legal Proceedings” for additional details.)
We are unable to predict the outcome of
assertions of infringement made against us. A court determination
that our products or manufacturing processes infringe the intellectual property
rights of others could result in significant liability and/or require us to make
material changes to our products and/or manufacturing processes. Any
of the foregoing results could have a material adverse effect on our business,
results of operations or financial condition.
We have a number of patent and
intellectual property license agreements. Some of these license
agreements require us to make one time or periodic payments. We may
need to obtain additional patent licenses or renew existing license agreements
in the future. We are unable to predict whether these license
agreements can be obtained or renewed on acceptable terms.
Allegations
of anticompetitive conduct.
A number of purported class action
price-fixing lawsuits have been filed against us and other DRAM
suppliers. Numerous cases have been filed in various state and
federal courts asserting claims on behalf of a purported class of individuals
and entities that indirectly purchased DRAM and/or products containing DRAM from
various DRAM suppliers during the time period from April 1, 1999 through at
least June 30, 2002. The complaints allege violations of the various
jurisdictions’ antitrust, consumer protection and/or unfair competition laws
relating to the sale and pricing of DRAM products and seek treble monetary
damages, restitution, costs, interest and attorneys’ fees. A number
of these cases have been removed to federal court and transferred to the U.S.
District Court for the Northern District of California (San Francisco) for
consolidated proceedings. On January 29, 2008, the Northern District
of California Court granted in part and denied in part our motion to dismiss the
plaintiff’s second amended consolidated complaint. The District Court
subsequently certified the decision for interlocutory appeal. On
February 27, 2008, plaintiffs filed a third amended complaint. On
June 26, 2008, the United States Court of Appeals for the Ninth Circuit accepted
plaintiffs’ interlocutory appeal. (See “Item 3. Legal
Proceedings” for additional details on these cases and related
matters.)
Various states, through their Attorneys
General, have filed suit against us and other DRAM manufacturers alleging
violations of state and federal competition laws. The amended
complaint alleges, among other things, violations of the Sherman Act, Cartwright
Act, and certain other states’ consumer protection and antitrust laws and seeks
damages, and injunctive and other relief. On October 3, 2008, the
California Attorney General filed a similar lawsuit in California Superior
Court, purportedly on behalf of local California government entities, alleging,
among other things, violations of the Cartwright Act and state unfair
competition law. (See “Item 3. Legal Proceedings” for
additional details on these cases and related matters.)
A number of purported class action
lawsuits have been filed against us and other SRAM suppliers asserting claims on
behalf of a purported class of individuals and entities that purchased SRAM
directly or indirectly from various SRAM suppliers. The complaints
allege price fixing in violation of federal antitrust laws and state antitrust
and unfair competition laws and seek treble monetary damages, restitution,
costs, interest and attorneys' fees. The first trial in these cases
is currently scheduled for September 2010. (See “Item
3. Legal Proceedings” for additional details on these cases and
related matters.)
Three purported class action lawsuits
alleging price-fixing of Flash products have been filed in Canada asserting
violations of the Canadian Competition Act. These cases assert claims
on behalf of a purported class of individuals and entities that purchased Flash
memory directly and indirectly from various Flash memory
suppliers. (See “Item 3. Legal Proceedings” for additional
details on these cases and related matters.)
We are unable to predict the outcome of
these lawsuits. An adverse court determination in any of these
lawsuits alleging violations of antitrust laws could result in significant
liability and could have a material adverse effect on our business, results of
operations or financial condition.
Allegations
of violations of securities laws.
On February 24, 2006, a number of
purported class action complaints were filed against us and certain of our
officers in the U.S. District Court for the District of Idaho alleging claims
under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder. The cases purport to
be brought on behalf of a class of purchasers of our stock during the period
February 24, 2001 to February 13, 2003. The five lawsuits have been
consolidated and a consolidated amended class action complaint was filed on July
24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys' fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of our stock during the
period from February 24, 2001 to September 18, 2002. (See “Item
3. Legal Proceedings” for additional details on these cases and
related matters.)
We are unable to predict the outcome of
these cases. An adverse court determination in any of the class
action lawsuits against us could result in significant liability and could have
a material adverse effect on our business, results of operations or financial
condition.
Covenants
in our debt instruments may obligate us to repay debt, increase contributions to
our TECH joint venture and limit our ability to obtain financing.
Our ability to comply with the
financial and other covenants contained in our debt may be affected by economic
or business conditions or other events. As of August 28, 2008, the
Company had notes payable of $108 million, denominated in Japanese yen, that
were subject to covenants, including the ratio of debt to equity. As
a result of financing that we are pursuing for our acquisition of a 35.6%
interest in Inotera, we may prepay all of this yen-denominated debt in the first
quarter of 2009 to avoid defaulting on these covenants. In addition,
as of August 28, 2008, our 73% owned TECH Semiconductor Singapore Pte. Ltd.,
(“TECH”) subsidiary, had $600 million outstanding under a credit facility with
covenants that, among other requirements, establish certain liquidity, debt
service coverage and leverage ratios for TECH and restrict TECH’s ability to
incur indebtedness, create liens and acquire or dispose of assets. If
TECH does not comply with these debt covenants and restrictions, this debt may
be deemed to be in default and the debt declared payable. Additionally, if
TECH is unable to repay its borrowings when due, the lenders under TECH’s credit
facility could proceed against substantially all of TECH’s
assets. We have guaranteed approximately 73% of the outstanding
amount of TECH’s credit facility, and our obligation increases to 100% of the
outstanding amount of the facility upon the occurrence of certain
conditions. If TECH’s debt is accelerated, we may not have sufficient
assets to repay amounts due. Existing covenant restrictions may limit
our ability to obtain additional debt financing and to avoid covenant defaults
we may have to pay off debt obligations and make additional contributions to
TECH, which could adversely affect our liquidity and financial
condition.
Products
that fail to meet specifications, are defective or that are otherwise
incompatible with end uses could impose significant costs on us.
Products that do not meet
specifications or that contain, or are perceived by our customers to contain,
defects or that are otherwise incompatible with end uses could impose
significant costs on us or otherwise materially adversely affect our business,
results of operations or financial condition.
Because the design and production
process for semiconductor memory is highly complex, it is possible that we may
produce products that do not comply with customer specifications, contain
defects or are otherwise incompatible with end uses. If, despite
design review, quality control and product qualification procedures, problems
with nonconforming, defective or incompatible products occur after we have
shipped such products, we could be adversely affected in several ways, including
the following:
·
|
we
may replace product or otherwise compensate customers for costs incurred
or damages caused by defective or incompatible product,
and
|
·
|
we
may encounter adverse publicity, which could cause a decrease in sales of
our products.
|
Our
debt level is higher than compared to historical periods.
We currently have a higher level of
debt compared to historical periods. As of August 28, 2008, we had
$2.7 billion of debt, and we will incur an additional $285 million of debt in
connection with our acquisition of a 35.6% interest in Inotera. We may need to
incur additional debt in the future. Our debt level could have a negative impact
on us. For example it could:
·
|
make
it more difficult for us to make payments on our
debt;
|
·
|
require
us to dedicate a substantial portion of our cash flow from operations and
other capital resources to debt
service;
|
·
|
limit
our future ability to raise funds for capital expenditures, acquisitions,
research and development and other general corporate
requirements;
|
·
|
increase
our vulnerability to adverse economic and semiconductor memory industry
conditions;
|
·
|
expose
us to fluctuations in interest rates with respect to that portion of our
debt which is at variable rate of interest;
and
|
·
|
require
us to make additional investments in joint ventures to maintain compliance
with financial covenants.
|
New product
development may be unsuccessful.
We are developing new products that
complement our traditional memory products or leverage their underlying design
or process technology. We have made significant investments in
product and process technologies and anticipate expending significant resources
for new semiconductor product development over the next several
years. The process to develop NAND Flash, Imaging and certain
specialty memory products requires us to demonstrate advanced functionality and
performance, many times well in advance of a planned ramp of production, in
order to secure design wins with our customers. There can be no
assurance that our product development efforts will be successful, that we will
be able to cost-effectively manufacture these new products, that we will be able
to successfully market these products or that margins generated from sales of
these products will recover costs of development efforts.
The
future success of our Imaging business will be dependent on continued market
acceptance of our products and the development, introduction and marketing of
new Imaging products.
We face competition in the image sensor
market from a number of suppliers of CMOS image sensors including OmniVision
Technologies, Inc.; Samsung Electronics Co., Ltd; Sony Corporation;
STMicroelectronics NV; Toshiba Corporation and from a number of suppliers of CCD
image sensors including Matsushita Electric Industrial Co., Ltd.; Sharp
Corporation and Sony Corporation. In recent periods, a number of new
companies have entered the CMOS image sensor market. Competitors
include many large domestic and international companies that have greater
presence in key markets, better access to certain customer bases, greater name
recognition and more established strategic and financial relationships than the
Company.
In recent years, our Imaging net sales
and gross margins decreased and we faced increased competition. There
can be no assurance that we will be able to grow or maintain our market share or
gross margins for Imaging products in the future. The success of our
Imaging business will depend on a number of factors, including:
·
|
development
of products that maintain a technological advantage over the products of
our competitors;
|
·
|
accurate
prediction of market requirements and evolving standards, including pixel
resolution, output interface standards, power requirements, optical lens
size, input standards and other
requirements;
|
·
|
timely
completion and introduction of new Imaging products that satisfy customer
requirements;
|
·
|
timely
achievement of design wins with prospective customers, as manufacturers
may be reluctant to change their source of components due to the
significant costs, time, effort and risk associated with qualifying a new
supplier; and
|
·
|
efficient,
cost-effective manufacturing as we transition to new products and higher
volumes.
|
Our
efforts to restructure our Imaging business may be unsuccessful.
We are exploring partnering
arrangements with outside parties regarding the separation of our Aptina Imaging
business to an independent entity in which we would retain a significant
minority ownership interest. To that end, we began operating our
Imaging business as a separate, wholly-owned, subsidiary in October
2008. To the extent we form a partnering arrangement, the resulting
business model may not be successful and the Imaging operations revenues and
margins could be adversely affected. We may incur significant costs
to convert Imaging operations to a new business structure and operations could
be disrupted. In addition, we may lose key personnel. If
our efforts to restructure the Imaging business are unsuccessful, our business,
results of operations or financial condition could be materially adversely
affected.
We
expect to make future acquisitions and alliances, which involve numerous
risks.
Acquisitions and the formation of
alliances such as joint ventures and other partnering arrangements, involve
numerous risks including the following:
·
|
difficulties
in integrating the operations, technologies and products of acquired or
newly formed entities;
|
·
|
increasing
capital expenditures to upgrade and maintain
facilities;
|
·
|
increasing
debt to finance any acquisition or formation of a new
business;
|
·
|
difficulties
in protecting our intellectual property as we enter into a greater number
of licensing arrangements;
|
·
|
diverting
management’s attention from normal daily
operations;
|
·
|
managing
larger or more complex operations and facilities and employees in separate
geographic areas; and
|
·
|
hiring
and retaining key employees.
|
Acquisitions of, or alliances with,
high-technology companies are inherently risky, and any future transactions may
not be successful and may materially adversely affect our business, results of
operations or financial condition.
Our
net operating loss and tax credit carryforwards may be limited.
We have significant net operating loss
and tax credit carryforwards. We have provided significant valuation
allowances against the tax benefit of such losses as well as certain tax credit
carryforwards. Utilization of these net operating losses and credit
carryforwards is dependent upon us achieving sustained
profitability. As a consequence of prior business acquisitions,
utilization of the tax benefits for some of the tax carryforwards is subject to
limitations imposed by Section 382 of the Internal Revenue Code and some portion
or all of these carryforwards may not be available to offset any future taxable
income. The determination of the limitations is complex and requires
significant judgment and analysis of past transactions.
Changes
in foreign currency exchange rates could materially adversely affect our
business, results of operations or financial condition.
Our financial statements are prepared
in accordance with U.S. GAAP and are reported in U.S. dollars. Across
our multi-national operations, there are transactions and balances denominated
in other currencies, primarily the euro, yen and Singapore dollar. We
recorded a net loss of $25 million from changes in currency exchange rates for
2008. We estimate that, based on its assets and liabilities
denominated in currencies other than the U.S. dollar as of August 28, 2008, a 1%
change in the exchange rate versus the U.S. dollar would result in foreign
currency gains or losses of approximately U.S. $1 million for the euro and
yen. In the event that the U.S. dollar weakens significantly compared
to the euro, yen or Singapore dollar, our results of operations or financial
condition will be adversely affected.
We
face risks associated with our international sales and operations that could
materially adversely affect our business, results of operations or financial
condition.
Sales to customers outside the United
States approximated 75% of our consolidated net sales for 2008. In
addition, we have manufacturing operations in China, Italy, Japan, Puerto Rico
and Singapore. Our international sales and operations are subject to
a variety of risks, including:
·
|
currency
exchange rate fluctuations;
|
·
|
export
and import duties, changes to import and export regulations, and
restrictions on the transfer of
funds;
|
·
|
political
and economic instability;
|
·
|
problems
with the transportation or delivery of our
products;
|
·
|
issues
arising from cultural or language differences and labor
unrest;
|
·
|
longer
payment cycles and greater difficulty in collecting accounts receivable;
and
|
·
|
compliance
with trade and other laws in a variety of
jurisdictions.
|
These factors may materially adversely
affect our business, results of operations or financial condition.
If
our manufacturing process is disrupted, our business, results of operations or
financial condition could be materially adversely affected.
We manufacture products using highly
complex processes that require technologically advanced equipment and continuous
modification to improve yields and performance. Difficulties in the
manufacturing process or the effects from a shift in product mix can reduce
yields or disrupt production and may increase our per gigabit manufacturing
costs. Additionally, our control over operations at our IM Flash,
TECH, Inotera, MeiYa and MP Mask joint ventures may be limited by our agreements
with our partners. From time to time, we have experienced minor
disruptions in our manufacturing process as a result of power outages,
improperly functioning equipment and equipment failures. If
production at a fabrication facility is disrupted for any reason, manufacturing
yields may be adversely affected or we may be unable to meet our customers'
requirements and they may purchase products from other
suppliers. This could result in a significant increase in
manufacturing costs or loss of revenues or damage to customer relationships,
which could materially adversely affect our business, results of operations or
financial condition.
Disruptions
in our supply of raw materials could materially adversely affect our business,
results of operations or financial condition.
Our operations require raw materials
that meet exacting standards. We generally have multiple sources of
supply for our raw materials. However, only a limited number of
suppliers are capable of delivering certain raw materials that meet our
standards. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases, lead frames and
molding compound.
Shortages may occur from time to time
in the future. In addition, disruptions in transportation lines could
delay our receipt of raw materials. Lead times for the supply of raw
materials have been extended in the past. If our supply of raw
materials is disrupted or our lead times extended, our business, results of
operations or financial condition could be materially adversely
affected.
Item
1B. Unresolved
Staff Comments
None.
Item
2. Properties
The Company’s corporate headquarters
are located in Boise, Idaho. The following is a summary of the
Company’s principal facilities:
Location
|
Principal
Operations
|
|
|
Boise,
Idaho
|
Wafer
fabrication, test and assembly, reticle manufacturing and
R&D
|
Lehi,
Utah
|
Wafer
fabrication
|
Manassas,
Virginia
|
Wafer
fabrication
|
Singapore
|
Two
wafer fabrication facilities and a test, assembly and module assembly
facility
|
Nishiwaki
City, Japan
|
Wafer
fabrication
|
Avezzano,
Italy
|
Wafer
fabrication
|
Nampa,
Idaho
|
Test
|
Aguadilla,
Puerto Rico
|
Module
assembly, test
|
Xi’an,
China
|
Test
|
The Company also owns and leases a
number of other facilities in locations throughout the world that are used for
design, research and development, and sales and marketing
activities. The Company’s facility in Lehi is owned and operated by
its IM Flash joint venture with Intel. (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Joint Ventures – NAND Flash Joint Ventures with Intel.”) One of the
Company’s wafer fabrication facilities in Singapore is owned by its TECH joint
venture and collateralizes, in part, TECH’s $600 million credit
facility. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor
Singapore Pte. Ltd.”) The Company’s other wafer fabrication facility
in Singapore is owned by its IM Flash Singapore joint venture. The IM
Flash Singapore facility was substantially completed in the first quarter of
2009 but has not been equipped. In October 2008, the Company and
Intel agreed to suspend tooling and the ramp of production at IM Flash’s
Singapore wafer fabrication plant. On October 9, 2008, the Company
announced that its IM Flash joint venture with Intel Corporation will
discontinue production of 200mm wafer NAND flash memory at Micron’s Boise
facility.
The Company believes that its existing
facilities are suitable and adequate for its present purposes. The
Company does not identify or allocate assets by operating
segment. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Geographic
Information.”)
Item
3. Legal
Proceedings
Patent
Matters
On August 28, 2000, the Company filed a
complaint against Rambus, Inc. (“Rambus”) in the U.S. District Court for the
District of Delaware seeking monetary damages and declaratory and injunctive
relief. Among other things, the Company’s complaint (as amended)
alleges violation of federal antitrust laws, breach of contract, fraud,
deceptive trade practices, and negligent misrepresentation. The
complaint also seeks a declaratory judgment (a) that certain Rambus patents are
not infringed by the Company, are invalid, and/or are unenforceable, (b) that
the Company has an implied license to those patents, and (c) that Rambus is
estopped from enforcing those patents against the Company. On
February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying
that the Company is entitled to relief, alleging infringement of the eight
Rambus patents named in the Company’s declaratory judgment claim, and seeking
monetary damages and injunctive relief. In the Delaware action, the
Company subsequently added claims and defenses based on Rambus’s alleged
spoliation of evidence and litigation misconduct. The spoliation and
litigation misconduct claims and defenses were heard in a bench trial before
Judge Robinson in October 2007. Post-trial briefing is complete, and
a decision on this phase is now pending.
A number of other suits involving
Rambus are currently pending in Europe alleging that certain of the Company’s
SDRAM and DDR SDRAM products infringe various of Rambus’ country counterparts to
its European patent 525 068, including: on September 1, 2000, Rambus filed suit
against Micron Semiconductor (Deutschland) GmbH in the District Court of
Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against the
Company and Reptronic (a distributor of the Company’s products) in the Court of
First Instance of Paris, France; on September 29, 2000, the Company filed suit
against Rambus in the Civil Court of Milan, Italy, alleging invalidity and
non-infringement. In addition, on December 29, 2000, the Company
filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging
invalidity and non-infringement of the Italian counterpart to European patent 1
004 956. Additionally, on August 14, 2001, Rambus filed suit against
Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim,
Germany alleging that certain of the Company’s DDR SDRAM products infringe
Rambus’ country counterparts to its European patent 1 022 642. In the
European suits against the
Company,
Rambus is seeking monetary damages and injunctive relief. Subsequent
to the filing of the various European suits, the European Patent Office (the
“EPO”) declared Rambus’ 525 068 and 1 004 956 European patents invalid and
revoked the patents. The declaration of invalidity with respect to
the '068 patent was upheld on appeal. The original claims of the '956
patent also were declared invalid on appeal, but the EPO ultimately granted a
Rambus request to amend the claims by adding a number of
limitations.
On January 13, 2006, Rambus filed a
lawsuit against the Company in the U.S. District Court for the Northern District
of California. The complaint alleges that certain of the Company’s
DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as eighteen Rambus
patents and seeks monetary damages, treble damages, and injunctive
relief. On June 2, 2006, the Company filed an answer and counterclaim
against Rambus alleging among other things, antitrust and fraud
claims. The Northern District of California Court subsequently
consolidated the antitrust and fraud claims and certain equitable defenses of
the Company and other parties against Rambus in a jury trial that began on
January 29, 2008. On March 26, 2008, a jury returned a verdict in
favor of Rambus on the Company’s antitrust and fraud claims. Trial on
the patent phase of that case is currently scheduled to begin January 19,
2009.
On July 24, 2006, the Company filed a
declaratory judgment action against Mosaid Technologies, Inc. (“Mosaid”) in the
U.S. District Court for the Northern District of California seeking, among other
things, a court determination that fourteen Mosaid patents are invalid, not
enforceable, and/or not infringed. On July 25, 2006, Mosaid filed a
lawsuit against the Company and others in the U.S. District Court for the
Eastern District of Texas alleging infringement of nine Mosaid
patents. On August 31, 2006, Mosaid filed an amended complaint adding
three additional Mosaid patents. On October 23, 2006, the California
Court dismissed the Company’s declaratory judgment suit based on lack of
jurisdiction. The Company appealed that decision to the U.S. Court of
Appeals for the Federal Circuit. On February 29, 2008, the U.S. Court
of Appeals for the Federal Circuit issued an order reversing the dismissal of
the Company’s declaratory judgment action filed in the U.S. District Court for
the Northern District of California and remanding the suit to that
Court. The Texas action was subsequently transferred to the
Northern District of California. Mosaid alleges that certain of the
Company’s DRAM and CMOS image sensor products infringe up to twelve Mosaid
patents and seeks monetary damages, treble damages, and injunctive
relief. The accused products account for a significant portion of our
net sales. Trial is currently scheduled for June 5,
2009.
The Company is unable to predict the
outcome of these suits. A court determination that the Company’s
products or manufacturing processes infringe the product or process intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing results could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Antitrust
Matters
A number of purported class action
price-fixing lawsuits have been filed against the Company and other DRAM
suppliers. Four cases have been filed in the U.S. District Court for
the Northern District of California asserting claims on behalf of a purported
class of individuals and entities that indirectly purchased DRAM and/or products
containing DRAM from various DRAM suppliers during the time period from April 1,
1999 through at least June 30, 2002. The complaints allege price
fixing in violation of federal antitrust laws and various state antitrust and
unfair competition laws and seek treble monetary damages, restitution, costs,
interest and attorneys’ fees. In addition, at least sixty-four cases
have been filed in various state courts asserting claims on behalf of a
purported class of indirect purchasers of DRAM. Cases have been filed
in the following states: Arkansas, Arizona, California, Florida,
Hawaii, Iowa, Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi,
Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New
Mexico, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Utah,
Vermont, Virginia, Wisconsin, and West Virginia, and also in the District of
Columbia and Puerto Rico. The complaints purport to be on behalf of a
class of individuals and entities that indirectly purchased DRAM and/or products
containing DRAM in the respective jurisdictions during various time periods
ranging from April 1999 through at least June 2002. The complaints
allege violations of the various jurisdictions’ antitrust, consumer protection
and/or unfair competition laws relating to the sale and pricing of DRAM products
and seek treble monetary damages, restitution, costs, interest and attorneys’
fees. A number of these cases have been removed to federal court and
transferred to the U.S. District Court for the Northern District of California
(San Francisco) for consolidated proceedings. On January 29, 2008,
the Northern District of California Court granted in part and denied in part the
Company’s motion to dismiss plaintiff’s second amended consolidated
complaint. Plaintiffs subsequently filed a motion seeking
certification for interlocutory appeal of the decision. On February
27, 2008, plaintiffs filed a third amended complaint. On June 26,
2008, the United States Court of Appeals for the Ninth Circuit accepted
plaintiffs’ interlocutory appeal.
Additionally, three cases have been
filed in the following Canadian courts: Superior Court, District of
Montreal, Province of Quebec; Ontario Superior Court of Justice, Ontario; and
Supreme Court of British Columbia, Vancouver Registry, British
Columbia. The substantive allegations in these cases are similar to
those asserted in the cases filed in the United States. In May and
June 2008 respectively, plaintiffs’ motion for class certification was denied in
the British Columbia and Quebec cases. Plaintiffs have filed an
appeal of each of those decisions.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Three states, Ohio, New Hampshire, and Texas, subsequently
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware, and
Vermont subsequently voluntarily dismissed their claims. The amended
complaint alleges, among other things, violations of the Sherman Act, Cartwright
Act, and certain other states’ consumer protection and antitrust laws and seeks
damages, and injunctive and other relief. Additionally, on July 13,
2006, the State of New York filed a similar suit in the U.S. District Court for
the Southern District of New York. That case was subsequently
transferred to the U.S. District Court for the Northern District of California
for pre-trial purposes. The State of New York filed an amended
complaint on October 1, 2007. On October 3, 2008, the California
Attorney General filed a similar lawsuit in California Superior Court,
purportedly on behalf of local California government entities, alleging, among
other things, violations of the Cartwright Act and state unfair competition
law.
On February 28, 2007, February 28, 2007
and March 8, 2007, cases were filed against the Company and other manufacturers
of DRAM in the U.S. District Court for the Northern District of California by
All American Semiconductor, Inc., Jaco Electronics, Inc. and DRAM Claims
Liquidation Trust, respectively, that opted-out of a direct purchaser class
action suit that was settled. The complaints allege, among other
things, violations of federal and state antitrust and competition laws in the
DRAM industry, and seek damages, injunctive relief, and other
remedies.
On October 11, 2006, the Company
received a grand jury subpoena from the U.S. District Court for the Northern
District of California seeking information regarding an investigation by the DOJ
into possible antitrust violations in the “Static Random Access Memory” or
“SRAM” industry. The Company believes that it is not a target of the
investigation and is cooperating with the DOJ in its investigation of the SRAM
industry.
Subsequent to the issuance of subpoenas
to the SRAM industry, a number of purported class action lawsuits have been
filed against the Company and other SRAM suppliers. Six cases have
been filed in the U.S. District Court for the Northern District of California
asserting claims on behalf of a purported class of individuals and entities that
purchased SRAM directly from various SRAM suppliers during the period from
November 1, 1996 through December 31, 2005. Additionally, at least
seventy-four cases have been filed in various U.S. District Courts asserting
claims on behalf of a purported class of individuals and entities that
indirectly purchased SRAM and/or products containing SRAM from various SRAM
suppliers during the time period from November 1, 1996 through December 31,
2006. In September 2008, a class of direct purchasers was certified,
and plaintiffs were granted leave to amend their complaint to cover
Pseudo-Static RAM or “PSRAM” products as well. The complaints
allege price fixing in violation of federal antitrust laws and state antitrust
and unfair competition laws and seek treble monetary damages, restitution,
costs, interest and attorneys’ fees.
Three purported class action SRAM
lawsuits also have been filed in Canada, on behalf of direct and indirect
purchasers, alleging violations of the Canadian Competition Act. The
substantive allegations in these cases are similar to those asserted in the SRAM
cases filed in the United States.
In addition, three purported class
action lawsuits alleging price-fixing of Flash products have been filed in
Canada, asserting violations of the Canadian Competition Act. These
cases assert claims on behalf of a purported class of individuals and entities
that purchased Flash memory directly and indirectly from various Flash memory
suppliers.
On May 5, 2004, Rambus filed a
complaint in the Superior Court of the State of California (San Francisco
County) against the Company and other DRAM suppliers. The complaint
alleges various causes of action under California state law including a
conspiracy to restrict output and fix prices on Rambus DRAM (“RDRAM”) and unfair
competition. Trial is currently scheduled to begin in March
2009. The complaint seeks treble damages, punitive damages,
attorneys’ fees, costs, and a permanent injunction enjoining the defendants from
the conduct alleged in the complaints.
The Company is unable to predict the
outcome of these lawsuits and investigations. The final resolution of
these alleged violations of antitrust laws could result in significant liability
and could have a material adverse effect on the Company’s business, results of
operations or financial condition.
Securities
Matters
On February 24, 2006, a putative class
action complaint was filed against the Company and certain of its officers in
the U.S. District Court for the District of Idaho alleging claims under Section
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct or the Company’s operations and
financial results. The complaint seeks unspecified damages, interest,
attorneys’ fees, costs, and expenses. On December 19, 2007, the Court
issued an order certifying the class but reducing the class period to purchasers
of the Company’s stock during the period from February 24, 2001 to September 18,
2002.
In addition, on March 23, 2006 a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and was
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleges breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint seeks
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint is derivative in nature and does not seek monetary damages from the
Company. However, the Company may be required, throughout the
pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On January 25, 2008, the Court granted the Company’s
motion to dismiss the second amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Court of Appeals.
The Company is unable to predict the
outcome of these cases. A court determination in any of these actions
against the Company could result in significant liability and could have a
material adverse effect on the Company’s business, results of operations or
financial condition.
(See
“Item 1A. Risk Factors.”)
Item
4. Submission of
Matters to a Vote of Security Holders
There were no matters submitted to a
vote of security holders during the fourth quarter of 2008.
PART
II
Item
5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market
for Common Stock
The Company’s common stock is listed on
the New York Stock Exchange and is traded under the symbol “MU.” The
following table represents the high and low closing sales prices for the
Company’s common stock for each quarter of 2008 and 2007, as reported by
Bloomberg L.P.
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
4th quarter
|
|
$ |
8.53 |
|
|
$ |
4.24 |
|
3rd quarter
|
|
|
8.84 |
|
|
|
5.46 |
|
2nd quarter
|
|
|
9.26 |
|
|
|
5.75 |
|
1st quarter
|
|
|
11.79 |
|
|
|
7.94 |
|
2007:
|
|
|
|
|
|
|
|
|
4th quarter
|
|
$ |
13.98 |
|
|
$ |
10.60 |
|
3rd quarter
|
|
|
12.36 |
|
|
|
10.95 |
|
2nd quarter
|
|
|
14.93 |
|
|
|
11.86 |
|
1st quarter
|
|
|
18.57 |
|
|
|
13.57 |
|
Holders
of Record
As of October 17, 2008, there were
3,212 shareholders of record of the Company’s common stock.
Dividends
The Company has not declared or paid
cash dividends since 1996 and does not intend to pay cash dividends on its
common stock for the foreseeable future.
Equity
Compensation Plan Information
The information required by this item
is incorporated by reference to the information set forth in Item 12 of this
Annual Report on Form 10-K.
Issuer
Purchases of Equity Securities
During the fourth quarter of 2008, the
Company acquired, as payment of withholding taxes in connection with the vesting
of restricted stock and restricted stock unit awards, 26,218 shares of its
common stock at an average price of $6.17 per share. In the fourth
quarter of 2008, the Company retired the 26,218 shares acquired in the fourth
quarter of 2008.
Period
|
|
(a)
Total number of shares purchased
|
|
|
(b)
Average price paid per share
|
|
|
(c)
Total number of shares (or units) purchased as part of publicly announced
plans or programs
|
|
|
(d)
Maximum number (or approximate dollar value) of shares (or units) that may
yet be purchased under the plans or programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
30, 2008 – July 3, 2008
|
|
|
15,607 |
|
|
$ |
7.23 |
|
|
|
N/A |
|
|
|
N/A |
|
July
4, 2008 – July 31, 2008
|
|
|
9 |
|
|
|
5.45 |
|
|
|
N/A |
|
|
|
N/A |
|
August
1, 2008 – August 28, 2008
|
|
|
10,602 |
|
|
|
4.61 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
26,218 |
|
|
|
6.17 |
|
|
|
|
|
|
|
|
|
Performance
Graph
The following graph illustrates a
five-year comparison of cumulative total returns for the Company’s Common Stock,
the S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX)
from August 28, 2003, through August 28, 2008.
Note: Management cautions
that the stock price performance information shown in the graph below is
provided as of fiscal year-end and may not be indicative of current stock price
levels or future stock price performance.
The Company operates on a 52 or 53 week
fiscal year which ends on the Thursday closest to August
31. Accordingly, the last day of the Company’s fiscal year
varies. For consistent presentation and comparison to the industry
indices shown herein, the Company has calculated its stock performance graph
assuming an August 31 year end. The performance graph assumes $100
invested on August 31, 2003 in Common Stock of Micron Technology, Inc., the
S&P 500 Composite Index and the Philadelphia Semiconductor Index
(SOX). Any dividends paid during the period presented are assumed to
be reinvested. The performance was plotted using the following
data:
Performance
Graph Data
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micron
Technology, Inc.
|
|
$ |
100 |
|
|
$ |
80 |
|
|
$ |
83 |
|
|
$ |
120 |
|
|
$ |
80 |
|
|
$ |
30 |
|
S&P
500 Composite Index
|
|
|
100 |
|
|
|
111 |
|
|
|
125 |
|
|
|
137 |
|
|
|
157 |
|
|
|
140 |
|
Philadelphia
Semiconductor Index (SOX)
|
|
|
100 |
|
|
|
82 |
|
|
|
105 |
|
|
|
100 |
|
|
|
112 |
|
|
|
80 |
|
Item
6. Selected
Financial Data
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,841 |
|
|
$ |
5,688 |
|
|
$ |
5,272 |
|
|
$ |
4,880 |
|
|
$ |
4,404 |
|
Gross
margin
|
|
|
(55 |
) |
|
|
1,078 |
|
|
|
1,200 |
|
|
|
1,146 |
|
|
|
1,314 |
|
Operating
income (loss)
|
|
|
(1,595 |
) |
|
|
(280 |
) |
|
|
350 |
|
|
|
217 |
|
|
|
250 |
|
Net
income (loss)
|
|
|
(1,619 |
) |
|
|
(320 |
) |
|
|
408 |
|
|
|
188 |
|
|
|
157 |
|
Diluted
earnings (loss) per share
|
|
|
(2.10 |
) |
|
|
(0.42 |
) |
|
|
0.57 |
|
|
|
0.29 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
1,362 |
|
|
|
2,616 |
|
|
|
3,079 |
|
|
|
1,290 |
|
|
|
1,231 |
|
Total
current assets
|
|
|
3,779 |
|
|
|
5,234 |
|
|
|
5,101 |
|
|
|
2,926 |
|
|
|
2,639 |
|
Property,
plant and equipment, net
|
|
|
8,811 |
|
|
|
8,279 |
|
|
|
5,888 |
|
|
|
4,684 |
|
|
|
4,713 |
|
Total
assets
|
|
|
13,430 |
|
|
|
14,818 |
|
|
|
12,221 |
|
|
|
8,006 |
|
|
|
7,760 |
|
Total
current liabilities
|
|
|
1,598 |
|
|
|
2,026 |
|
|
|
1,661 |
|
|
|
979 |
|
|
|
972 |
|
Long-term
debt
|
|
|
2,451 |
|
|
|
1,987 |
|
|
|
405 |
|
|
|
1,020 |
|
|
|
1,028 |
|
Noncontrolling
interests in subsidiaries
|
|
|
2,865 |
|
|
|
2,607 |
|
|
|
1,568 |
|
|
|
-- |
|
|
|
-- |
|
Total
shareholders’ equity
|
|
|
6,178 |
|
|
|
7,752 |
|
|
|
8,114 |
|
|
|
5,847 |
|
|
|
5,615 |
|
In 2008, the Company recorded a charge
of $463 million to write off all the goodwill associated with the Company’s
memory segment.
In the third quarter of 2008, the
Company and Nanya Technology Corporation (“Nanya”) formed MeiYa, a joint venture
to manufacture stack DRAM and sell those products exclusively to the Company and
Nanya. As part of this transaction, the Company transferred and
licensed certain intellectual property related to the manufacture of stack DRAM
products to Nanya and licensed certain intellectual property from
Nanya. The Company and Nanya also agreed to jointly develop process
technology and designs to manufacture stack DRAM products with each party
bearing its own development costs until such time that the development costs
exceed a specified amount, following which such costs would be
shared. Under this arrangement, the Company is to receive an
aggregate of $232 million from Nanya and MeiYa through 2010 for
licensing and technology transfer fees, of which the Company realized $40
million of revenue in 2008. The Company will also receive royalties
from Nanya on the sale of stack DRAM products manufactured by or for
Nanya. On October 12, 2008, the Company announced that it had entered
into an agreement to acquire Qimonda AG’s 35.6% ownership stake in Inotera
Memories, Inc. (“Inotera”), a Taiwanese DRAM memory manufacturer, for $400
million in cash. The Company received commitments for $285 million of
term loans to fund this acquisition in part. Inotera is expected to
implement the Company’s stack process technology, and it is anticipated that the
Company will receive royalties on Inotera’s production that flows to Nanya, a
35.6% stakeholder in Inotera. The Company will eventually gain access
to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s
output. In connection with this acquisition, the Company expects to
enter into a series of agreements with Nanya to restructure MeiYa. It
is anticipated that both parties will cease future resource commitments to MeiYa
and redirect those resources to Inotera. (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Joint Ventures – DRAM Joint Ventures with Nanya Technology
Corporation.”)
The Company has formed two joint
ventures, IM Flash, with Intel Corporation (“Intel”) to manufacture NAND Flash
memory products for the exclusive benefit of the partners: IM Flash
Technologies, LLC, which began operations in the second quarter of 2006, and IM
Flash Singapore LLP, which began operations in the third quarter of
2007. The Company owns 51% and Intel owns 49% of IM
Flash. The financial results of IM Flash are included in the
consolidated financial statements of the Company. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Joint Ventures – NAND Flash Joint Venture with
Intel.”)
The Company began consolidating the
financial results of its TECH Semiconductor joint venture (“TECH”) as of the
beginning of the third quarter of 2006. In the third quarter of 2007,
the Company acquired all of the shares of TECH common stock held by Singapore
Economic Development Board, which increased the Company’s ownership interest in
TECH from 43% to 73%. (See “Item 8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures
– TECH Semiconductor Singapore Pte. Ltd.”)
In the fourth quarter of 2006, the
Company acquired Lexar Media, Inc., a designer, developer, manufacturer and
marketer of Flash memory products, in a stock-for-stock merger.
In the third quarter of 2006, the
Company formed a joint venture, MP Mask Technology Center, LLC (“MP Mask”), with
Photronics, Inc. to produce photomasks for leading-edge and advanced next
generation semiconductors. The Company owns 50.01% and Photronics,
Inc. owns 49.99% of MP Mask. The financial results of MP Mask are
included in the consolidated financial results of the Company. (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Joint Ventures – MP Mask Technology Center,
LLC.”)
(See “Item 1A. Risk Factors” and “Item
8. Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements.”)
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion contains trend
information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not
limited to, statements such as those made in “Overview” regarding the costs and
impact of restructure plans, the Company’s DRAM development costs relative to
Nanya, royalty payments from Inotera production, capital commitments for the
Company’s joint ventures with Nanya Technology Corporation, the supply of DRAM
wafers from Inotera Memories, Inc. and manufacturing plans for CMOS image
sensors; in “Net Sales” regarding increases in NAND Flash memory production; in
“Gross Margin” regarding future charges for inventory write-downs; in
“Restructure” regarding the costs and impact of restructure plans; in
“Stock-based Compensation” regarding future stock-based compensation
costs; in “Liquidity and Capital Resources” regarding capital
spending in 2009, plans to pay off certain debt, future distributions from IM
Flash to Intel and future contributions to joint ventures; and in “Recently
Issued Accounting Standards” regarding the impact from the adoption of new
accounting standards. The Company’s actual results could differ
materially from the Company’s historical results and those discussed in the
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those identified in “Item
1A. Risk Factors.” This discussion should be read in conjunction with
the Consolidated Financial Statements and accompanying notes for the year ended
August 28, 2008. All period references are to the Company’s fiscal
periods unless otherwise indicated. The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31. All
tabular dollar amounts are in millions. All production data reflects
production of the Company and its consolidated joint ventures.
Overview
The Company is a global manufacturer of
semiconductor devices, principally semiconductor memory products (including DRAM
and NAND Flash) and CMOS image sensors. The Company operates in two
segments: Memory and Imaging. Its products are used in a
broad range of electronic applications including personal computers,
workstations, network servers, mobile phones and other consumer applications
including Flash memory cards, USB storage devices, digital still cameras, MP3/4
players and in automotive applications. The Company markets its
products through its internal sales force, independent sales representatives and
distributors primarily to original equipment manufacturers and retailers located
around the world. The Company’s success is largely dependent on the
market acceptance of a diversified portfolio of semiconductor memory products,
efficient utilization of the Company’s manufacturing infrastructure, successful
ongoing development of advanced process technologies and generation of
sufficient return on research and development investments.
In 2008 and 2007 the semiconductor
memory industry experienced a severe downturn due to a significant oversupply of
products. Average selling prices per gigabit for the Company’s DRAM
products and NAND Flash products in 2008 were down approximately 50% and 65%,
respectively, as compared to 2007 and down approximately 65% and 85%,
respectively, as compared to 2006. As a result of these market
conditions, the Company and other semiconductor memory manufacturers have
reported negative gross margins and substantial losses in recent
periods. In 2008, the Company reported a net loss $1.6 billion and
many of its competitors reported negative cash flows from
operations. In response to these market conditions, on October 9,
2008 the Company announced a plan to restructure its memory
operations. The Company’s IM Flash joint venture with Intel
Corporation will discontinue production of 200mm wafer NAND flash memory at
Micron’s Boise facility. The NAND Flash production shutdown will
reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per
month. In addition, the Company and Intel agreed to suspend tooling
and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication
plant. As part of the restructuring, the Company plans to reduce its
global workforce by approximately 15 percent during 2009 and
2010. Cash costs for restructuring and other related expenses
incurred in connection with this restructuring are anticipated to be
approximately $60 million, and the benefit to the Company’s cash operating
results for 2009 is expected to exceed $175 million.
The effects of the worsening global
economy and the tightening credit market are also making it increasingly
difficult for semiconductor memory manufacturers to obtain external sources of
financing to fund their operations. Although the Company believes
that it is better positioned than some of its peers, it faces challenges in the
current and near term that require it to continue to make significant
improvements in its competitiveness. Additionally, the Company is
pursuing financing alternatives, delaying capital expenditures and implementing
further cost-cutting initiatives.
The Company is focused on improving its
competitiveness by developing new products, advancing its technology and
reducing costs. In addition, the Company increased its manufacturing
capacity in 2008 and 2007 by ramping NAND Flash production at two 300mm wafer
fabrication facilities and converting another facility to 300mm DRAM wafer
fabrication. To reduce costs, the Company implemented restructure
initiatives aimed at reducing manufacturing and overhead costs through
outsourcing, relocation of operations and workforce reductions.
The Company makes significant ongoing
investments to develop proprietary product and process technology that is
implemented in its worldwide manufacturing facilities and through its joint
ventures to enable the production of semiconductor products with increasing
functionality and performance at lower costs. The Company generally
reduces the manufacturing cost of each generation of product through
advancements in product and process technology such as its leading-edge line
width process technology and innovative array architecture. The
Company continues to introduce new generations of products that offer improved
performance characteristics, such as higher data transfer rates, reduced package
size, lower power consumption and increased memory density and megapixel
count. To leverage its significant investments in research and
development, the Company has formed strategic joint ventures under which the
costs of developing memory product and process technologies are shared with its
joint venture partners. In addition, from time to time, the Company
has also sold and/or licensed technology to third parties. The
Company is pursuing further opportunities to recover its investment in
intellectual property through partnering and other arrangements.
DRAM Joint
Ventures with Nanya Technology Corporation (“Nanya”): In the
third quarter of 2008, the Company and Nanya formed MeiYa, a joint venture to
manufacture stack DRAM and sell those products exclusively to the Company and
Nanya. As part of this transaction, the Company transferred and
licensed certain intellectual property related to the manufacture of stack DRAM
products to Nanya and licensed certain intellectual property from
Nanya. The Company and Nanya also agreed to jointly develop process
technology and designs to manufacture stack DRAM products with each party
bearing its own development costs until such time that the development costs
exceed a specified amount, following which such costs would be
shared. The Company’s development costs are expected to exceed
Nanya’s development costs by a significant amount. Under this
arrangement, the Company is to receive an aggregate of $232 million from Nanya
and MeiYa through 2010 for licensing and technology transfer fees, of
which the Company realized $40 million of revenue in 2008. The
Company will also receive royalties from Nanya on the sale of stack DRAM
products manufactured by or for Nanya.
On October 12, 2008, the Company
announced that it had entered into an agreement to acquire Qimonda AG’s 35.6%
ownership stake in Inotera Memories, Inc. (“Inotera”), a Taiwanese DRAM memory
manufacturer, for $400 million in cash. The Company received
commitments for $285 million of term loans to fund this acquisition in
part. Inotera is expected to implement the Company’s stack DRAM
process technology, and it is anticipated that the Company will receive
royalties on the sale of Inotera’s production that is delivered to Nanya, a
35.6% stakeholder in Inotera. The Company will eventually gain access
to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s
output. In connection with this acquisition, the Company expects to
enter into a series of agreements with Nanya to restructure MeiYa. It
is anticipated that both parties will cease future resource commitments to MeiYa
and redirect those resources to Inotera. (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Joint Ventures – DRAM Joint Ventures with Nanya Technology
Corporation.”)
Aptina Imaging
Business: The Company is exploring partnering arrangements
with outside parties regarding the separation of its CMOS image sensor business,
operating under the name “Aptina,” to an independent entity in which the Company
would retain a significant minority ownership interest. To that end,
the Company began operating its Imaging business as a separate wholly-owned
subsidiary in October 2008. Under the arrangements being considered,
the Company expects that it will continue to manufacture CMOS image sensors for
some period of time.
Goodwill
Impairment: In the second quarter of 2008, the Company
recorded a noncash impairment charge of $463 million to the goodwill recorded in
its Memory segment. (See “Item 8. Financial Statements – Notes to
Consolidated Financial Statements – Supplemental Balance Sheet Information –
Goodwill.”)
Inventory
Write-Downs: The Company’s results
of operations for the fourth, second and first quarters of 2008 and the fourth
quarter of 2007 included charges of $205 million, $15 million, $62 million and
$20 million, respectively, to write down the carrying value of work in process
and finished goods inventories of Memory products (both DRAM and NAND Flash) to
their estimated market values.
Results
of Operations
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
|
|
(in
millions and as a percent of net sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
5,188 |
|
|
|
89 |
|
% |
|
$ |
5,001 |
|
|
|
88 |
|
% |
|
$ |
4,523 |
|
|
|
86 |
|
% |
Imaging
|
|
|
653 |
|
|
|
11 |
|
% |
|
|
687 |
|
|
|
12 |
|
% |
|
|
749 |
|
|
|
14 |
|
% |
|
|
$ |
5,841 |
|
|
|
100 |
|
% |
|
$ |
5,688 |
|
|
|
100 |
|
% |
|
$ |
5,272 |
|
|
|
100 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
(241 |
) |
|
|
(5 |
) |
% |
|
$ |
845 |
|
|
|
17 |
|
% |
|
$ |
878 |
|
|
|
19 |
|
% |
Imaging
|
|
|
186 |
|
|
|
28 |
|
% |
|
|
233 |
|
|
|
34 |
|
% |
|
|
322 |
|
|
|
43 |
|
% |
|
|
$ |
(55 |
) |
|
|
(1 |
) |
% |
|
$ |
1,078 |
|
|
|
19 |
|
% |
|
$ |
1,200 |
|
|
|
23 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative
|
|
$ |
455 |
|
|
|
8 |
|
% |
|
$ |
610 |
|
|
|
11 |
|
% |
|
$ |
460 |
|
|
|
9 |
|
% |
Research and
development
|
|
|
680 |
|
|
|
12 |
|
% |
|
|
805 |
|
|
|
14 |
|
% |
|
|
656 |
|
|
|
12 |
|
% |
Goodwill
impairment
|
|
|
463 |
|
|
|
8 |
|
% |
|
|
-- |
|
|
|
-- |
|
|
|
|
-- |
|
|
|
-- |
|
|
Restructure
|
|
|
33 |
|
|
|
1 |
|
% |
|
|
19 |
|
|
|
0 |
|
% |
|
|
-- |
|
|
|
-- |
|
|
Other operating (income)
expense, net
|
|
|
(91 |
) |
|
|
(2 |
) |
% |
|
|
(76 |
) |
|
|
(1 |
) |
% |
|
|
(266 |
) |
|
|
(5 |
) |
% |
Net income
(loss)
|
|
|
(1,619 |
) |
|
|
(28 |
) |
% |
|
|
(320 |
) |
|
|
(6 |
) |
% |
|
|
408 |
|
|
|
8 |
|
% |
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31.
Net
Sales
Total net sales for 2008 increased 3%
as compared to 2007 primarily due to a 4% increase in Memory sales partially
offset by a 5% decrease in Imaging sales. Memory sales for 2008
reflect significant increases in gigabits sold partially offset by significant
declines in per gigabit average selling prices as compared to
2007. Memory sales were 89% of total net sales for 2008, 88% for 2007
and 86% for 2006. Imaging sales for 2008 decreased 5% from 2007
primarily reflecting pricing pressure. Total net sales for 2007
increased 8% as compared to 2006 primarily due to an 11% increase in Memory
sales partially offset by an 8% decline in Imaging sales.
Memory: Memory
sales for 2008 increased 4% from 2007 primarily due to a 55% increase in sales
of NAND Flash products offset by a 15% decrease in sales of DRAM
products.
Sales of NAND Flash products for 2008
increased from 2007 primarily due to an increase of approximately 370% in
gigabits sold as a result of production increases partially offset by a decline
of approximately 65% in average selling prices per gigabit. Gigabit
production of NAND Flash products increased approximately 350% for 2008 as
compared to 2007, primarily due to the continued ramp of NAND Flash products at
the Company’s 300mm fabrication facilities and transitions to higher density,
advanced geometry devices. Sales of NAND Flash products represented
approximately 35% of the Company’s total net sales for 2008 as compared to
approximately 25% for 2007 and approximately 5% for 2006. The Company
expects that its gigabit production of NAND Flash products will continue to
increase in 2009 but at a slower rate than 2008.
Sales of DRAM products for 2008
decreased from 2007 primarily due to a decline of approximately 50% in average
selling prices (which included the effects of a $50 million charge to revenue in
the first quarter of 2007 as a result of a settlement agreement with a class of
direct purchasers of certain DRAM products), mitigated by an increase in
gigabits sold of approximately 70%. Gigabit production of DRAM
products increased approximately 70% for 2008, primarily due to production
efficiencies from improvements in product and process technologies, including
TECH’s conversion to 300mm wafer fabrication. Sales of DDR2 and DDR3
DRAM, the Company’s highest volume products, were approximately 30% of the
Company’s total net sales for 2008 and 2007 and approximately 25% for
2006.
Memory sales for 2007 increased 11%
from 2006 primarily due to a 287% increase in sales of NAND Flash products
offset by an 11% decrease in sales of DRAM products. Sales of NAND
Flash products for 2007 increased from 2006 primarily due to significant
increases in gigabit production and the Company’s acquisition of Lexar Media,
Inc. (which occurred in the fourth quarter of 2006), partially offset by a 56%
decline in average selling prices per gigabit. Gigabit production of
NAND Flash products increased over 800% for 2007 as compared to 2006, primarily
due to the ramp of NAND Flash products at the Company’s 300mm fabrication
facilities and transitions to higher density, advanced geometry
devices. Sales of DRAM products for 2007 decreased from 2006
primarily due to a 23% decline in average selling prices (which included the
effects of a $50 million charge to revenue in the first quarter of 2007 as a
result of a settlement agreement with a class of direct purchasers of certain
DRAM products), which was partially mitigated by a 16% increase in gigabits
sold. Gigabit production of DRAM products increased 23% for 2007,
primarily due to transitions to higher density, advanced geometry
devices.
Imaging: Imaging
sales for 2008 decreased 5% from 2007 primarily due to significant declines in
average selling prices by product type partially offset by a shift in product
mix from products with 1-megapixel or lower resolution to products with
3-megapixel or higher resolution, which had higher average selling prices per
unit. Imaging sales were 11% of the Company’s total net sales in 2008
as compared to 12% for 2007 and 14% for 2006. Imaging sales for 2007
decreased 8% from 2006 primarily due to declines in average selling prices as a
result of industry softness in mobile handset sales and pricing
pressure. Declines in average selling prices for 2007 were mitigated
by increased sales of higher resolution products.
Gross
Margin
The Company’s overall gross margin
percentage declined from 19% for 2007 to negative 1% for 2008 primarily due to a
decrease in the gross margin percentage for Memory as a result of the
significant declines in per gigabit average selling prices. The
Company’s overall gross margin percentage for 2007 declined to 19% from 23% for
2006 due to a decrease in both the gross margin percentages for Memory and
Imaging products.
Memory: The
Company’s gross margin percentage for Memory products declined from 17% for 2007
to negative 5% for 2008 primarily due to the significant decreases in average
selling prices and the shift in product mix to NAND Flash products (which had a
significantly lower gross margin than DRAM products in 2008), mitigated by cost
reductions.
The Company’s gross margins for Memory
in 2008 were reduced by a $205 million charge in the fourth quarter of 2008 to
write-down inventories to their estimated market values as a result of the
significant decreases in average selling prices for both DRAM and NAND Flash
Products. The Company’s inventory write-downs of $15 million and $62
million in the second and first quarters of 2008, respectively, did not
significantly impact 2008 gross margins as a substantial portion of the
written-down inventory was sold in 2008. Gross margins for 2007 were
reduced by a $20 million inventory write-down in the fourth quarter of
2007. In future periods the Company would record additional inventory
write-downs if estimated average selling prices of products held in finished
goods and work in process inventories at a quarter-end date are below the
manufacturing cost of these products.
The Company’s gross margin for DRAM
products for 2008 declined from 2007, primarily due to the decrease in average
selling prices per gigabit of approximately 50% mitigated by a reduction in
costs per gigabit. The Company achieved cost reductions for DRAM
products through transitions to higher-density, advanced-geometry
devices. Cost reductions in 2008 for DRAM products were partially
offset by the inventory write-downs. Excluding the inventory
write-downs, the Company reduced its DRAM costs per gigabit by approximately 35%
for 2008 as compared to 2007.
The Company’s gross margin for NAND
Flash products for 2008 declined from 2007 primarily due to the decrease in
average selling prices per gigabit of approximately 65% mitigated by a reduction
in costs per gigabit. Cost reductions in 2008 primarily reflect lower
manufacturing costs and lower costs of NAND Flash products purchased for sale
under the Company’s Lexar brand. The Company achieved manufacturing
cost reductions for NAND Flash products primarily through increased production
of higher-density, advanced-geometry devices at the Company’s 300mm fabrication
facilities. NAND Flash costs for 2008 were also reduced by a recovery
of $70 million for price adjustments for NAND Flash products purchased from
other suppliers in prior periods. Cost reductions in 2008 for NAND
Flash Products were partially offset by the inventory
write-downs. Excluding the inventory write-downs and the effect of
pricing adjustments from other suppliers, the Company reduced its NAND Flash
costs per gigabit by approximately 65%. Sales of NAND Flash products
include sales from IM Flash to Intel at long-term negotiated prices
approximating cost. IM Flash sales to Intel were $1,037 million, $497
million and $114 million for 2008, 2007 and 2006, respectively.
The Company’s gross margin percentage
for Memory products of 17% for 2007 declined from 19% for 2006 primarily due to
the shift in product mix from DRAM products to NAND Flash products, which had a
significantly lower gross margin than DRAM products in 2007. This
decline in gross margin percentage was mitigated by improvements in the gross
margin for 2007 on sales of both DRAM and NAND Flash products as compared to
2006. The gross margin for DRAM products for 2007 improved from 2006,
primarily due to a reduction in costs per gigabit of approximately 25%,
partially offset by a decline in average selling prices of approximately
25%. The Company achieved cost reductions for DRAM products through
transitions to production of devices utilizing the Company’s 78nm process
technologies. The Company’s gross margin for NAND Flash products for
2007 improved slightly from 2006 primarily due to a reduction in costs per
gigabit of approximately 55%, partially offset by a decline in average selling
prices of approximately 55%. Cost reductions in 2007 reflect lower
manufacturing costs, lower costs of NAND Flash products purchased for sale under
the Company’s Lexar brand and shifts in product mix. The Company
achieved manufacturing cost reductions for NAND Flash products primarily through
increased production of higher-density, advanced-geometry devices at the
Company’s 300mm fabrication facilities.
In 2008, the Company’s TECH
Semiconductor Singapore Pte. Ltd. (“TECH”) joint venture accounted for
approximately 12% of the Company’s total wafer production. TECH
primarily produced DDR and DDR2 products in 2008, 2007 and
2006. Since TECH utilizes the Company’s product designs and process
technology and has a similar manufacturing cost structure, the gross margin on
sales of TECH products approximates gross margins on sales of similar products
manufactured by the Company’s wholly-owned operations. (See “Item 8.
Financial Statements – Notes to Consolidated Financial Statements – Joint
Ventures – TECH Semiconductor Singapore Pte. Ltd.”)
Imaging: The
Company’s gross margin for Imaging declined to 28% for 2008 from 34% for 2007
primarily due to declines in average selling prices mitigated by cost reductions
and a shift to higher resolution products, which realized better gross
margins. The Company’s gross margin for Imaging declined to 34% for
2007 from 43% for of 2006 primarily due to declines in average selling prices
that were mitigated by cost reductions and shifts in product mix to higher
resolution products.
Selling,
General and Administrative
Selling, general and administrative
(“SG&A”) expenses for 2008 decreased 25% from 2007 primarily due to lower
legal costs as well as lower payroll costs and other expenses driven by the
Company’s restructure initiatives. The reduction of payroll costs in
2008 was primarily the result of a decrease in headcount. In 2007,
the Company recorded a $31 million charge to SG&A as a result of the
settlement of certain antitrust class action (direct purchaser)
lawsuits. SG&A expenses for 2007 increased 33% from 2006
primarily due to higher personnel costs and higher legal costs including the $31
million charge for settlement of the direct purchaser
lawsuits. Personnel costs in 2007 increased from 2006 primarily due
to increased headcount resulting from the acquisition of Lexar in the fourth
quarter of 2006, the formation of IM Flash in the second quarter of 2006 and
subsequent ramp of its operations, and the consolidation of TECH in the third
quarter of 2006. Future SG&A expense is expected to vary, potentially
significantly, depending on, among other things, the number of legal matters
that are resolved relatively early in their life-cycle and the number of matters
that progress to trial. For the Company’s Memory segment, SG&A
expenses as a percentage of sales were 7% in 2008, 11% in 2007 and 8% in
2006. For the Imaging segment, SG&A expenses as a percentage of
sales were 11% in 2008, 11% in 2007 and 12% in 2006.
Research
and Development
Research and development (“R&D”)
expenses vary primarily with the number of development wafers processed, the
cost of advanced equipment dedicated to new product and process development, and
personnel costs. Because of the lead times necessary to manufacture
its products, the Company typically begins to process wafers before completion
of performance and reliability testing. The Company deems development
of a product complete once the product has been thoroughly reviewed and tested
for performance and reliability. R&D expenses can vary
significantly depending on the timing of product qualification as costs incurred
in production prior to qualification are charged to R&D.
R&D expenses for 2008 decreased 16%
from 2007 primarily due to decreases in development wafers processed and lower
payroll costs driven by the Company’s restructure
initiatives. R&D expenses for 2007 increased 23% from 2006
primarily due to NAND pre-production wafer processing mitigated by
reimbursements received from Intel under a NAND Flash R&D cost-sharing
arrangement. R&D expenses were reduced by $148 million in 2008,
$240 million in 2007 and $86 million in 2006 for amounts reimbursable from Intel
under the NAND Flash R&D cost-sharing arrangement. For the Memory
segment, R&D expenses as a percentage of sales were 10% for 2008, 13% for
2007 and 13% for 2006. For the Imaging segment, R&D expenses as a
percentage of sales were 22% for 2008, 23% for 2007 and 11% for
2006.
The Company’s process technology
R&D efforts are focused primarily on development of successively smaller
line-width process technologies which are designed to facilitate the Company’s
transition to next-generation memory products and CMOS image
sensors. Additional process technology R&D efforts focus on
advanced computing and mobile memory architectures and new manufacturing
materials. Product design and development efforts are concentrated on
the Company’s 1 Gb and 2 Gb DDR2 and DDR3 products as well as high density and
mobile NAND Flash memory (including MLC technology), specialty memory products,
memory systems and CMOS image sensors.
Goodwill
Impairment
In the second quarter of 2008, the
Company performed an assessment of impairment for goodwill. In the
first and second quarters of 2008, the Company experienced a sustained,
significant decline in its stock price. As a result of the decline in
stock price, the Company’s market capitalization fell significantly below the
recorded value of its consolidated net assets for most of the second quarter of
2008. The reduced market capitalization reflected, in part, the
Memory segment’s lower average selling prices and expected continued weakness in
pricing for the Company’s Memory products.
Based on the results of the Company’s
assessment of goodwill for impairment, it was determined that the carrying value
of the Memory segment exceeded its estimated fair value. Therefore,
the Company performed the second step of the impairment test to determine the
implied fair value of goodwill. Specifically, the Company allocated
the estimated fair value of the Memory segment as determined in the first step
to recognized and unrecognized net assets, including allocations to intangible
assets such as intellectual property, customer relationships and brand and trade
names. The result of the analysis indicated that there would be no
remaining implied value attributable to goodwill in the Memory segment and
accordingly, the Company wrote off all $463 million of goodwill associated with
its Memory segment as of February 28, 2008. The Company’s assessment
of goodwill for impairment in the second and fourth quarters of 2008 indicated
that the fair value of the Imaging segment exceeded its carrying value and
therefore goodwill in the segment was not impaired. (See “Item 8.
Financial Statements – Notes to Consolidated Financial Statements – Supplemental
Balance Sheet Information – Goodwill.”)
Restructure
In an effort to increase its
competitiveness and efficiency, in the fourth quarter of 2007, the Company began
pursuing a number of initiatives to reduce costs across its
operations. These initiatives included workforce reductions in
certain areas of the Company as its business was
realigned. Additional initiatives included establishing certain
operations closer in location to the Company’s global customers and evaluating
functions more efficiently performed through partnerships or other outside
relationships. In 2008, the Company recorded charges of $33 million,
primarily within its Memory segment, for employee severance and related costs,
relocation and retention bonuses and a write-down of certain facilities to their
fair values. Since the restructure initiatives were initiated in the
fourth quarter of 2007, the Company has incurred $52 million of restructure
costs.
On October 9, 2008 the Company
announced a plan to restructure its Memory operations. The Company’s
IM Flash joint venture with Intel Corporation will discontinue production of
200mm wafer NAND flash memory at Micron’s Boise facility. The NAND
Flash production shutdown will reduce IM Flash’s NAND flash production by
approximately 35,000 200mm wafers per month. In addition, the Company
and Intel agreed to suspend tooling and the ramp of production at IM Flash’s
Singapore wafer fabrication plant. As part of the restructuring, the
Company plans to reduce its global workforce by approximately 15 percent during
2009 and 2010. Cash costs for restructuring and other related
expenses incurred in connection with this restructuring are anticipated to be
approximately $60 million, and the benefit to the Company’s cash operating
results for 2009 is expected to exceed $175 million.
Other
Operating (Income) Expense, Net
Other operating (income) for 2008
included gains of $66 million for disposals of semiconductor equipment and $38
million for receipts from the U.S. government in connection with anti-dumping
tariffs. Other operating expenses for 2008 included losses of $25
million from changes in currency exchange rates. Other operating
(income) for 2007 included gains of $43 million from disposals of semiconductor
equipment, $30 million from the sale of certain intellectual property to Toshiba
Corporation and $7 million in grants received in connection with the Company’s
operations in China. Other operating expense for 2007 included losses
of $14 million from changes in currency exchange rates. Other
operating (income) for 2006 included $230 million of net proceeds for the sale
of the Company’s existing NAND Flash memory designs and certain related
technology to Intel, net of amounts paid by the Company for a perpetual, paid-up
license to use and modify such designs. Other operating (income) for
2006 also included $23 million in additional amounts expected to be reimbursed
resulting from the extension of an economic development agreement, which allows
the Company to recover amounts relating to certain investments in IM
Flash.
Income
Taxes
Income taxes for 2008, 2007 and 2006
primarily reflect taxes on the Company’s non-U.S. operations and U.S.
alternative minimum tax. The Company has a valuation allowance for
its net deferred tax asset associated with its U.S. operations. The
benefit for taxes on U.S. operations in 2008, 2007 and 2006 was substantially
offset by changes in the valuation allowance. As of August 28, 2008,
the Company had aggregate U.S. tax net operating loss carryforwards of $2.7
billion and unused U.S. tax credit carryforwards of $205 million. The
Company also had unused state tax net operating loss carryforwards of $1.8
billion and unused state tax credits of $189 million as of August 28,
2008. Substantially all of the net operating loss carryforwards
expire in 2022 to 2028 and substantially all of the tax credit carryforwards
expire in 2013 to 2028. Due to certain foreign statutes of
limitations, which expired on December 31, 2007, the Company recognized
approximately $15 million of previously unrecognized tax benefits in the second
quarter of 2008.
Noncontrolling
Interests in Net (Income) Loss
Noncontrolling interests for 2008, 2007
and 2006 primarily reflects the share of income or losses of the Company’s TECH
joint venture attributable to the noncontrolling interests in
TECH. On March 30, 2007, the Company acquired all of the shares of
TECH common stock held by the Singapore Economic Development Board, which had
the effect of reducing the noncontrolling interests in TECH as of that date from
57% to 27%. (See “Item 8. Financial Statements and Supplementary Data
– Notes to Consolidated Financial Statements – Joint Ventures – TECH
Semiconductor Singapore Pte. Ltd.”)
Stock-Based
Compensation
Total compensation cost for the
Company’s equity plans in 2008, 2007 and 2006 was $48 million, $44 million and
$26 million, respectively. As of August 28, 2008, August 30, 2007 and
August 31, 2006, $3 million, $3 million and $1 million of stock-based
compensation expense was capitalized and remained in inventory. As of
August 28, 2008, $107 million of total unrecognized compensation cost related to
non-vested awards was expected to be recognized through the fourth quarter of
2012. In 2005, the Company accelerated the vesting of substantially
all of its unvested stock options then outstanding which reduced stock
compensation recognized in subsequent periods.
Liquidity
and Capital Resources
As of August 28, 2008, the Company had
cash and equivalents and short-term investments totaling $1.4 billion compared
to $2.6 billion as of August 30, 2007. The balance as of August 28,
2008, included an aggregate of $508 million held at the Company’s IM Flash and
TECH joint ventures. The Company’s ability to access funds held by
joint ventures to finance the Company’s other operations is subject to agreement
by the joint venture partners.
The Company’s liquidity is highly
dependent on average selling prices for its products and the timing of capital
expenditures, both of which can vary significantly from period to
period. Depending on conditions in the semiconductor memory market,
the Company’s cash flows from operations and current holdings of cash and
investments may not be adequate to meet the Company’s current and long-term
needs for capital expenditures and operations. Historically, the
Company has used external financing to fund these needs. Due to
conditions in the credit markets, some financing instruments used by the Company
in the past are currently not available to the Company. As a result,
the Company is pursuing financing alternatives, delaying capital expenditures
and implementing further cost-cutting initiatives. The Company has
the ability and intent to significantly reduce capital expenditures and limit
contributions to joint venture partners if necessary to meet its operating
obligations.
Operating
Activities: The Company generated $1.0 billion of cash from
operating activities in 2008, which primarily reflects the Company’s $1.6
billion of net loss adjusted by $2.1 billion for noncash depreciation and
amortization expense and a $463 million noncash goodwill impairment
charge.
Investing
Activities: Net cash used by investing activities was $2.1
billion in 2008, which included cash expenditures for property, plant and
equipment of $2.5 billion partially offset by the net effect of purchases, sales
and maturities of marketable investment securities of $288 million and $187
million in proceeds from sales of equipment. A significant portion of
the capital expenditures relate to the ramp of IM Flash facilities and 300mm
conversion of manufacturing operations at TECH. The Company believes
that to develop new product and process technologies, support future growth,
achieve operating efficiencies and maintain product quality, it must continue to
invest in manufacturing technologies, facilities and capital equipment and
research and development. The Company expects 2009 capital spending
to approximate $1.0 billion to $1.3 billion. As of August 28, 2008,
the Company had commitments of approximately $300 million for the acquisition of
property, plant and equipment, nearly all of which are expected to be paid
within one year.
Financing
Activities: Net cash provided by financing activities was $125
million in 2008, which primarily reflects $837 million in proceeds from
borrowings and $268 million in cash contributions received (net of distributions
paid) from joint venture partners partially offset by $698 million in debt
payments and $387 million in payments on equipment purchase
contracts.
During the second quarter of 2008, the
Company’s TECH subsidiary borrowed $240 million against a credit facility at
Singapore Interbank Offered Rate ("SIBOR") plus 2.5%. On March 31,
2008, TECH entered into a new credit facility enabling it to borrow up to $600
million at SIBOR plus 2.5%. The facility is available for drawdown
through December 31, 2008. During 2008, TECH drew $600 million under
the new credit facility and retired the previous credit facility by paying off
the $240 million outstanding. The new credit facility is
collateralized by substantially all of the assets of TECH (approximately $1,741
million as of August 28, 2008) and contains covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios, and restrict TECH’s ability to incur indebtedness, create liens and
acquire or dispose of assets. Payments under the new facility are due
in approximately equal installments over 13 quarters commencing in May
2009. Beginning March 2009, TECH will be required to maintain $30
million in restricted cash and this restricted cash requirement will increase to
$60 million in September 2009. The Company has guaranteed
approximately 73% of the outstanding amount of the facility, with the Company’s
obligation increasing to 100% of the outstanding amount of the facility upon the
occurrence of certain conditions. As a condition to granting the
guarantee, the Company has a second position priority interest in all of the
assets of TECH behind the lenders. (See “Item 8. Financial Statements
– Notes to Consolidated Financial Statements – Supplemental Balance Sheet
Information – Debt.”)
As of August 28, 2008, the Company had
notes payable of $108 million, denominated in Japanese yen, that was subject to
customary covenants, including the ratio of debt to equity. As a
result of financing that the Company is pursuing for its acquisition of a 35.6%
interest in Inotera, the Company may prepay all of this debt in the first
quarter of 2009 to avoid potential violations of these covenants.
Joint
Ventures: As of August 28, 2008, IM Flash had $393 million of
cash and marketable investment securities. IM Flash plans to make
distributions of approximately $420 million to Intel through the end of
2009. Timing of these distributions and any future contributions,
however, is subject to market conditions and approval of the
partners. The Company anticipates additional investments as
appropriate to support the growth of IM Flash’s operations.
As of August 28, 2008, TECH had $115
million of cash and marketable investment securities. The Company
expects to make additional capital contributions to TECH in 2009. The
timing and amount of these contributions is subject to market conditions and
partner participation.
In the third quarter of 2008,
the Company entered into a joint venture arrangement with
Nanya. Under this arrangement,
the Company transferred and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya. On
October 12, 2008, the Company announced that it had entered into an agreement to
acquire Qimonda AG’s 35.6% ownership stake in Inotera, a Taiwanese DRAM memory
manufacturer, for $400 million in cash. The Company received
commitments of $285 million of term loans to fund this acquisition in
part. In connection with this acquisition, the Company expects to
enter into a series of agreements with Nanya (a 35.6% stakeholder in Inotera) to
restructure the MeiYa joint venture between the Company and Nanya. It
is anticipated that both parties will cease future resource commitments to MeiYa
and redirect those resources to Inotera. The Company and Nanya each
contributed $84 million in cash to MeiYa in 2008. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Joint Ventures – DRAM Joint Ventures with Nanya Technology
Corporation.”)
Contractual
Obligations: The following table summarizes the Company’s
significant contractual obligations at August 28, 2008, and the effect such
obligations are expected to have on the Company’s liquidity and cash flows in
future periods.
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than
5
years
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable (1)
|
|
$ |
2,299 |
|
|
$ |
158 |
|
|
$ |
614 |
|
|
$ |
202 |
|
|
$ |
1,325 |
|
Capital lease obligations (1)
|
|
|
767 |
|
|
|
215 |
|
|
|
409 |
|
|
|
62 |
|
|
|
81 |
|
Operating
leases
|
|
|
94 |
|
|
|
18 |
|
|
|
28 |
|
|
|
22 |
|
|
|
26 |
|
Purchase
obligations
|
|
|
695 |
|
|
|
511 |
|
|
|
147 |
|
|
|
10 |
|
|
|
27 |
|
Other long-term
liabilities
|
|
|
338 |
|
|
|
-- |
|
|
|
205 |
|
|
|
34 |
|
|
|
99 |
|
Total
|
|
$ |
4,193 |
|
|
$ |
902 |
|
|
$ |
1,403 |
|
|
$ |
330 |
|
|
$ |
1,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The obligations disclosed above do not
include contractual obligations recorded on the Company’s balance sheet as
current liabilities except for the current portion of long-term
debt. The expected timing of payment amounts of the obligations
discussed above is estimated based on current information. Timing and
actual amounts paid may differ depending on the timing of receipt of goods or
services, market prices or changes to agreed-upon amounts for some
obligations.
Purchase obligations include all
commitments to purchase goods or services of either a fixed or minimum quantity
that meet any of the following criteria: (1) they are noncancelable, (2) the
Company would incur a penalty if the agreement was cancelled, or (3) the Company
must make specified minimum payments even if it does not take delivery of the
contracted products or services (“take-or-pay”). If the obligation to
purchase goods or services is noncancelable, the entire value of the contract
was included in the above table. If the obligation is cancelable, but
the Company would incur a penalty if cancelled, the dollar amount of the penalty
was included as a purchase obligation. Contracted minimum amounts
specified in take-or-pay contracts are also included in the above table as they
represent the portion of each contract that is a firm commitment.
Off-Balance
Sheet Arrangements
In May 2007, in connection with the
offering of the Senior Notes, the Company paid approximately $151 million for
three Capped Call transactions (the “Capped Calls”). The Capped Calls
cover an aggregate of approximately 91.3 million shares of common
stock. The Capped Calls are in three equal tranches with cap prices
of $17.25, $20.13 and $23.00 per share, respectively, each with an initial
strike price of approximately $14.23 per share, subject to certain
adjustments. The Capped Calls expire on various dates between
November 2011 and December 2012. (See “Item 8. Financial Statements
and Supplementary Data – Notes to Consolidated Financial Statements –
Supplemental Balance Sheet Information – Capped Call
Transactions.”)
In 2001, the Company received $480
million from the issuance of warrants to purchase 29.1 million shares of the
Company’s common stock. The warrants entitled the holders to exercise
their warrants and purchase shares of common stock for $56.00 per share at any
time through May 15, 2008. All of the warrants expired unexercised on
May 15, 2008.
Recently
Issued Accounting Standards
In May 2008, the Financial Accounting
Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No.
APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement).” FSP No.
APB 14-1 requires that issuers of convertible debt instruments that may be
settled in cash upon conversion separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate as interest cost is recognized in subsequent
periods. The Company is required to adopt FSP No. APB 14-1 at the
beginning of 2010. On adoption, the Company will retrospectively
account for its $1.3 billion of 1.875% convertible senior notes issued in May of
2007 under the provisions of FSP No. APB 14-1. Based on a preliminary
analysis, the Company estimates that debt recognized on issuance of the $1.3
billion convertible senior notes would be approximately $400 million lower under
FSP No. APB 14-1. The difference of approximately $400 million would
be accreted to interest expense over the approximate seven-year term of the
notes. A significant portion of the interest expense would be
deferred as capitalized interest costs in accordance with the Company’s regular
accounting policies and will impact results of operations as the assets
that
include the capitalized interest are depreciated. The Company is
continuing to evaluate the full impact that the adoption of FSP No. APB 14-1
will have on its financial statements.
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
“Business Combinations”
(“SFAS No. 141(R)”), which establishes the principles and requirements
for how an acquirer in a business combination (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interests in the acquiree, (2) recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain
purchase, and (3) determines what information to disclose. The
Company is required to adopt SFAS No. 141(R) effective at the beginning of
2010. The impact of the adoption of SFAS No. 141(R) will depend on
the nature and extent of business combinations occurring on or after the
beginning of 2010.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 requires that (1)
noncontrolling interests be reported as a separate component of equity, (2) net
income attributable to the parent and to the non-controlling interest be
separately identified in the income statement, (3) changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and (4) any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. The Company is required to adopt SFAS No. 160 effective
at the beginning of 2010. The Company is evaluating the impact that
the adoption of SFAS No. 160 will have on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” Under SFAS No.
159, the Company may elect to measure many financial instruments and certain
other items at fair value on an instrument by instrument basis, subject to
certain restrictions. The Company is required to adopt SFAS No. 159
effective at the beginning of 2009. The Company did not elect to
measure any existing items at fair value on the adoption of SFAS No.
159.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements. In
February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13,” which amends SFAS No. 157 to exclude accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13. In February 2008,
the FASB issued FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157,”
which delays the effective date of SFAS No. 157 until the beginning of 2010 for
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). In October 2008, the FASB issued
FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset when the
Market for That Asset Is Not Active,” which clarifies the application of SFAS
No. 157 for financial assets in a market that is not active. The
Company is required to adopt SFAS No. 157 for financial assets and liabilities
effective at the beginning of 2009. The Company does not expect that
the adoption in 2009 of SFAS No. 157 for financial assets and financial
liabilities will have a significant impact on its financial
statements. The Company is evaluating the impact that the adoption in
2010 of SFAS No. 157 for non-financial assets and non-financial liabilities will
have on its financial statements.
In June 2006, the FASB issued
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109.” FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement. The Company adopted FIN 48 on August 31,
2007. The adoption of FIN 48 did not have a significant impact on the
Company’s results of operations or financial position. The Company
did not change its policy of recognizing accrued interest and penalties related
to unrecognized tax benefits within the income tax provision with the adoption
of FIN 48. (See “Item 8. Financial Statements – Notes to Consolidated
Financial Statements – Income Taxes.”)
In February 2006, the FASB issued SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS
No. 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require
bifurcation. The Company adopted SFAS No. 155 as of the beginning of
2008. The adoption of SFAS No. 155 did not have a significant impact
on the Company’s results of operations or financial condition.
Critical
Accounting Estimates
The preparation of financial statements
and related disclosures in conformity with U.S. GAAP requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. Estimates and judgments
are based on historical experience, forecasted future events and various other
assumptions that the Company believes to be reasonable under the
circumstances. Estimates and judgments may vary under different
assumptions or conditions. The Company evaluates its estimates and
judgments on an ongoing basis. Management believes the accounting
policies below are critical in the portrayal of the Company’s financial
condition and results of operations and requires management’s most difficult,
subjective or complex judgments.
Acquisitions and
consolidations: Determination and the allocation of the
purchase price of acquired operations significantly influences the period in
which costs are recognized. Accounting for acquisitions and
consolidations requires the Company to estimate the fair value of the individual
assets and liabilities acquired as well as various forms of consideration given,
which involves a number of judgments, assumptions and estimates that could
materially affect the amount and timing of costs recognized. The
Company typically obtains independent third party valuation studies to assist in
determining fair values, including assistance in determining future cash flows,
appropriate discount rates and comparable market values.
Contingencies: The
Company is subject to the possibility of losses from various
contingencies. Considerable judgment is necessary to estimate the
probability and amount of any loss from such contingencies. An
accrual is made when it is probable that a liability has been incurred or an
asset has been impaired and the amount of loss can be reasonably
estimated. The Company accrues a liability and charges operations for
the estimated costs of adjudication or settlement of asserted and unasserted
claims existing as of the balance sheet date.
Goodwill and
intangible assets: In the second quarter of 2008, the Company
recorded a goodwill impairment charge of $463 million. The Company
tests goodwill for impairment annually and whenever events or circumstances make
it more likely than not that an impairment may have occurred, such as a
significant adverse change in the business climate (including declines in
selling prices for products) or a decision to sell or dispose of a reporting
unit. Goodwill is tested for impairment using a two-step
process. In the first step, the fair value of each reporting unit is
compared to the carrying value of the net assets assigned to the
unit. If the fair value of the reporting unit exceeds its carrying
value, goodwill is considered not impaired. If the carrying value of
the reporting unit exceeds its fair value, then the second step of the
impairment test must be performed in order to determine the implied fair value
of the reporting unit’s goodwill. Determining the implied fair value
of goodwill requires valuation of all of the Company’s tangible and intangible
asset and liabilities. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then the Company would record an
impairment loss equal to the difference.
Determining when to test for
impairment, the Company’s reporting units, the fair value of a reporting unit
and the fair value of assets and liabilities within a reporting unit, requires
judgment and involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and determination of appropriate market
comparables. The Company bases fair value estimates on assumptions it
believes to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those
estimates. In addition, judgments and assumptions are required to
allocate assets and liabilities to reporting units.
The Company tests other identified
intangible assets with definite useful lives and subject to amortization when
events and circumstances indicate the carrying value may not be recoverable by
comparing the carrying amount to the sum of undiscounted cash flows expected to
be generated by the asset. The Company tests intangible assets with
indefinite lives annually for impairment using a fair value method such as
discounted cash flows. Estimating fair values involves significant
assumptions, especially regarding future sales prices, sales volumes, costs and
discount rates.
Income
taxes: The Company is required to estimate its provision for
income taxes and amounts ultimately payable or recoverable in numerous tax
jurisdictions around the world. Estimates involve interpretations of
regulations and are inherently complex. Resolution of income tax
treatments in individual jurisdictions may not be known for many years after
completion of any fiscal year. The Company is also required to
evaluate the realizability of its deferred tax assets on an ongoing basis in
accordance with U.S. GAAP, which requires the assessment of the Company’s
performance and other relevant factors when determining the need for a valuation
allowance with respect to these deferred tax assets. Realization of
deferred tax assets is dependent on the Company’s ability to generate future
taxable income. The Company adopted FIN 48 effective at the beginning
of 2008.
Inventories: Inventories
are stated at the lower of average cost or market value and in 2008 the Company
recorded aggregate charges of $282 million to write down the carrying value of
inventories of memory products to their estimated market values. Cost
includes labor, material and overhead costs, including product and process
technology costs. Determining market value of inventories involves
numerous judgments, including projecting average selling prices and sales
volumes for future periods and costs to complete products in work in process
inventories. To project average selling prices and sales volumes, the
Company reviews recent sales volumes, existing customer orders, current contract
prices, industry analysis of supply and demand, seasonal factors, general
economic trends and other information. When these analyses reflect
estimated market values below the Company’s manufacturing costs, the Company
records a charge to cost of goods sold in advance of when the inventory is
actually sold. Differences in forecasted average selling prices used
in calculating lower of cost or market adjustments can result in significant
changes in the estimated net realizable value of product inventories and
accordingly the amount of write-down recorded. For example, a 5%
variance in the estimated selling prices would have changed the estimated market
value of the Company’s semiconductor memory inventory by approximately $70
million at August 28, 2008. Due to the volatile nature of the
semiconductor memory industry, actual selling prices and volumes often vary
significantly from projected prices and volumes and, as a result, the timing of
when product costs are charged to operations can vary
significantly.
U.S. GAAP provides for products to be
grouped into categories in order to compare costs to market
values. The amount of any inventory write-down can vary significantly
depending on the determination of inventory categories. The Company’s
inventories have been categorized as Memory products or Imaging
products. The major characteristics the Company considers in
determining inventory categories are product type and markets.
Product and
process technology: Costs incurred to acquire product and
process technology or to patent technology developed by the Company are
capitalized and amortized on a straight-line basis over periods currently
ranging up to 10 years. The Company capitalizes a portion of costs
incurred based on its analysis of historical and projected patents issued as a
percent of patents filed. Capitalized product and process technology
costs are amortized over the shorter of (i) the estimated useful life of the
technology, (ii) the patent term or (iii) the term of the technology
agreement.
Property, plant
and equipment: The Company reviews the carrying value of
property, plant and equipment for impairment when events and circumstances
indicate that the carrying value of an asset or group of assets may not be
recoverable from the estimated future cash flows expected to result from its use
and/or disposition. In cases where undiscounted expected future cash
flows are less than the carrying value, an impairment loss is recognized equal
to the amount by which the carrying value exceeds the estimated fair value of
the assets. The estimation of future cash flows involves numerous
assumptions which require judgment by the Company, including, but not limited
to, future use of the assets for Company operations versus sale or disposal of
the assets, future selling prices for the Company’s products and future
production and sales volumes. In addition, judgment is required by
the Company in determining the groups of assets for which impairment tests are
separately performed.
Research and
development: Costs related to the conceptual formulation and
design of products and processes are expensed as research and development when
incurred. Determining when product development is complete requires
judgment by the Company. The Company deems development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability.
Stock-based
compensation: Under the provisions of SFAS No. 123(R),
stock-based compensation cost is estimated at the grant date based on the
fair-value of the award and is recognized as expense ratably over the requisite
service period of the award. For stock based compensation awards with
graded vesting that were granted after 2005, the Company recognizes compensation
expense using the straight-line amortization method. For
performance-based stock awards, the expense recognized is dependent on the
probability of the performance measure being achieved. The Company
utilizes forecasts of future performance to assess these probabilities and this
assessment requires considerable judgment.
Determining the appropriate fair-value
model and calculating the fair value of stock-based awards at the grant date
requires considerable judgment, including estimating stock price volatility,
expected option life and forfeiture rates. The Company develops its
estimates based on historical data and market information which can change
significantly over time. A small change in the estimates used can
result in a relatively large change in the estimated valuation. The
Company uses the Black-Scholes option valuation model to value employee stock
awards. The Company estimates stock price volatility based on an
average of its historical volatility and the implied volatility derived from
traded options on the Company’s stock.
Item
7A. Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Risk
As of August 28, 2008, $2,063 million
of the Company’s $2,726 million of debt was at fixed interest
rates. As a result, the fair value of the debt fluctuates based on
changes in market interest rates. The estimated fair market value of
the Company’s debt was $2,167 million and $2,411 million as of August 28, 2008
and August 30, 2007, respectively. The Company estimates that as of
August 28, 2008, a 1% decrease in market interest rates would change the fair
value of the fixed-rate debt by approximately $46 million. An
increase in interest rates of 1% would increase annual interest expense on the
Company’s variable-rate debt as of August 28, 2008 by approximately $7
million.
Foreign
Currency Exchange Rate Risk
The information in this section should
be read in conjunction with the information related to changes in the exchange
rates of foreign currency in “Item 1A. Risk Factors.” Changes in
foreign currency exchange rates could materially adversely affect the Company’s
results of operations or financial condition.
The functional currency for
substantially all of the Company’s operations is the U.S. dollar. The
Company held aggregate cash and other assets in foreign currencies valued at
U.S. $425 million as of August 28, 2008 and U.S. $448 million as of August 30,
2007. The Company also had aggregate foreign currency liabilities
valued at U.S. $580 million as of August 28, 2008 and U.S. $979 million as of
August 30, 2007. Significant components of the Company’s assets and
liabilities denominated in foreign currencies were as follows (in U.S. dollar
equivalents):
|
|
2008
|
|
|
2007
|
|
|
|
Singapore
Dollars
|
|
|
Yen
|
|
|
Euro
|
|
|
Singapore
Dollars
|
|
|
Yen
|
|
|
Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
84 |
|
|
$ |
130 |
|
|
$ |
25 |
|
|
$ |
58 |
|
|
$ |
180 |
|
|
$ |
11 |
|
Net
deferred tax assets
|
|
|
-- |
|
|
|
85 |
|
|
|
2 |
|
|
|
-- |
|
|
|
76 |
|
|
|
2 |
|
Accounts
payable and accrued expenses
|
|
|
(105 |
) |
|
|
(127 |
) |
|
|
(61 |
) |
|
|
(116 |
) |
|
|
(168 |
) |
|
|
(137 |
) |
Debt
|
|
|
(49 |
) |
|
|
(108 |
) |
|
|
(4 |
) |
|
|
(258 |
) |
|
|
(165 |
) |
|
|
(5 |
) |
The Company estimates that, based on
its assets and liabilities denominated in currencies other than the U.S. dollar
as of August 28, 2008, a 1% change in the exchange rate versus the U.S. dollar
would result in foreign currency gains or losses of approximately U.S. $1
million for the euro and the yen.
Item
8. Financial
Statements and Supplementary Data
Index
to Consolidated Financial Statements
|
Page
|
|
|
Consolidated
Financial Statements as of August 28, 2008 and August 30, 2007 and for the
fiscal years ended August 28, 2008, August 30, 2007, and August 31,
2006:
|
|
|
|
Consolidated Statements of
Operations
|
43
|
|
|
Consolidated Balance
Sheets
|
44
|
|
|
Consolidated Statements of
Shareholders’ Equity
|
45
|
|
|
Consolidated Statements of Cash
Flows
|
46
|
|
|
Notes to Consolidated Financial
Statements
|
47
|
|
|
Report of Independent Registered
Public Accounting Firm
|
69
|
|
|
Financial
Statement Schedule:
|
|
|
|
Schedule II – Valuation and
Qualifying Accounts
|
76
|
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions except per share amounts)
For
the year ended
|
|
August
28,
2008
|
|
|
August
30,
2007
|
|
|
August
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,841 |
|
|
$ |
5,688 |
|
|
$ |
5,272 |
|
Cost
of goods sold
|
|
|
5,896 |
|
|
|
4,610 |
|
|
|
4,072 |
|
Gross margin
|
|
|
(55 |
) |
|
|
1,078 |
|
|
|
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
455 |
|
|
|
610 |
|
|
|
460 |
|
Research
and development
|
|
|
680 |
|
|
|
805 |
|
|
|
656 |
|
Goodwill
impairment
|
|
|
463 |
|
|
|
-- |
|
|
|
-- |
|
Restructure
|
|
|
33 |
|
|
|
19 |
|
|
|
-- |
|
Other
operating (income) expense, net
|
|
|
(91 |
) |
|
|
(76 |
) |
|
|
(266 |
) |
Operating income
(loss)
|
|
|
(1,595 |
) |
|
|
(280 |
) |
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
79 |
|
|
|
143 |
|
|
|
101 |
|
Interest
expense
|
|
|
(82 |
) |
|
|
(40 |
) |
|
|
(25 |
) |
Other
non-operating income (expense), net
|
|
|
(13 |
) |
|
|
9 |
|
|
|
7 |
|
Income (loss) before taxes and
noncontrolling interests
|
|
|
(1,611 |
) |
|
|
(168 |
) |
|
|
433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (provision)
|
|
|
(18 |
) |
|
|
(30 |
) |
|
|
(18 |
) |
Noncontrolling
interests in net (income) loss
|
|
|
10 |
|
|
|
(122 |
) |
|
|
(7 |
) |
Net
income (loss)
|
|
$ |
(1,619 |
) |
|
$ |
(320 |
) |
|
$ |
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(2.10 |
) |
|
$ |
(0.42 |
) |
|
$ |
0.59 |
|
Diluted
|
|
|
(2.10 |
) |
|
|
(0.42 |
) |
|
|
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
772.5 |
|
|
|
769.1 |
|
|
|
691.7 |
|
Diluted
|
|
|
772.5 |
|
|
|
769.1 |
|
|
|
725.1 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
BALANCE SHEETS
(in
millions except par value amounts)
As
of
|
|
August
28,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
1,243 |
|
|
$ |
2,192 |
|
Short-term
investments
|
|
|
119 |
|
|
|
424 |
|
Receivables
|
|
|
1,032 |
|
|
|
994 |
|
Inventories
|
|
|
1,291 |
|
|
|
1,532 |
|
Other
current assets
|
|
|
94 |
|
|
|
92 |
|
Total current
assets
|
|
|
3,779 |
|
|
|
5,234 |
|
Intangible
assets, net
|
|
|
364 |
|
|
|
401 |
|
Property,
plant and equipment, net
|
|
|
8,811 |
|
|
|
8,279 |
|
Goodwill
|
|
|
58 |
|
|
|
515 |
|
Other
assets
|
|
|
418 |
|
|
|
389 |
|
Total assets
|
|
$ |
13,430 |
|
|
$ |
14,818 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,111 |
|
|
$ |
1,385 |
|
Deferred
income
|
|
|
114 |
|
|
|
84 |
|
Equipment
purchase contracts
|
|
|
98 |
|
|
|
134 |
|
Current
portion of long-term debt
|
|
|
275 |
|
|
|
423 |
|
Total current
liabilities
|
|
|
1,598 |
|
|
|
2,026 |
|
Long-term
debt
|
|
|
2,451 |
|
|
|
1,987 |
|
Other
liabilities
|
|
|
338 |
|
|
|
446 |
|
Total
liabilities
|
|
|
4,387 |
|
|
|
4,459 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests in subsidiaries
|
|
|
2,865 |
|
|
|
2,607 |
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.10 par value, authorized 3 billion shares, issued and
outstanding 761.1 million and 757.9 million shares,
respectively
|
|
|
76 |
|
|
|
76 |
|
Additional
capital
|
|
|
6,566 |
|
|
|
6,519 |
|
Retained
earnings (accumulated deficit)
|
|
|
(456 |
) |
|
|
1,164 |
|
Accumulated
other comprehensive (loss)
|
|
|
(8 |
) |
|
|
(7 |
) |
Total shareholders’
equity
|
|
|
6,178 |
|
|
|
7,752 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
13,430 |
|
|
$ |
14,818 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in
millions)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Additional
Capital
|
|
|
Retained
Earnings
|
|
|
Comprehensive
(Loss)
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 1, 2005
|
|
|
616.2 |
|
|
$ |
62 |
|
|
$ |
4,707 |
|
|
$ |
1,078 |
|
|
$ |
-- |
|
|
$ |
5,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408 |
|
|
|
|
|
|
|
408 |
|
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain
(loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Total comprehensive income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued under stock plans
|
|
|
11.9 |
|
|
|
1 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
115 |
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Conversion
of notes to stock, net of unamortized issuance costs
|
|
|
53.7 |
|
|
|
5 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
|
|
623 |
|
Stock
and stock options issued in connection with the acquisition of
Lexar
|
|
|
50.7 |
|
|
|
5 |
|
|
|
878 |
|
|
|
|
|
|
|
|
|
|
|
883 |
|
Premium
recognized on convertible debt assumed in Lexar
acquisition
|
|
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
43 |
|
Settlement
of capped calls
|
|
|
|
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
171 |
|
Stock
issued in connection with Intel stock rights
|
|
|
16.9 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
-- |
|
Balance
at August 31, 2006
|
|
|
749.4 |
|
|
$ |
75 |
|
|
$ |
6,555 |
|
|
$ |
1,486 |
|
|
$ |
(2 |
) |
|
$ |
8,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(320 |
) |
|
|
|
|
|
|
(320 |
) |
Stock
issued under stock plans
|
|
|
8.7 |
|
|
|
1 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
74 |
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Repurchase
and retirement of common stock
|
|
|
(0.2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(4 |
) |
Adjustment
to initially apply SFAS No. 158, net of tax benefit of $3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
Purchase
of capped calls
|
|
|
|
|
|
|
|
|
|
|
(151 |
) |
|
|
|
|
|
|
|
|
|
|
(151 |
) |
Balance
at August 30, 2007
|
|
|
757.9 |
|
|
$ |
76 |
|
|
$ |
6,519 |
|
|
$ |
1,164 |
|
|
$ |
(7 |
) |
|
$ |
7,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,619 |
) |
|
|
|
|
|
|
(1,619 |
) |
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain
(loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Total comprehensive income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,620 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued under stock plans
|
|
|
3.7 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
Adoption
of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Repurchase
and retirement of common stock
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Balance
at August 28, 2008
|
|
|
761.1 |
|
|
$ |
76 |
|
|
$ |
6,566 |
|
|
$ |
(456 |
) |
|
$ |
(8 |
) |
|
$ |
6,178 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
For
the year ended
|
|
August
28,
2008
|
|
|
August
30,
2007
|
|
|
August
31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(1,619 |
) |
|
$ |
(320 |
) |
|
$ |
408 |
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
2,060 |
|
|
|
1,718 |
|
|
|
1,281 |
|
Goodwill
impairment
|
|
|
463 |
|
|
|
-- |
|
|
|
-- |
|
Provision to write-down
inventories to estimated market values
|
|
|
282 |
|
|
|
20 |
|
|
|
-- |
|
Gain from disposition of
equipment, net of write-downs
|
|
|
(66 |
) |
|
|
(43 |
) |
|
|
(2 |
) |
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in
receivables
|
|
|
(26 |
) |
|
|
5 |
|
|
|
(62 |
) |
Increase in
inventories
|
|
|
(40 |
) |
|
|
(591 |
) |
|
|
(12 |
) |
Increase (decrease) in
accounts payable and accrued expenses
|
|
|
(92 |
) |
|
|
(1 |
) |
|
|
130 |
|
Increase (decrease) in
customer prepayments
|
|
|
(38 |
) |
|
|
(4 |
) |
|
|
249 |
|
Other
|
|
|
94 |
|
|
|
153 |
|
|
|
27 |
|
Net cash provided by operating
activities
|
|
|
1,018 |
|
|
|
937 |
|
|
|
2,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for property, plant and equipment
|
|
|
(2,529 |
) |
|
|
(3,603 |
) |
|
|
(1,365 |
) |
Purchases
of available-for-sale securities
|
|
|
(283 |
) |
|
|
(1,466 |
) |
|
|
(3,080 |
) |
Investments
in non-marketable equity instruments
|
|
|
(84 |
) |
|
|
-- |
|
|
|
-- |
|
Acquisition
of noncontrolling interest in TECH
|
|
|
-- |
|
|
|
(73 |
) |
|
|
-- |
|
Proceeds
from maturities of available-for-sale securities
|
|
|
547 |
|
|
|
2,156 |
|
|
|
2,189 |
|
Proceeds
from sales of property, plant and equipment
|
|
|
187 |
|
|
|
94 |
|
|
|
55 |
|
Proceeds
from sales of available-for-sale securities
|
|
|
24 |
|
|
|
540 |
|
|
|
33 |
|
Consolidation
of TECH
|
|
|
-- |
|
|
|
-- |
|
|
|
319 |
|
Cash
acquired in acquisition of Lexar
|
|
|
-- |
|
|
|
-- |
|
|
|
97 |
|
Other
|
|
|
46 |
|
|
|
(39 |
) |
|
|
(4 |
) |
Net cash used for investing
activities
|
|
|
(2,092 |
) |
|
|
(2,391 |
) |
|
|
(1,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from debt
|
|
|
837 |
|
|
|
1,300 |
|
|
|
-- |
|
Cash
received from noncontrolling interests
|
|
|
400 |
|
|
|
1,249 |
|
|
|
984 |
|
Proceeds
from equipment sale-leaseback transactions
|
|
|
111 |
|
|
|
454 |
|
|
|
-- |
|
Proceeds
from issuance of common stock
|
|
|
4 |
|
|
|
69 |
|
|
|
113 |
|
Repayments
of debt
|
|
|
(698 |
) |
|
|
(193 |
) |
|
|
(415 |
) |
Payments
on equipment purchase contracts
|
|
|
(387 |
) |
|
|
(487 |
) |
|
|
(209 |
) |
Distributions
to noncontrolling interests
|
|
|
(132 |
) |
|
|
-- |
|
|
|
-- |
|
Cash
received (paid) for capped call transactions
|
|
|
-- |
|
|
|
(151 |
) |
|
|
171 |
|
Other
|
|
|
(10 |
) |
|
|
(26 |
) |
|
|
-- |
|
Net cash provided by financing
activities
|
|
|
125 |
|
|
|
2,215 |
|
|
|
644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and equivalents
|
|
|
(949 |
) |
|
|
761 |
|
|
|
907 |
|
Cash
and equivalents at beginning of year
|
|
|
2,192 |
|
|
|
1,431 |
|
|
|
524 |
|
Cash
and equivalents at end of year
|
|
$ |
1,243 |
|
|
$ |
2,192 |
|
|
$ |
1,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid, net
|
|
$ |
(36 |
) |
|
$ |
(41 |
) |
|
$ |
(52 |
) |
Interest
paid, net of amounts capitalized
|
|
|
(84 |
) |
|
|
(22 |
) |
|
|
(28 |
) |
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquisitions on
contracts payable and capital leases
|
|
|
501 |
|
|
|
1,010 |
|
|
|
326 |
|
Stock and stock options issued
in acquisition of Lexar
|
|
|
-- |
|
|
|
-- |
|
|
|
883 |
|
Conversion of notes to stock,
net of unamortized issuance cost
|
|
|
-- |
|
|
|
-- |
|
|
|
623 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(All
tabular amounts in millions except per share amounts)
Significant
Accounting Policies
Basis of
presentation: Micron Technology, Inc. and its subsidiaries
(hereinafter referred to collectively as the “Company”) manufacture and market
DRAM, NAND Flash memory, CMOS image sensors and other semiconductor
components. The Company has two segments, Memory and
Imaging. The Memory segment’s primary products are DRAM and NAND
Flash and the Imaging segment’s primary product is CMOS image
sensors. The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and include the accounts of the Company and its
consolidated subsidiaries. All significant intercompany transactions
and balances have been eliminated.
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31. The
Company’s fiscal 2008, 2007 and 2006 each contained 52 weeks. All
period references are to the Company’s fiscal periods unless otherwise
indicated.
Use of
estimates: The preparation of financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures. Estimates and judgments are based on historical
experience, forecasted future events and various other assumptions that the
Company believes to be reasonable under the circumstances. Estimates
and judgments may differ under different assumptions or
conditions. The Company evaluates its estimates and judgments on an
ongoing basis. Actual results could differ from
estimates.
Product
warranty: The Company generally provides a limited warranty
that its products are in compliance with Company specifications existing at the
time of delivery. Under the Company’s general terms and conditions of
sale, liability for certain failures of product during a stated warranty period
is usually limited to repair or replacement of defective items or return of, or
a credit with respect to, amounts paid for such items. Under certain
circumstances, the Company may provide more extensive limited warranty coverage
and general legal principles may impose upon the Company more extensive
liability than that provided under the Company’s general terms and
conditions. The Company’s warranty obligations are not
material.
Revenue
recognition: The Company recognizes product or license revenue
when persuasive evidence of a sales arrangement exists, delivery has occurred,
the price is fixed or determinable and collectibility is reasonably
assured. Since the Company is unable to estimate returns and changes
in market price and therefore the price is not fixed or determinable, sales made
under agreements allowing pricing protection or rights of return (other than for
product warranty) are deferred until customers have sold the
product.
Research and
development: Costs related to the conceptual formulation and
design of products and processes are expensed as research and development as
incurred. Determining when product development is complete requires
judgment by the Company. The Company deems development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability. Subsequent to product qualification,
product costs are valued in inventory. Product design and other
research and development costs for NAND Flash are shared equally among the
Company and Intel Corporation (“Intel”). These charges to Intel are
reflected as a reduction of research and development expense. (See
“Joint Ventures – NAND Flash Joint Ventures with Intel.”)
Stock-based
compensation: Stock-based compensation cost is measured at the
grant date, based on the fair value of the award, and is recognized as expense
over the requisite service period. For stock awards granted after the
beginning of 2006, expenses are amortized under the straight-line attribution
method. The Company grants new shares upon the exercise of stock
options or conversion of share units. (See “Equity
Plans.”)
Functional
currency: The U.S. dollar is the Company’s functional currency
for substantially all of its operations.
Earnings per
share: Basic earnings per share is computed based on the
weighted-average number of common shares and stock rights
outstanding. Diluted earnings per share is computed based on the
weighted-average number of common shares and stock rights outstanding plus the
dilutive effects of stock options, warrants and convertible
notes. Potential common shares that would increase earnings per share
amounts or decrease loss per share amounts are antidilutive and are, therefore,
excluded from diluted per share calculations.
Financial
instruments: Cash equivalents include highly liquid short-term
investments with original maturities to the Company of three months or less,
readily convertible to known amounts of cash. Investments with
original maturities greater than three months and remaining maturities less than
one year are classified as short-term investments. Investments with
remaining maturities greater than one year are classified as other noncurrent
assets. Securities classified as available-for-sale are stated at
market value. The carrying value of investment securities sold is
determined using the specific identification method.
Amounts reported as cash and
equivalents, short-term investments, receivables, other assets, accounts payable
and accrued expenses and equipment purchase contracts approximate their fair
values. As of August 28, 2008 and August 30, 2007, the estimated fair
value of the Company’s debt was $2,167 million and $2,411 million, respectively,
compared to their carrying value of $2,726 million and $2,410 million,
respectively. The estimated fair values presented herein were based
on market interest rates and other market information available to management as
of each balance sheet date presented. The use of different market
assumptions and/or estimation methodologies could have a material effect on the
estimated fair values. The estimated fair values do not take into
consideration expenses that could be incurred in an actual
settlement.
Inventories: Inventories
are stated at the lower of average cost or market value. Cost
includes labor, material and overhead costs, including product and process
technology costs. Determining fair market values of inventories
involves numerous judgments, including projecting average selling prices and
sales volumes for future periods and costs to complete products in work in
process inventories. As a result of these analyses, when fair market
values are below the Company’s costs, the Company records a charge to cost of
goods sold in advance of when the inventory is actually sold. The
Company’s inventories have been categorized as Memory products or Imaging
products for purposes of determining average cost and fair market
value. The major characteristics the Company considers in determining
categories are product type and markets.
Product and process
technology: Costs incurred to acquire product and process
technology or to patent technology developed by the Company are capitalized and
amortized on a straight-line basis over periods currently ranging up to 10
years. The Company capitalizes a portion of costs incurred based on
its analysis of historical and projected patents issued as a percent of patents
filed. Capitalized product and process technology costs are amortized
over the shorter of (i) the estimated useful life of the technology, (ii) the
patent term or (iii) the term of the technology
agreement. Fully-amortized assets are removed from product and
process technology and accumulated amortization.
Property, plant and
equipment: Property, plant and equipment are stated at cost
and depreciated using the straight-line method over estimated useful lives of 5
to 30 years for buildings, 2 to 20 years for equipment and 2 to 5 years for
software. Assets held for sale are carried at the lower of cost or
estimated fair value and are included in other noncurrent
assets. When property or equipment is retired or otherwise disposed
of, the net book value of the asset is removed from the Company’s accounts and
any gain or loss is included in the Company’s results of
operations.
The Company capitalizes interest on
borrowings during the active construction period of major capital
projects. Capitalized interest is added to the cost of the underlying
assets and is amortized over the useful lives of the assets. The
Company capitalized interest costs of $13 million, $18 million and $10 million
in 2008, 2007 and 2006, respectively, in connection with various capital
projects.
Recently issued accounting
standards: In May 2008, the Financial Accounting Standards
Board (“FASB”) issued FASB Staff Position (“FSP”) No. APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement).” FSP No. APB 14-1 requires that
issuers of convertible debt instruments that may be settled in cash upon
conversion separately account for the liability and equity components in a
manner that will reflect the entity’s nonconvertible debt borrowing rate as
interest cost is recognized in subsequent periods. The Company is
required to adopt FSP No. APB 14-1 at the beginning of 2010. On
adoption, the Company will retrospectively account for its $1.3 billion of
1.875% convertible senior notes issued in May of 2007 under the provisions of
FSP No. APB 14-1. Based on a preliminary analysis, the Company
estimates that debt recognized on issuance of the $1.3 billion convertible
senior notes would be approximately $400 million lower under FSP No. APB
14-1. The difference of approximately $400 million would be accreted
to interest expense over the approximate seven-year term of the
notes. A significant portion of the interest expense would be
deferred as capitalized interest costs in accordance with the Company’s regular
accounting policies and will impact results of operations as the assets that
include the capitalized interest are depreciated. The Company is
continuing to evaluate the full impact that the adoption of FSP No. APB 14-1
will have on its financial statements.
In December 2007, the FASB issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
“Business Combinations”
(“SFAS No. 141(R)”), which establishes the principles and requirements
for how an acquirer in a business combination (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interests in the acquiree, (2) recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain
purchase, and (3) determines what information to disclose. The
Company is required to adopt SFAS No. 141(R) effective at the beginning of
2010. The impact of the adoption of SFAS No. 141(R) will depend on
the nature and extent of business combinations occurring on or after the
beginning of 2010.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 requires that (1)
noncontrolling interests be reported as a separate component of equity, (2) net
income attributable to the parent and to the non-controlling interest be
separately identified in the income statement, (3) changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and (4) any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. The Company is required to adopt SFAS No. 160 effective
at the beginning of 2010. The Company is evaluating the impact that
the adoption of SFAS No. 160 will have on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” Under SFAS No.
159, the Company may elect to measure many financial instruments and certain
other items at fair value on an instrument by instrument basis, subject to
certain restrictions. The Company is required to adopt SFAS No. 159
effective at the beginning of 2009. The Company did not elect to
measure any existing items at fair value on the adoption of SFAS No.
159.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements. In
February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13,” which amends SFAS No. 157 to exclude accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13. In February 2008,
the FASB issued FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157,”
which delays the effective date of SFAS No. 157 until the beginning of 2010 for
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). In October 2008, the FASB also
issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset when
the Market for That Asset Is Not Active,” which clarifies the application of
SFAS No. 157 for financial assets in a market that is not active. The
Company is required to adopt SFAS No. 157 for financial assets and liabilities
effective at the beginning of 2009. The Company does not expect that
the adoption in 2009 of SFAS No. 157 for financial assets and financial
liabilities will have a significant impact on its financial
statements. The Company is evaluating the impact that the adoption in
2010 of SFAS No. 157 for non-financial assets and non-financial liabilities will
have on its financial statements.
In June 2006, the FASB issued
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109.” FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement. The Company adopted FIN 48 on August 31,
2007. The adoption of FIN 48 did not have a significant impact on the
Company’s results of operations or financial position. The Company
did not change its policy of recognizing accrued interest and penalties related
to unrecognized tax benefits within the income tax provision with the adoption
of FIN 48. (See “Income Taxes” note.)
In February 2006, the FASB issued SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS
No. 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require
bifurcation. The Company adopted SFAS No. 155 as of the beginning of
2008. The adoption of SFAS No. 155 did not have a significant impact
on the Company’s results of operations or financial condition.
Supplemental
Balance Sheet Information
Investment
Securities
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Commercial paper
|
|
$ |
271 |
|
|
$ |
687 |
|
U.S. government and
agencies
|
|
|
289 |
|
|
|
642 |
|
Certificates of
deposit
|
|
|
198 |
|
|
|
532 |
|
Other
|
|
|
28 |
|
|
|
39 |
|
|
|
|
786 |
|
|
|
1,900 |
|
Less cash
equivalents
|
|
|
(641 |
) |
|
|
(1,449 |
) |
Less noncurrent investments in
equity
|
|
|
(26 |
) |
|
|
(27 |
) |
Short-term
investments
|
|
$ |
119 |
|
|
$ |
424 |
|
In 2008, the Company realized losses of
$5 million on sales of investment securities and recognized losses of $8 million
for other-than-temporary impairments on investment securities. As of
August 28, 2008, the Company had gross unrealized losses of $7 million in
accumulated other comprehensive income, substantially all of which was in
commercial paper that had a fair value of $86 million and had been in an
unrealized loss position for less than one year. Gross unrealized
losses and gains in accumulated other comprehensive income as of August 30, 2007
were not material. Gross realized gains and losses on sales of
securities in 2007 and 2006 were also not material.
Receivables
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Trade receivables (net of
allowance for doubtful accounts of $2 and $4,respectively)
|
|
$ |
741 |
|
|
$ |
735 |
|
Income and other
taxes
|
|
|
43 |
|
|
|
47 |
|
Other
|
|
|
248 |
|
|
|
212 |
|
|
|
$ |
1,032 |
|
|
$ |
994 |
|
As of August 28, 2008 and August 30,
2007, other receivables included $71 million and $108 million, respectively, due
from Intel for amounts related to NAND Flash product design and process
development activities. Other receivables as of August 28, 2008 and
August 30, 2007 also included $75 million and $83 million, respectively, due
from settlement of litigation and $58 million as of August 28, 2008 due from
settlements of pricing adjustments with certain suppliers.
Other noncurrent assets as of August
28, 2008 and August 30, 2007 included receivables of $39 million and $110
million, respectively, due from settlement of litigation.
Inventories
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$ |
444 |
|
|
$ |
517 |
|
Work in process
|
|
|
671 |
|
|
|
772 |
|
Raw materials and
supplies
|
|
|
176 |
|
|
|
243 |
|
|
|
$ |
1,291 |
|
|
$ |
1,532 |
|
The Company’s results of operations for
the fourth, second and first quarters of 2008 and fourth quarter of 2007
included charges of $205 million, $15 million, $62 million and $20 million,
respectively, to write down the carrying value of work in process and finished
goods inventories of memory products (both DRAM and NAND Flash) to their
estimated market values.
Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and process
technology
|
|
$ |
577 |
|
|
$ |
(320 |
) |
|
$ |
544 |
|
|
$ |
(271 |
) |
Customer
relationships
|
|
|
127 |
|
|
|
(35 |
) |
|
|
127 |
|
|
|
(19 |
) |
Other
|
|
|
29 |
|
|
|
(14 |
) |
|
|
29 |
|
|
|
(9 |
) |
|
|
$ |
733 |
|
|
$ |
(369 |
) |
|
$ |
700 |
|
|
$ |
(299 |
) |
During 2008, the Company capitalized
$43 million for product and process technology with a weighted-average useful
life of 10 years. During 2007, the Company capitalized $86 million
for product and process technology with a weighted-average useful life of 9
years and $2 million of other intangible assets with a weighted-average useful
life of 4 years.
Amortization expense for intangible
assets was $80 million, $75 million and $52 million in 2008, 2007 and 2006,
respectively. Annual amortization expense for intangible assets is
estimated to be $72 million for 2009, $62 million for 2010, $56 million for
2011, $47 million for 2012 and $44 million for 2013.
Property,
Plant and Equipment
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
99 |
|
|
$ |
107 |
|
Buildings (includes $142 and
$131, respectively, for capital leases)
|
|
|
3,829 |
|
|
|
3,636 |
|
Equipment (includes $755 and
$744, respectively, for capital leases)
|
|
|
13,591 |
|
|
|
12,379 |
|
Construction in
progress
|
|
|
611 |
|
|
|
209 |
|
Software
|
|
|
283 |
|
|
|
267 |
|
|
|
|
18,413 |
|
|
|
16,598 |
|
Accumulated depreciation
(includes $327 and $258, respectively, for capital leases)
|
|
|
(9,602 |
) |
|
|
(8,319 |
) |
|
|
$ |
8,811 |
|
|
$ |
8,279 |
|
Depreciation expense was $1,976
million, $1,664 million and $1,258 million for 2008, 2007 and 2006,
respectively.
As of August 30, 2007, the Company had
goodwill related to its Memory segment of $463 million. During the
second quarter of 2008, the Company wrote off all of the segment’s goodwill
based on the results of the Company’s test for impairment. As of
August 28, 2008 and August 30, 2007, the Company had goodwill related to its
Imaging segment of $58 million and $52 million, respectively. The $6
million increase in goodwill for the Imaging segment during 2008 was due to
additional contingent payments made in connection with the Company’s acquisition
of the CMOS image sensor business of Avago Technologies Limited. The
Company’s assessment of goodwill for impairment in the second and fourth
quarters of 2008 indicated that the fair value of the Imaging segment exceeded
its carrying value and therefore goodwill in the segment was not
impaired.
SFAS No. 142, “Goodwill and Other
Intangible Assets,” requires that goodwill be tested for impairment at a
reporting unit level. The Company has determined that its reporting
units are its Memory and Imaging segments based on its organizational structure
and the financial information that is provided to and reviewed by
management. The Company tests goodwill for impairment annually and
whenever events or circumstances make it more likely than not that an impairment
may have occurred. Goodwill is tested for impairment using a two-step
process. In the first step, the fair value of a reporting unit is
compared to its carrying value. If the fair value of a reporting unit
exceeds the carrying value of the net assets assigned to a reporting unit,
goodwill is considered not impaired and no further testing is
required. If the carrying value of the net assets assigned to a
reporting unit exceeds the fair value of a reporting unit, the second step of
the impairment test is performed in order to determine the implied fair value of
a reporting unit’s goodwill. Determining the implied fair value of
goodwill requires valuation of a reporting unit’s tangible and intangible assets
and liabilities in a manner similar to the allocation of purchase price in a
business combination. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, goodwill is deemed impaired and is
written down to the extent of the difference.
In the first and second quarters of
2008, the Company experienced a sustained, significant decline in its stock
price. As a result of the decline in stock prices, the Company’s
market capitalization fell significantly below the recorded value of its
consolidated net assets for most of the second quarter of 2008. The
reduced market capitalization reflected, in part, the Memory segment’s lower
average selling prices and expected continued weakness in pricing for the
Company’s memory products. Accordingly, in the second quarter of
2008, the Company performed an assessment of goodwill for
impairment. Based on the results of the Company’s assessment of
goodwill for impairment, it was determined that the carrying value of the Memory
segment exceeded its estimated fair value. Therefore, the Company
performed the second step of the impairment test to determine the implied fair
value of goodwill. Specifically, the Company allocated the estimated
fair value of the Memory segment as determined in the first step to recognized
and unrecognized net assets, including allocations to intangible assets such as
intellectual property, customer relationships and brand and trade
names. The result of the analysis indicated that there would be no
remaining implied value attributable to goodwill in the Memory segment and
accordingly, the Company wrote off all $463 million of goodwill associated with
its Memory segment as of February 28, 2008.
In the first step of the impairment
analysis, the Company performed extensive valuation analyses utilizing both
income and market approaches to determine the fair value of its reporting
units. Under the income approach, the Company determined the fair
value based on estimated future cash flows discounted by an estimated
weighted-average cost of capital, which reflects the overall level of inherent
risk of a reporting unit and the rate of return an outside investor would expect
to earn. Estimated future cash flows were based on the Company’s
internal projection models, industry projections and other assumptions deemed
reasonable by management. Under the market-based approach, the
Company derived the fair value of its reporting units based on revenue and
earnings multiples of comparable publicly-traded peer companies. In
the second step of the impairment analysis, the Company determined the implied
fair value of goodwill for the Memory segment by allocating the fair value of
the segment to all of its assets and liabilities in accordance with SFAS No.
141, “Business Combinations,” as if the segment had been acquired in a business
combination and the price paid to acquire it was the fair value.
Accounts
Payable and Accrued Expenses
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
597 |
|
|
$ |
856 |
|
Salaries, wages and
benefits
|
|
|
244 |
|
|
|
247 |
|
Customer
advances
|
|
|
130 |
|
|
|
85 |
|
Income and other
taxes
|
|
|
27 |
|
|
|
33 |
|
Other
|
|
|
113 |
|
|
|
164 |
|
|
|
$ |
1,111 |
|
|
$ |
1,385 |
|
As of August 28, 2008 and August 30,
2007, customer advances included $129 million and $83 million, respectively, for
the Company’s obligation to provide certain NAND Flash memory products to Apple
Computer, Inc. (“Apple”) until December 31, 2010 pursuant to a prepaid NAND
Flash supply agreement. As of August 28, 2008 and August 30, 2007,
other accounts payable and accrued expenses included $16 million and $17
million, respectively, for amounts due to Intel for NAND Flash product design
and process development and licensing fees pursuant to a product designs
development agreement.
As of August 28, 2008 and August 30,
2007, other noncurrent liabilities included $83 million and $167 million,
respectively, pursuant to the supply agreement with Apple.
Debt
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Convertible senior notes payable,
interest rate of 1.875%, due June 2014
|
|
$ |
1,300 |
|
|
$ |
1,300 |
|
Notes payable in periodic
installments through July 2015, weighted-average interest rates of
4.5%
|
|
|
699 |
|
|
|
374 |
|
Capital lease obligations payable
in monthly installments through February 2023, weighted-average imputed
interest rate of 6.6%
|
|
|
657 |
|
|
|
666 |
|
Convertible subordinated notes
payable, interest rate of 5.6%, due April 2010
|
|
|
70 |
|
|
|
70 |
|
|
|
|
2,726 |
|
|
|
2,410 |
|
Less current
portion
|
|
|
(275 |
) |
|
|
(423 |
) |
|
|
$ |
2,451 |
|
|
$ |
1,987 |
|
As of August 28, 2008, notes payable
and capital lease obligations above included an aggregate of $108 million,
denominated in Japanese yen, at a weighted-average interest rate of 1.6%, which
was subject to customary covenants, including the ratio of debt to
equity. As of August 28, 2008, the Company was in compliance with
these customary covenants. Notes payable and capital lease
obligations as of August 28, 2008 also included $49 million, denominated in
Singapore dollars, at a weighted average interest rate of 6.0%.
During the second quarter of 2008, the
Company’s joint venture subsidiary, TECH Semiconductor Singapore Pte. Ltd.
(“TECH”), borrowed $240 million against a credit facility at Singapore Interbank
Offered Rate (“SIBOR”) plus 2.5%. During the third quarter of 2008,
TECH entered into a new credit facility enabling TECH to borrow up to $600
million at SIBOR plus 2.5%. During 2008, TECH drew $600 million under
the new credit facility and retired the previous credit facility by paying off
the $240 million outstanding balance. The new credit facility is
collateralized by substantially all of the assets of TECH (approximately $1,741
million as of August 28, 2008) and contains covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios, and restrict TECH’s ability to incur indebtedness, create liens and
acquire or dispose of assets. Payments under the new facility are due
in approximately equal installments over 13 quarters commencing in May
2009. Beginning March 2009, TECH will be required to maintain $30
million in restricted cash and this restricted cash requirement will increase to
$60 million in September 2009. The Company has guaranteed
approximately 73% of the outstanding amount of the facility, with the Company’s
obligation increasing to 100% of the outstanding amount of the facility upon the
occurrence of certain conditions.
In 2008, the Company received $111
million in proceeds from sales-leaseback transactions and in connection with
these transactions, recorded capital lease obligations aggregating $110 million
with a weighted-average imputed interest rate of 6.7% and payable in periodic
installments through June 2012.
In May 2007, the Company issued $1.3
billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Senior
Notes”). The issuance costs associated with the Senior Notes totaled
$26 million and the net proceeds to the Company from the offering of the Senior
Notes were $1,274 million. The initial conversion rate for the Senior
Notes is 70.2679 shares of common stock per $1,000 principal amount of Senior
Notes, equivalent to an initial conversion price of approximately $14.23 per
share of common stock. Holders may convert the Senior Notes prior to
the close of business on the business day immediately preceding the maturity
date for the Senior Notes only under the following circumstances: (1) during any
calendar quarter beginning after August 30, 2007 (and only during such calendar
quarter), if the closing price of the Company's common stock for at least 20
trading days in the 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter is more than 130% of the then
applicable conversion price per share of the Senior Notes; (2) if the Senior
Notes have been called for redemption; (3) if specified distributions to holders
of the Company's common stock are made, or specified corporate events occur, as
specified in the indenture for the Senior Notes; (4) during the five business
days after any five consecutive trading day period in which the trading price
per $1,000 principal amount of Senior Notes for each day of that period was less
than 98% of the product of the closing price of the Company’s common stock and
the then applicable conversion rate of the Senior Notes; or (5) at any time on
or after March 1, 2014. Upon conversion, the Company will have the
right to deliver, in lieu of shares of its common stock, cash or a combination
of cash and shares of common stock. If a holder elects to convert its
Senior Notes in connection with a make-whole change in control, as defined in
the indenture, the Company will, in certain circumstances, pay a make-whole
premium by increasing the conversion rate for the Senior Notes converted in
connection with such make-whole change in control. On or after June
6, 2011, the Company may redeem for cash all or part of the Senior Notes if the
last reported sale price of its common stock has been at least 130% of the
conversion price then in effect for at least 20 trading days during any 30
consecutive trading day period ending within five trading days prior to the date
on which the Company provides notice of redemption. The redemption
price is 100% of the principal amount of the Senior Notes to be redeemed, plus
accrued and unpaid interest. Upon a change in control or a
termination of trading, as defined in the indenture, the holders may require the
Company to repurchase for cash all or a portion of their Senior Notes at a
repurchase price equal to 100% of the principal amount of the Senior Notes, plus
accrued and unpaid interest, if any. The Company expects that the
accounting for the Senior Notes will be significantly impacted by adoption of
FSP No. APB 14-1, which is effective at the beginning of 2010 and will require
the Company to retrospectively account for the Senior Notes from their issuance
date. (See “Significant Accounting Policies – Recently issued
accounting standards.”)
In connection with the Company’s
acquisition of Lexar Media, Inc. (“Lexar”) in the fourth quarter of 2006, the
Company assumed Lexar’s $70 million 5.625% convertible notes due April 1, 2010
(the “Lexar Notes”). The Lexar Notes are convertible into the
Company’s common stock any time at the option of the holders of the Lexar Notes
at a price equal to approximately $11.28 per share and are subject to customary
covenants. The Lexar Notes became redeemable for cash at the
Company’s option on April 1, 2008, at a price equal to the principal amount plus
accrued interest plus the net present value of the remaining scheduled interest
payments through April 1, 2010. The Company may only redeem the Lexar
Notes if its common stock has exceeded 175% of the conversion price for at least
20 trading days in the 30 consecutive trading days prior to delivery of a notice
of redemption.
Certain notes payable are
collateralized by property, plant and equipment with a carrying value of $28
million as of August 28, 2008.
As of August 28, 2008, maturities of
notes payable and future minimum lease payments under capital lease obligations
were as follows:
|
|
Notes
Payable
|
|
|
Capital
Lease
Obligations
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
99 |
|
|
$ |
215 |
|
2010
|
|
|
318 |
|
|
|
148 |
|
2011
|
|
|
205 |
|
|
|
261 |
|
2012
|
|
|
150 |
|
|
|
46 |
|
2013
|
|
|
-- |
|
|
|
16 |
|
2014
and thereafter
|
|
|
1,300 |
|
|
|
81 |
|
Discount
and interest, respectively
|
|
|
(3 |
) |
|
|
(110 |
) |
|
|
$ |
2,069 |
|
|
$ |
657 |
|
Commitments
As of August 28, 2008, the Company had
commitments of approximately $300 million for the acquisition of property, plant
and equipment. The Company leases certain facilities and equipment
under operating leases. Total rental expense was $39 million, $62
million and $30 million for 2008, 2007 and 2006,
respectively. Minimum future rental commitments under operating
leases aggregated $94 million as of August 28, 2008 and are payable as
follows: $18 million in 2009; $15 million in 2010; $13 million in
2011, $11 million in 2012, $11 million in 2013 and $26 million in 2014 and
thereafter.
Contingencies
The Company has accrued a liability and
charged operations for the estimated costs of adjudication or settlement of
various asserted and unasserted claims existing as of the balance sheet date,
including those described below. The Company is currently a party to
other legal actions arising out of the normal course of business, none of which
is expected to have a material adverse effect on the Company’s business, results
of operations or financial condition.
In the normal course of business, the
Company is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party. It is not possible to predict
the maximum potential amount of future payments under these types of agreements
due to the conditional nature of the Company’s obligations and the unique facts
and circumstances involved in each particular
agreement. Historically, payments made by the Company under these
types of agreements have not had a material effect on the Company’s business,
results of operations or financial condition.
The Company is involved in the
following patent, antitrust, securities and Lexar matters.
Patent
Matters: As is typical in the semiconductor and other high
technology industries, from time to time, others have asserted, and may in the
future assert, that the Company’s products or manufacturing processes infringe
their intellectual property rights. In this regard, the Company is
engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of
Rambus’ patents and certain of the Company’s claims and
defenses. Lawsuits between Rambus and the Company are pending in the
U.S. District Court for the District of Delaware, U.S. District Court for the
Northern District of California, Germany, France, and Italy. The
Company also is engaged in patent litigation with Mosaid Technologies, Inc.
(“Mosaid”) in both the U.S. District Court for the Northern District of
California and the U.S. District Court for the Eastern District of
Texas. Among other things, the above lawsuits pertain to certain of
the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM, RLDRAM and image sensor
products, which account for a significant portion of net sales.
The Company is unable to predict the
outcome of assertions of infringement made against the Company and therefore
cannot estimate the range of possible loss. A court determination
that the Company’s products or manufacturing processes infringe the intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing could have a material adverse effect
on the Company’s business, results of operations or financial
condition.
Antitrust
Matters: At least sixty-eight purported class action
price-fixing lawsuits have been filed against the Company and other DRAM
suppliers in various federal and state courts in the United States and in Puerto
Rico on behalf of indirect purchasers alleging price-fixing in violation of
federal and state antitrust laws, violations of state unfair competition law,
and/or unjust enrichment relating to the sale and pricing of DRAM products
during the period from April 1999 through at least June 2002. The
complaints seek treble damages sustained by purported class members in addition
to restitution, costs and attorneys’ fees. A number of these cases
have been removed to federal court and transferred to the U.S. District Court
for the Northern District of California for consolidated
proceedings. On January 29, 2008, the Northern District of
California court granted in part and denied in part the Company’s motion to
dismiss plaintiffs’ second amended consolidated complaint. Plaintiffs
subsequently filed a motion seeking certification for interlocutory appeal of
the decision. On February 27, 2008, plaintiffs filed a third amended
complaint. On June 26, 2008, the United States Court of Appeals for
the Ninth Circuit accepted plaintiffs’ interlocutory appeal.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Three states, Ohio, New Hampshire, and Texas, subsequently
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware, and
Vermont subsequently voluntarily dismissed their claims. The amended
complaint alleges, among other things, violations of the Sherman Act, Cartwright
Act, and certain other states’ consumer protection and antitrust laws and seeks
damages, and injunctive and other relief. Additionally, on July 13,
2006, the State of New York filed a similar suit in the U.S. District Court for
the Southern District of New York. That case was subsequently
transferred to the U.S. District Court for the Northern District of California
for pre-trial purposes. The State of New York filed an amended
complaint on October 1, 2007. On October 3, 2008, the California
Attorney General filed a similar lawsuit in California Superior Court,
purportedly on behalf of local California government entities, alleging, among
other things, violations of the Cartwright Act and state unfair competition
law.
Three purported class action DRAM
lawsuits also have been filed in Quebec, Ontario, and British Columbia, Canada,
on behalf of direct and indirect purchasers, alleging violations of the Canadian
Competition Act. The substantive allegations in these cases are
similar to those asserted in the cases filed in the United States. In
May and June 2008 respectively, plaintiffs’ motion for class certification was
denied in the British Columbia and Quebec cases. Plaintiffs
subsequently filed an appeal of each of those decisions.
In February and March 2007, All
American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers
in the U.S. District Court for the Northern District of California after
opting-out of a direct purchaser class action suit that was
settled. The complaints allege, among other things, violations of
federal and state antitrust and competition laws in the DRAM industry, and seek
damages, injunctive relief, and other remedies.
On October 11, 2006, the Company
received a grand jury subpoena from the U.S. District Court for the Northern
District of California seeking information regarding an investigation by the DOJ
into possible antitrust violations in the “Static Random Access Memory” or
“SRAM” industry. The Company believes that it is not a target of the
investigation and is cooperating with the DOJ in its investigation of the SRAM
industry.
Subsequent to the issuance of subpoenas
to the SRAM industry, a number of purported class action lawsuits have been
filed against the Company and other SRAM suppliers. Six cases have
been filed in the U.S. District Court for the Northern District of California
asserting claims on behalf of a purported class of individuals and entities that
purchased SRAM directly from various SRAM suppliers during the period from
November 1, 1996 through December 31, 2005. Additionally, at least
seventy-four cases have been filed in various U.S. District Courts asserting
claims on behalf of a purported class of individuals and entities that
indirectly purchased SRAM and/or products containing SRAM from various SRAM
suppliers during the time period from November 1, 1996 through December 31,
2006. In September 2008, a class of direct purchasers was certified,
and plaintiffs were granted leave to amend their complaint to cover
Pseudo-Static RAM or “PSRAM” products as well. The complaints
allege price fixing in violation of federal antitrust laws and state antitrust
and unfair competition laws and seek treble monetary damages, restitution,
costs, interest and attorneys’ fees.
Three purported class action SRAM
lawsuits also have been filed in Canada, on behalf of direct and indirect
purchasers, alleging violations of the Canadian Competition Act. The
substantive allegations in these cases are similar to those asserted in the SRAM
cases filed in the United States.
In addition, three purported class
action lawsuits alleging price-fixing of Flash products have been filed in
Canada, asserting violations of the Canadian Competition Act. These
cases assert claims on behalf of a purported class of individuals and entities
that purchased Flash memory directly and indirectly from various Flash memory
suppliers.
On May 5, 2004, Rambus filed a
complaint in the Superior Court of the State of California (San Francisco
County) against the Company and other DRAM suppliers. The complaint
alleges various causes of action under California state law including conspiracy
to restrict output and fix prices on Rambus DRAM (“RDRAM”) and unfair
competition. Trial is currently scheduled to begin in March
2009. The complaint seeks treble damages, punitive damages,
attorneys’ fees, costs, and a permanent injunction enjoining the defendants from
the conduct alleged in the complaint.
The Company is unable to predict the
outcome of these lawsuits and investigations and therefore cannot estimate the
range of possible loss. The final resolution of these alleged
violations of antitrust laws could result in significant liability and could
have a material adverse effect on the Company’s business, results of operations
or financial condition.
Securities
Matters: On February 24, 2006, a putative class action
complaint was filed against the Company and certain of its officers in the U.S.
District Court for the District of Idaho alleging claims under Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys’ fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of the Company’s stock
during the period from February 24, 2001 to September 18, 2002.
In addition, on March 23, 2006, a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleges breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint seeks
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint is derivative in nature and does not seek monetary damages from the
Company. However, the Company may be required, throughout the
pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On January 25, 2008, the Court granted the Company’s
motion to dismiss the second amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Court of Appeals.
The Company is unable to predict the
outcome of these cases and therefore cannot estimate the range of possible
loss. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Capped
Call Transactions
In connection with the offering of the
Senior Notes in May 2007, the Company entered into three capped call
transactions (the “Capped Calls”). The Capped Calls each have an
initial strike price of approximately $14.23 per share, subject to certain
adjustments, which matches the initial conversion price of the Senior
Notes. The Capped Calls are in three equal tranches, have cap prices
of $17.25, $20.13 and $23.00 per share, and cover, subject to anti-dilution
adjustments similar to those contained in the Senior Notes, an approximate
combined total of 91.3 million shares of common stock. The Capped
Calls may reduce the potential dilution upon conversion of the Senior
Notes. Settlement of the Capped Calls in cash on their respective
expiration dates would result in the Company receiving an amount ranging from
zero if the market price per share of the Company’s common stock is at or below
$14.23 to a maximum of $538 million. The Company paid $151 million to
purchase the Capped Calls. The Capped Calls expire on various dates
between November 2011 and December 2012. The Capped Calls are
considered capital transactions and the related cost was recorded as a charge to
additional capital.
Shareholders’
Equity
Stock
Rights: As of August 28, 2008, Intel held stock rights
exchangeable into approximately 16.9 million shares of the Company’s common
stock. The shares are issuable pursuant to the stock rights are
included in weighted-average common shares outstanding in the computations of
earnings per share.
Stock
Warrants: In 2001, the Company received $480 million from the
issuance of warrants to purchase 29.1 million shares of the Company’s common
stock. The warrants entitled the holders to exercise their warrants
and purchase shares of common stock for $56.00 per share at any time through May
15, 2008. The warrants expired unexercised on May 15,
2008.
Accumulated Other
Comprehensive Income (Loss): Accumulated other comprehensive
income (loss), net of tax, consisted of the following as of the end of the
periods shown below:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Unrealized loss on investments,
net
|
|
$ |
(3 |
) |
|
$ |
(2 |
) |
Unrecognized pension
liability
|
|
|
(5 |
) |
|
|
(5 |
) |
Accumulated other comprehensive
income (loss)
|
|
$ |
(8 |
) |
|
$ |
(7 |
) |
Equity
Plans
As of August 28, 2008, the Company had
an aggregate of 200.6 million shares of its common stock reserved for issuance
for stock options and restricted stock awards, of which 122.1 million shares
were subject to outstanding awards and 78.5 million shares were available for
future grants. Awards are subject to terms and conditions as
determined by the Company’s Board of Directors.
Stock
Options: Stock options granted by the Company are generally
exercisable in increments of 25% during each year of employment beginning one
year from the date of grant. Stock options issued after September 22,
2004 generally expire six years from the date of grant. All other
options expire ten years from the grant date.
Option activity for 2008 is summarized
as follows:
|
|
Number
of shares
|
|
|
Weighted-average
exercise price per share
|
|
|
Weighted-average
remaining contractual life
(in
years)
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at August 30, 2007
|
|
|
119.5 |
|
|
$ |
20.00 |
|
|
|
|
|
|
|
Granted
|
|
|
7.4 |
|
|
|
6.20 |
|
|
|
|
|
|
|
Exercised
|
|
|
(0.2 |
) |
|
|
4.34 |
|
|
|
|
|
|
|
Cancelled
or expired
|
|
|
(13.8 |
) |
|
|
19.01 |
|
|
|
|
|
|
|
Outstanding
at August 28, 2008
|
|
|
112.9 |
|
|
|
19.24 |
|
|
|
3.25 |
|
|
$ |
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at August 28, 2008
|
|
|
95.8 |
|
|
$ |
20.86 |
|
|
|
3.01 |
|
|
$ |
-- |
|
Expected
to vest after August 28, 2008
|
|
|
16.2 |
|
|
|
10.28 |
|
|
|
4.56 |
|
|
|
-- |
|
The following table summarizes
information about options outstanding as of August 28, 2008:
|
|
Outstanding
options
|
|
|
Exercisable
options
|
|
Range
of exercise prices
|
|
Number
of
shares
|
|
|
Weighted-
average
remaining
contractual
life
(in years)
|
|
|
Weighted-
average
exercise
price
per
share
|
|
|
Number
of
shares
|
|
|
Weighted-
average
exercise
price
per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
0.51 - $ 14.02
|
|
|
61.1 |
|
|
|
3.73 |
|
|
$ |
11.78 |
|
|
|
45.4 |
|
|
$ |
12.49 |
|
14.06
- 22.83
|
|
|
25.2 |
|
|
|
3.59 |
|
|
|
19.08 |
|
|
|
23.8 |
|
|
|
19.32 |
|
23.25 - 34.06
|
|
|
17.0 |
|
|
|
1.89 |
|
|
|
29.95 |
|
|
|
17.0 |
|
|
|
29.95 |
|
34.09 - 40.06
|
|
|
6.0 |
|
|
|
1.40 |
|
|
|
36.90 |
|
|
|
6.0 |
|
|
|
36.90 |
|
40.57 - 96.56
|
|
|
3.6 |
|
|
|
2.11 |
|
|
|
66.99 |
|
|
|
3.6 |
|
|
|
66.99 |
|
|
|
|
112.9 |
|
|
|
3.25 |
|
|
|
19.24 |
|
|
|
95.8 |
|
|
|
20.86 |
|
The weighted-average grant-date fair
value per share was $2.52, $4.87 and $5.92 for options granted during 2008, 2007
and 2006, respectively. The total intrinsic value was $1 million, $32
million and $46 million for options exercised during 2008, 2007 and
2006.
Changes in the Company’s nonvested
options for 2008 are summarized as follows:
|
|
Number
of shares
|
|
|
Weighted-
average grant date fair value
per
share
|
|
|
|
|
|
|
|
|
Nonvested
at August 30, 2007
|
|
|
16.6 |
|
|
$ |
5.50 |
|
Granted
|
|
|
7.4 |
|
|
|
2.52 |
|
Vested
|
|
|
(5.0 |
) |
|
|
5.65 |
|
Cancelled
|
|
|
(1.9 |
) |
|
|
5.12 |
|
Nonvested
at August 28, 2008
|
|
|
17.1 |
|
|
|
4.21 |
|
As of August 28, 2008, $51 million of
total unrecognized compensation cost related to nonvested awards was expected to
be recognized through the fourth quarter of 2012, resulting in a
weighted-average period of 1.2 years. The Company’s nonvested options
as of August 28, 2008 have a weighted-average exercise price of $10.22, a
weighted-average remaining contractual life of 4.6 years and no aggregate
intrinsic value.
The fair value of each option award is
estimated as of the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable and requires the input of subjective assumptions, including
the expected stock price volatility and estimated option life. The
expected volatilities utilized by the Company are based on implied volatilities
from traded options on the Company’s stock and on historical
volatility. The expected life of options granted was based on the
simplified method provided by the Securities and Exchange Commission as
historical data did not provide a reasonable basis to estimate future terms due
to significant changes in the terms of prior grants. The risk-free
rates utilized by the Company are based on the U.S. Treasury yield in effect at
the time of the grant. No dividends have been assumed in the
Company’s estimated option values. Assumptions used in the
Black-Scholes model are presented below:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Average
expected life in years
|
|
|
4.25 |
|
|
|
4.25 |
|
|
|
4.25 |
|
Expected
volatility
|
|
|
37%-54 |
% |
|
|
33%-42 |
% |
|
|
42%-48 |
% |
Weighted-average
volatility
|
|
|
47 |
% |
|
|
39 |
% |
|
|
47 |
% |
Weighted-average
risk-free interest rate
|
|
|
2.9 |
% |
|
|
4.7 |
% |
|
|
4.4 |
% |
Restricted Stock
and Restricted Stock Units (“Restricted Stock Awards”): As of
August 28, 2008, there were 9.2 million shares of restricted stock awards
outstanding, of which 2.9 million were performance-based restricted stock
awards. For service-based restricted stock awards, restrictions
generally lapse either in one-fourth or one-third increments during each year of
employment after the grant date. For performance-based restricted
stock awards, vesting is contingent upon meeting certain Company-wide
performance goals. Restricted stock awards activity for 2008 is
summarized as follows:
|
|
Number
of shares
|
|
|
Weighted-average
remaining contractual life
(in
years)
|
|
|
Aggregate
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at August 30, 2007
|
|
|
5.3 |
|
|
|
|
|
|
|
Granted
|
|
|
5.6 |
|
|
|
|
|
|
|
Restrictions
lapsed
|
|
|
(1.3 |
) |
|
|
|
|
|
|
Cancelled
|
|
|
(0.4 |
) |
|
|
|
|
|
|
Outstanding
at August 28, 2008
|
|
|
9.2 |
|
|
|
2.2 |
|
|
$ |
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
to vest after August 28, 2008
|
|
|
7.5 |
|
|
|
2.4 |
|
|
$ |
32 |
|
The weighted-average grant-date fair
value for restricted stock awards granted during 2008, 2007 and 2006 was $8.41,
$14.91 and $13.04 per share, respectively. The aggregate value at the
lapse date of awards for which restrictions lapsed during 2008, 2007 and 2006
was $12 million, $11 million and $2 million, respectively. As of
August 28, 2008, there was $56 million of total unrecognized compensation cost,
net of estimated forfeitures, related to nonvested restricted stock awards,
which is expected to be recognized over a weighted-average period of 1.3
years.
Stock Purchase
Plan: The Company’s 1989 Employee Stock Purchase Plan (“ESPP”)
allowed eligible employees to purchase shares of the Company’s common stock
through payroll deductions. Shares could be purchased at 95% of the
ending closing stock price of each offering quarterly period and could be resold
when purchased. Purchases were limited to 20% of an employee’s
eligible compensation. During 2008, the ESPP was suspended by the
Company. As of August 28, 2008, 1.8 million shares were reserved for
future issuance under this plan.
Non-Employee
Director Stock Incentive Plan: Shares are issued under the
Director Stock Incentive Plan (“DSIP”) as compensation to non-employee directors
of the Company. As of August 28, 2008, 69,808 shares of the Company’s
common stock had been issued under the DSIP and 430,192 shares were reserved for
future issuance under the plan.
Stock-Based
Compensation Expense: Total compensation costs for the
Company’s equity plans were as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by caption:
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
$ |
15 |
|
|
$ |
11 |
|
|
$ |
8 |
|
Selling, general and
administrative
|
|
|
19 |
|
|
|
21 |
|
|
|
11 |
|
Research and
development
|
|
|
14 |
|
|
|
12 |
|
|
|
7 |
|
|
|
$ |
48 |
|
|
$ |
44 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$ |
26 |
|
|
$ |
26 |
|
|
$ |
17 |
|
Restricted stock
awards
|
|
|
22 |
|
|
|
18 |
|
|
|
9 |
|
|
|
$ |
48 |
|
|
$ |
44 |
|
|
$ |
26 |
|
As of August 28, 2008 and August 30,
2007, $3 million of stock-based compensation expense was capitalized and
remained in inventory, and $1 million was capitalized and remained in inventory
as of August 31, 2006. As of August 28, 2008, $107 million of total
unrecognized compensation costs, net of estimated forfeitures, related to
non-vested awards was expected to be recognized through the fourth quarter of
2012, resulting in a weighted-average period of 1.2
years. Stock-based compensation expense in the above presentation
does not reflect any significant income tax benefits, which is consistent with
the Company’s treatment of income or loss from its U.S.
operations. (See “Income Taxes” note.)
Employee
Benefit Plans
The Company has employee retirement
plans at its U.S. and international sites. Details of the more
significant plans are discussed as follows:
Employee Savings
Plan for U.S. Employees: The Company has a 401(k) retirement
plan (“RAM Plan”) under which U.S. employees may contribute up to 45% of their
eligible pay (subject to IRS annual contribution limits) to various savings
alternatives, none of which include direct investment in the Company’s common
stock. Under the RAM plan, the Company matches in cash eligible
contributions from employees up to 4% of the employee’s annual eligible earnings
or $2,000, whichever is greater. Contribution expense for the
Company’s RAM Plan was $32 million, $31 million and $26 million in 2008, 2007
and 2006, respectively.
Retirement
Plans: The Company has
pension plans in various countries worldwide. The pension plans are
only available to local employees and are generally government
mandated. Upon adoption of FAS 158 as of August 30, 2007, the Company
increased its liability by $8 million related to the unfunded pension
liabilities of the plans.
Restructure
In an effort to increase its
competitiveness and efficiency, in the fourth quarter of 2007, the Company began
pursuing a number of initiatives to reduce costs across its
operations. These initiatives included workforce reductions in
certain areas of the Company as its business was
realigned. Additional initiatives included establishing certain
operations closer in location to the Company’s global customers and evaluating
functions more efficiently performed through partnerships or other outside
relationships. In 2008, the Company recorded charges of $33 million,
primarily within its Memory segment, for employee severance and related costs,
relocation and retention bonuses and a write-down of certain facilities to their
fair values. Since the restructure initiatives were initiated in the
fourth quarter of 2007, the Company has incurred $52 million of restructure
costs. As of August 28, 2008 and August 30, 2007, $6 million and $5
million, respectively, of the restructure costs remained unpaid and were
included in accounts payable and accrued expenses.
On October 9, 2008 the Company
announced a plan to restructure its memory operations. The Company’s
IM Flash joint venture with Intel Corporation will discontinue production of
200mm wafer NAND flash memory at Micron’s Boise facility. The NAND
Flash production shutdown will reduce IM Flash’s NAND flash production by
approximately 35,000 200mm wafers per month. In addition, the Company
and Intel agreed to suspend tooling and the ramp of production at IM Flash’s
Singapore wafer fabrication plant. As part of the restructuring, the
Company plans to reduce its global workforce by approximately 15 percent during
2009 and 2010. Cash costs for restructuring and other related
expenses incurred in connection with this restructuring are anticipated to be
approximately $60 million.
Other
Operating (Income) Expense, Net
Other operating (income) for 2008
included gains of $66 million for disposals of semiconductor equipment and $38
million for receipts from the U.S. government in connection with anti-dumping
tariffs. Other operating expenses for 2008 included losses of $25
million from changes in currency exchange rates. Other operating
(income) for 2007 included gains of $43 million from disposals of semiconductor
equipment, $30 million from the sale of certain intellectual property to Toshiba
Corporation and $7 million in grants received in connection with the Company’s
operations in China. Other operating expense for 2007 included losses
of $14 million from changes in currency exchange rates. Other
operating (income) for 2006 included $230 million of net proceeds for the sale
of the Company’s existing NAND Flash memory designs and certain related
technology to Intel, net of amounts paid by the Company for a perpetual, paid-up
license to use and modify such designs. Other operating (income) for
2006 also included $23 million in additional amounts expected to be reimbursed
resulting from the extension of an economic development agreement, which allows
the Company to recover amounts relating to certain investments in IM
Flash. (See “Joint Ventures – NAND Flash Joint Ventures with
Intel.”)
Income
Taxes
Income (loss) before taxes and
noncontrolling interests in net income and the income tax (provision) benefit
consisted of the following:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and
noncontrolling interests in net income:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
(1,713 |
) |
|
$ |
(571 |
) |
|
$ |
351 |
|
Foreign
|
|
|
102 |
|
|
|
403 |
|
|
|
82 |
|
|
|
$ |
(1,611 |
) |
|
$ |
(168 |
) |
|
$ |
433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision)
benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$ |
(7 |
) |
|
$ |
(5 |
) |
|
$ |
(12 |
) |
State
|
|
|
-- |
|
|
|
-- |
|
|
|
(1 |
) |
Foreign
|
|
|
(17 |
) |
|
|
(39 |
) |
|
|
(29 |
) |
|
|
|
(24 |
) |
|
|
(44 |
) |
|
|
(42 |
) |
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
State
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Foreign
|
|
|
6 |
|
|
|
14 |
|
|
|
24 |
|
|
|
|
6 |
|
|
|
14 |
|
|
|
24 |
|
Income tax
(provision)
|
|
$ |
(18 |
) |
|
$ |
(30 |
) |
|
$ |
(18 |
) |
The Company’s income tax (provision)
benefit computed using the U.S. federal statutory rate reconciled to the
Company’s income tax (provision) follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal income tax
(provision) benefit at statutory rate
|
|
$ |
564 |
|
|
$ |
59 |
|
|
$ |
(152 |
) |
State taxes, net of federal
benefit
|
|
|
38 |
|
|
|
3 |
|
|
|
5 |
|
Tax credits
|
|
|
8 |
|
|
|
25 |
|
|
|
7 |
|
Change in valuation
allowance
|
|
|
(446 |
) |
|
|
(219 |
) |
|
|
103 |
|
Goodwill
impairment
|
|
|
(155 |
) |
|
|
-- |
|
|
|
-- |
|
Foreign operations
|
|
|
(21 |
) |
|
|
93 |
|
|
|
3 |
|
Export sales
benefit
|
|
|
-- |
|
|
|
8 |
|
|
|
13 |
|
Other
|
|
|
(6 |
) |
|
|
1 |
|
|
|
3 |
|
Income tax
(provision)
|
|
$ |
(18 |
) |
|
$ |
(30 |
) |
|
$ |
(18 |
) |
State taxes reflect investment tax
credits of $12 million, $10 million and $23 million for 2008, 2007 and 2006,
respectively.
Deferred income taxes reflect the net
tax effects of temporary differences between the bases of assets and liabilities
for financial reporting and income tax purposes. The Company’s
deferred tax assets and liabilities consist of the following as of the end of
the periods shown below:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
|
|
|
Net operating loss and credit
carryforwards
|
|
$ |
1,358 |
|
|
$ |
1,136 |
|
Inventories
|
|
|
235 |
|
|
|
35 |
|
Basis differences in investments
in joint ventures
|
|
|
200 |
|
|
|
236 |
|
Deferred income
|
|
|
155 |
|
|
|
160 |
|
Accrued salaries, wages and
benefits
|
|
|
76 |
|
|
|
64 |
|
Other
|
|
|
48 |
|
|
|
61 |
|
Gross deferred tax
assets
|
|
|
2,072 |
|
|
|
1,692 |
|
Less valuation
allowance
|
|
|
(1,569 |
) |
|
|
(1,142 |
) |
Deferred tax assets, net of
valuation allowance
|
|
|
503 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
Excess tax over book
depreciation
|
|
|
(141 |
) |
|
|
(225 |
) |
Unremitted earnings on certain
subsidiaries
|
|
|
(114 |
) |
|
|
(68 |
) |
Intangible assets
|
|
|
(51 |
) |
|
|
(59 |
) |
Product and process
technology
|
|
|
(48 |
) |
|
|
(44 |
) |
Receivables
|
|
|
(43 |
) |
|
|
(76 |
) |
Other
|
|
|
(16 |
) |
|
|
(13 |
) |
Deferred tax
liabilities
|
|
|
(413 |
) |
|
|
(485 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax
assets
|
|
$ |
90 |
|
|
$ |
65 |
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
(included in other current assets)
|
|
$ |
25 |
|
|
$ |
25 |
|
Noncurrent deferred tax assets
(included in other assets)
|
|
|
74 |
|
|
|
65 |
|
Noncurrent deferred tax
liabilities (included in other liabilities)
|
|
|
(9 |
) |
|
|
(25 |
) |
Net deferred tax
assets
|
|
$ |
90 |
|
|
$ |
65 |
|
The Company has a valuation allowance
against substantially all of its U.S. net deferred tax assets. As of
August 28, 2008, the Company had aggregate U.S. tax net operating loss
carryforwards of $2.7 billion and unused U.S. tax credit carryforwards of $205
million. The Company also has unused state tax net operating loss
carryforwards of $1.8 billion and unused state tax credits of $189 million as of
August 28, 2008. Substantially all of the net operating loss
carryforwards expire in 2022 to 2028 and substantially all of the tax credit
carryforwards expire in 2013 to 2028. As a consequence of prior
business acquisitions, utilization of the tax benefits for some of the tax
carryforwards is subject to limitations imposed by Section 382 of the Internal
Revenue Code and some portion or all of these carryforwards may not be available
to offset any future taxable income.
The changes in valuation allowance of
$427 million and $227 million in 2008 and 2007, respectively, are primarily due
to uncertainties of realizing certain U.S. net operating losses and certain tax
credit carryforwards. The change in the valuation allowance in 2007
included $6 million for stock plan deductions, which will be credited to
additional capital if realized.
Provision has been made for deferred
taxes on undistributed earnings of non-U.S. subsidiaries to the extent that
dividend payments from such companies are expected to result in additional tax
liability. During 2008 a decision was made to not be indefinitely
reinvested in certain foreign jurisdictions. For the year ended
August 28, 2008, $322 million of earnings that in prior years had been
considered indefinitely reinvested in foreign operations were determined to no
longer be indefinitely reinvested. This decision resulted in no
impact to the consolidated statement of operations as the Company has a full
valuation allowance against its net U.S. deferred tax
assets. Remaining undistributed earnings of $608 million as of August
28, 2008 have been indefinitely reinvested; therefore, no provision has been
made for taxes due upon remittance of these earnings. Determination
of the amount of unrecognized deferred tax liability on these unremitted
earnings is not practicable.
Effective at the beginning of 2008, the
Company adopted the provisions of FIN 48. In connection with the
adoption of FIN 48, the Company increased its liability and decreased retained
earnings by $1 million for net unrecognized tax benefits at August 31,
2007. Below is a reconciliation of the beginning and ending amount of
unrecognized tax benefits:
|
|
2008
|
|
|
|
|
|
Beginning
unrecognized tax benefits
|
|
$ |
16 |
|
Foreign
exchange fluctuations
|
|
|
1 |
|
Settlements
with taxing authorities
|
|
|
(1 |
) |
Expiration
of foreign statutes of limitations
|
|
|
(15 |
) |
Ending
unrecognized tax benefits
|
|
$ |
1 |
|
The balance at August 28, 2008
represents unrecognized income tax benefits, which if recognized, would affect
the Company’s effective tax rate. As of August 28, 2008 and August
31, 2007, accrued interest and penalties related to uncertain tax positions were
de minimis.
The Company and its subsidiaries file
income tax returns with the United States federal government, various U.S.
states and various foreign jurisdictions throughout the world. The
Company’s U.S. federal and state tax returns remain open to examination for 2005
through 2008 and 2004 through 2008, respectively. In addition, tax
years open to examination in multiple foreign taxing jurisdictions range from
2001 to 2008. The Company is currently undergoing audits in the U.K.
for years 2004 through 2007.
Earnings
Per Share
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to
common shareholders – Basic
|
|
$ |
(1,619 |
) |
|
$ |
(320 |
) |
|
$ |
408 |
|
Net effect of assumed conversion
of debt
|
|
|
-- |
|
|
|
-- |
|
|
|
6 |
|
Net income (loss) available to
common shareholders – Diluted
|
|
$ |
(1,619 |
) |
|
$ |
(320 |
) |
|
$ |
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding – Basic
|
|
|
772.5 |
|
|
|
769.1 |
|
|
|
691.7 |
|
Net effect of dilutive stock
options and assumed conversionof debt
|
|
|
-- |
|
|
|
-- |
|
|
|
33.4 |
|
Weighted-average common shares
outstanding – Diluted
|
|
|
772.5 |
|
|
|
769.1 |
|
|
|
725.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(2.10 |
) |
|
$ |
(0.42 |
) |
|
$ |
0.59 |
|
Diluted
|
|
|
(2.10 |
) |
|
|
(0.42 |
) |
|
|
0.57 |
|
Listed below are the potential common
shares, as of the end of the periods shown below, that could dilute basic
earnings per share in the future that were not included in the computation of
diluted earnings per share because to do so would have been
antidilutive:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock
plans
|
|
|
122.1 |
|
|
|
124.8 |
|
|
|
68.7 |
|
Convertible
notes
|
|
|
97.6 |
|
|
|
97.6 |
|
|
|
6.2 |
|
Common stock
warrants
|
|
|
-- |
|
|
|
29.1 |
|
|
|
29.1 |
|
Acquisitions
Lexar Media, Inc.
(“Lexar”): On June 21, 2006, the Company acquired Lexar, a
designer, developer, manufacturer and marketer of Flash memory products, in a
stock-for-stock merger to broaden the Company’s NAND Flash memory product
offering, enhance its retail presence and strengthen its portfolio of
intellectual property. Pursuant to the terms of the merger agreement,
the Company issued 50.7 million shares of common stock, issued 6.6 million stock
options and incurred other acquisition costs resulting in an aggregate purchase
price of $886 million. In the final allocation of the $886 million
purchase price, the Company recorded total assets of $1,344 million (including
cash and short-term investments of $101 million, receivables of $317 million,
intangible assets of $183 million, deferred tax assets of $180 million and
goodwill of $458 million) and total liabilities of $458 million (including
accounts payable and accrued expenses of $169 million, deferred tax liabilities
of $176 million and debt of $113 million).
The following unaudited pro forma
information presents the consolidated results of operations of the Company as if
the acquisition of Lexar had taken place at the beginning of
2006. The pro forma information does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative of
future results of operations.
|
|
2006
|
|
|
|
(unaudited)
|
|
|
|
|
|
Net sales
|
|
$ |
5,746 |
|
Net income
|
|
|
266 |
|
|
|
|
|
|
Earnings per share –
diluted
|
|
$ |
0.35 |
|
Effective September 15, 2006, the
Company and Toshiba Corporation entered into agreements settling all outstanding
NAND Flash memory-related litigation between the companies. Toshiba
purchased certain of the Company’s semiconductor technology patents and licensed
certain patents previously owned by Lexar in exchange for payments totaling $288
million over three years, a substantial portion of which was included in the
allocation of the purchase price for Lexar as a receivable at an imputed
interest rate of 5.9%. As of August 28, 2008 and August 30, 2007,
$116 and $193 million of the settlement proceeds remained in current and
noncurrent receivables.
Avago
Technologies Limited Image Sensor Business (“Avago”): On
December 11, 2006, the Company acquired the CMOS image sensor business of Avago
for an initial cash payment of $53 million and additional contingent
consideration at the date of acquisition of up to $17 million if certain
milestones were met through calendar 2008. Through August 28, 2008,
the Company has paid a total of $10 million of additional contingent
consideration, which has been recorded as an increase in goodwill subsequent to
the acquisition date. The Company recorded total assets of $64
million (including intangible assets of $17 million and goodwill of $46 million)
and total liabilities of $1 million. The Company’s results of
operations subsequent to the acquisition date include the CMOS image sensor
business acquired from Avago as part of the Company’s Imaging
segment. Mercedes Johnson, a member of the Company’s Board of
Directors, was the Senior Vice President, Finance and Chief Financial Officer of
Avago at the time of the transaction. Ms. Johnson recused herself
from all deliberations of the Company’s Board of Directors concerning this
transaction.
Joint
Ventures
NAND Flash Joint
Ventures with Intel (“IM Flash”): The Company has formed two
joint ventures with Intel to manufacture NAND Flash memory products for the
exclusive benefit of the partners: IM Flash Technologies, LLC and IM
Flash Singapore LLP. As of August 28, 2008, the Company owned 51% and
Intel owned 49% of IM Flash. The Company has determined that both of
the IM Flash joint ventures are variable interest entities as defined in FIN 46
(R), “Consolidation of Variable Interest Entities – an interpretation of ARB No.
51,” (“FIN 46(R)”) and that the Company is the primary beneficiary of
both. Accordingly, IM Flash financial results are included in the
consolidated financial statements of the Company and all amounts pertaining to
Intel’s interests in IM Flash are reported as noncontrolling
interest.
IM Flash sells products to the joint
venture partners generally in proportion to their ownership at long-term
negotiated prices approximating cost. IM Flash sales to Intel were
$1,037 million, $497 million and $114 million for 2008, 2007 and 2006,
respectively. As of August 28, 2008 and August 30, 2007, IM Flash had
receivables from Intel for sales of NAND Flash products of $144 million and $121
million, respectively. Under the terms of a lease agreement, IM Flash
has the use of approximately 50% of the Company’s manufacturing facility in
Manassas, Virginia through January 2016. IM Flash purchases and
installs manufacturing equipment into the leased facility, which is operated and
maintained by the Company. The cost of operating and maintaining the
equipment is charged to IM Flash. The Company and Intel entered into
various service contracts with IM Flash under which they provide operational and
administrative support services, and generally charge IM Flash for the costs of
providing such services. As of August 28, 2008 and August 30, 2007,
IM Flash had payables to Intel of $4 million and $1 million,
respectively.
IM Flash manufactures NAND Flash memory
products based on NAND Flash designs developed by the Company and Intel and
licensed to the Company. Product design and other research and
development (“R&D”) costs for NAND Flash are generally shared equally
between the Company and Intel. As a result of reimbursements received
from Intel under a NAND Flash R&D cost-sharing arrangement, the Company’s
R&D expenses were reduced by $148 million, $240 million and $86 million in
2008, 2007 and 2006, respectively.
Under the terms of a wafer supply
agreement, the Company manufactured wafers for IM Flash in its Boise, Idaho
facility. On October 9, 2008, the Company announced that it had
agreed with Intel to discontinue production of 200mm wafer NAND flash memory at
Micron’s Boise facility. In the first quarter of 2009, IM Flash
substantially completed construction of a new 300mm wafer fabrication facility
in Singapore, which has not been equipped. Additionally, the Company
and Intel agreed to suspend tooling and the ramp of production at IM Flash’s
Singapore facility.
Intel contributed to IM Flash $261
million and $1,238 million (net of $132 million of distributions to Intel in
2008) in 2008 and 2007, respectively. Company’s ability to access IM
Flash’s cash and marketable investment securities ($393 million as of August 28,
2008) to finance the Company’s other operations is subject to agreement by the
joint venture partners. IM Flash’s cash and marketable investment
securities ($393 million as of August 28, 2008) are not anticipated to be made
available to finance the Company’s other operations. The creditors of
IM Flash have recourse only to the assets of IM Flash and do not have recourse
to any other assets of the Company.
TECH
Semiconductor Singapore Pte. Ltd. (“TECH”): Since 1998, the
Company has participated in TECH, a semiconductor memory manufacturing joint
venture in Singapore among the Company, Canon Inc. and Hewlett-Packard Company
(“HP”). As of August 28, 2008, the Company owned an approximate 73%
interest in TECH. The shareholders’ agreement for the TECH joint
venture expires in 2011. The Company began consolidating TECH’s
financial results as of the beginning of the third quarter of 2006.
In March, 2007, the Company acquired
all of the shares of TECH common stock held by the Singapore Economic
Development Board for approximately $290 million, (including a note payable that
was fully paid in 2008) increasing the Company’s ownership interest in TECH from
43% to 73%.
TECH uses the Company’s product and
process technology to manufacture its memory semiconductor
products. The Company generally purchases all the semiconductor
memory products manufactured by TECH, subject to specific terms and conditions,
at prices determined quarterly, based on a discount from average selling prices
realized by the Company for the preceding quarter. The Company
performs assembly and test services on product manufactured by
TECH. The Company also provides certain technology, engineering and
training to support TECH. Through the second quarter of 2006, prior
to the consolidation of TECH, all of these transactions with TECH were
recognized as part of the net cost of products purchased from
TECH. The net cost of products purchased from TECH amounted to $287
million for the first six months of 2006.
The Company’s ability to access TECH’s
cash and marketable investment securities ($115 million as of August 28, 2008)
to finance the Company’s other operations is subject to agreement by the joint
venture partners. In March, 2008, TECH entered into a $600 million
credit facility, which is guaranteed, in part, by the Company. (See
“Debt” note.)
DRAM Joint
Ventures with Nanya Technology Corporation (“Nanya”): On June
8, 2008, the Company and Nanya formed a joint venture corporation ("MeiYa") to
manufacture stack DRAM products and sell such products exclusively to the
Company and Nanya. The Company and Nanya each contributed
approximately $84 million in cash to MeiYa in 2008 and each owns 50% of
MeiYa. The Company has determined that MeiYa is a variable interest
entity as defined in FIN 46(R) and that the Company is not the primary
beneficiary of MeiYa. The Company's maximum loss in MeiYa is equal to
it’s investment as of August 28, 2008 of $84 million. The Company
accounts for its interest in MeiYa under the equity method because of the
Company’s ability to exercise significant influence over the operating and
financial policies of MeiYa.
In the
third quarter of 2008, the Company transferred and licensed certain intellectual
property related to the manufacture of stack DRAM products to Nanya and licensed
certain intellectual property from Nanya. The Company and Nanya also
agreed to jointly develop process technology and designs to manufacture stack
DRAM products with each party bearing its own development costs until such time
that the development costs exceed a specified amount, following which such costs
would be shared. The Company’s development costs are expected to
exceed Nanya’s development costs by a significant amount. Under this
arrangement, the Company is to receive an aggregate of $232 million from Nanya
and MeiYa through 2010 for licensing and technology transfer fees, of which the
Company realized $40 million of revenue in 2008. As of August 28,
2008, receivables from Nanya were $40 million related to licensing of
intellectual property. The Company will also receive royalties from
Nanya for stack DRAM products manufactured by or for Nanya.
On October 12, 2008, the Company
announced that it had entered into an agreement to acquire Qimonda AG’s 35.6%
ownership stake in Inotera Memories, Inc. (“Inotera”), a Taiwanese DRAM memory
manufacturer, for $400 million in cash. The Company received
commitments for $285 million of term loans to fund this acquisition in
part. Inotera is expected to implement the Company’s stack DRAM
process technology and it is anticipated that the Company will receive royalties
on the sale of Inotera’s production that is delivered to Nanya, a 35.6%
stakeholder in Inotera. The Company will eventually gain access to
approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s
output. In connection with this acquisition, the Company
expects to enter into a series of agreements with Nanya to restructure
MeiYa. It is anticipated that both parties will cease future resource
commitments to MeiYa and redirect those resources to Inotera.
MP Mask
Technology Center, LLC (“MP Mask”): In 2006, the Company
formed a joint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce
photomasks for leading-edge and advanced next generation
semiconductors. As of August 28, 2008, the Company owned 50.01% and
Photronics owned 49.99% of MP Mask. The Company purchases a
substantial majority of the reticles produced by MP Mask pursuant to a supply
arrangement. The financial results of MP Mask are included in the
accompanying consolidated financial statements of the Company. In
connection with the joint venture, the Company received $72 million in 2006 in
exchange for entering into a license agreement with Photronics, which is being
recognized over the term of the 10-year agreement.
In 2008 the Company completed the
construction of a facility to produce photomasks and leased such facility to
Photronics under a build to suit lease agreement. Under the terms of
the lease agreement, the Company will receive future minimum lease payments in
approximately equal quarterly installments through January 2013. As
of August 28, 2008, other receivables included $12 million and other noncurrent
assets included $46 million of these minimum lease payments.
Segment
Information
The Company’s reportable segments are
Memory and Imaging. The Memory segment’s primary products are DRAM
and NAND Flash and the Imaging segment’s primary product is CMOS image
sensors. Segment information reported below is consistent with how it
is reviewed and evaluated by the Company’s chief operating decision makers and
is based on the nature of the Company’s operations and products offered to
customers. The Company does not identify or report depreciation and
amortization, capital expenditures or assets by segment.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
5,188 |
|
|
$ |
5,001 |
|
|
$ |
4,523 |
|
Imaging
|
|
|
653 |
|
|
|
687 |
|
|
|
749 |
|
Total consolidated net
sales
|
|
$ |
5,841 |
|
|
$ |
5,688 |
|
|
$ |
5,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
(1,564 |
) |
|
$ |
(288 |
) |
|
$ |
197 |
|
Imaging
|
|
|
(31 |
) |
|
|
8 |
|
|
|
153 |
|
Total consolidated operating
income (loss)
|
|
$ |
(1,595 |
) |
|
$ |
(280 |
) |
|
$ |
350 |
|
Certain
Concentrations
Approximately 50% of the Company’s net
sales for 2008 were to the computing market, including desktop PCs, servers,
notebooks and workstations. Sales to Intel were 19% of the Company’s
net sales in 2008 and were included in the Memory segment. Sales of
DRAM, NAND Flash and CMOS image sensor products constituted 54%, 35% and 11%,
respectively, of the Company’s net sales for 2008. Certain components
used by the Company in manufacturing semiconductor products are available from a
limited number of suppliers.
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
cash, investment securities and trade receivables. The Company
invests through high-credit-quality financial institutions and, by policy,
generally limits the concentration of credit exposure by restricting investments
with any single obligor. A concentration of credit risk may exist
with respect to trade receivables as a substantial portion of the Company’s
customers are affiliated with the computing industry. The Company
performs ongoing credit evaluations of customers worldwide and generally does
not require collateral from its customers. Historically, the Company
has not experienced significant losses on receivables.
Geographic
Information
Geographic net sales based on customer
location were as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific (excluding China and Japan)
|
|
$ |
1,696 |
|
|
$ |
1,496 |
|
|
$ |
1,068 |
|
United
States
|
|
|
1,486 |
|
|
|
1,719 |
|
|
|
1,721 |
|
China
|
|
|
1,372 |
|
|
|
1,064 |
|
|
|
1,049 |
|
Europe
|
|
|
559 |
|
|
|
666 |
|
|
|
719 |
|
Japan
|
|
|
441 |
|
|
|
477 |
|
|
|
494 |
|
Other
|
|
|
287 |
|
|
|
266 |
|
|
|
221 |
|
|
|
$ |
5,841 |
|
|
$ |
5,688 |
|
|
$ |
5,272 |
|
Net property, plant and equipment by
geographic area was as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
6,004 |
|
|
$ |
6,545 |
|
|
$ |
4,422 |
|
Singapore
|
|
|
2,345 |
|
|
|
1,212 |
|
|
|
867 |
|
Italy
|
|
|
259 |
|
|
|
268 |
|
|
|
318 |
|
Japan
|
|
|
171 |
|
|
|
226 |
|
|
|
269 |
|
Other
|
|
|
32 |
|
|
|
28 |
|
|
|
12 |
|
|
|
$ |
8,811 |
|
|
$ |
8,279 |
|
|
$ |
5,888 |
|
Quarterly
Financial Information (Unaudited)
(in
millions except per share amounts)
2008
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,535 |
|
|
$ |
1,359 |
|
|
$ |
1,498 |
|
|
$ |
1,449 |
|
Gross margin
|
|
|
5 |
|
|
|
(43 |
) |
|
|
48 |
|
|
|
(65 |
) |
Operating loss
|
|
|
(260 |
) |
|
|
(772 |
) |
|
|
(225 |
) |
|
|
(338 |
) |
Net loss
|
|
|
(262 |
) |
|
|
(777 |
) |
|
|
(236 |
) |
|
|
(344 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per
share
|
|
$ |
(0.34 |
) |
|
$ |
(1.01 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.45 |
) |
2007
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,530 |
|
|
$ |
1,427 |
|
|
$ |
1,294 |
|
|
$ |
1,437 |
|
Gross margin
|
|
|
442 |
|
|
|
357 |
|
|
|
106 |
|
|
|
173 |
|
Operating income
(loss)
|
|
|
110 |
|
|
|
(34 |
) |
|
|
(195 |
) |
|
|
(161 |
) |
Net income (loss)
|
|
|
115 |
|
|
|
(52 |
) |
|
|
(225 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per
share
|
|
$ |
0.15 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.21 |
) |
The results of operations for the
second quarter of 2008 included a charge of $463 million to write off all the
goodwill associated with the Company’s Memory segment.
The Company’s results of operations for
the fourth, second and first quarters of 2008 and fourth quarter of 2007
included charges of $205 million, $15 million, $62 million and $20 million,
respectively, to write down the carrying value of work in process and finished
goods inventories of memory products (both DRAM and NAND Flash) to their
estimated market values.
In the fourth quarter of 2008, costs of
goods sold benefited by $70 million due to settlements of pricing adjustments
with certain suppliers.
As a result of a settlement agreement
with a class of direct purchasers of certain DRAM products, the Company recorded
a $50 million charge to revenue and $31 million net charge to selling, general
and administrative expenses in the first quarter of 2007. The
aggregate net charge including the impact on the Company’s compensation programs
was a $77 million reduction in net income.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
of Micron
Technology, Inc.
In our opinion, the consolidated
financial statements listed in the accompanying index appearing under Item 8
present fairly, in all material respects, the financial position of Micron
Technology, Inc. and its subsidiaries at August 28, 2008 and August 30, 2007,
and the results of their operations and their cash flows for each of the three
years in the period ended August 28, 2008 in conformity with accounting
principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index appearing under Item 8 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of August 28, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
San Jose,
California
October
27, 2008
Item
9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and
Procedures
An evaluation was carried out under the
supervision and with the participation of the Company’s management, including
its principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
report. Based upon that evaluation, the principal executive officer
and principal financial officer concluded that those disclosure controls and
procedures were effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
(i) recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms and (ii) accumulated and
communicated to the Company’s management, including the Company’s principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
During the fourth quarter of fiscal
2008, there were no changes in the Company’s internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. The Company’s internal control over
financial reporting includes those policies and procedures that i) pertain to
the maintenance of records that in reasonable detail accurately reflect the
transactions and dispositions of the assets of the Company; ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the Company’s financial
statements.
Internal control over financial
reporting cannot provide absolute assurance regarding the prevention or
detection of misstatements because of inherent limitations. These
inherent limitations are known by management and considered in the design of the
Company’s internal control over financial reporting which reduce, though not
eliminate, this risk.
Management conducted an evaluation of
the effectiveness of the Company’s internal control over financial reporting
based on the framework in “Internal Control – Integrated Framework” issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of August
28, 2008. The effectiveness of the Company’s internal control over
financial reporting as of August 28, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report, which is included in Part II, Item 8, of this Form
10-K.
Item
9B. Other
Information
None.
PART
III
Item
10. Directors,
Executive Officers and Corporate Governance
Item
11. Executive
Compensation
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item
13. Certain
Relationships and Related Transactions, and Director
Independence
Item
14. Principal
Accounting Fees and Services
Certain information concerning the
registrant’s executive officers is included under the caption, “Directors and
Executive Officers of the Registrant,” in Part I, Item 1 of this
report. Other information required by Items 10, 11, 12, 13 and 14
will be contained in the registrant’s Proxy Statement which will be filed with
the Securities and Exchange Commission within 120 days after August 28, 2008 and
is incorporated herein by reference.
PART
IV
Item
15. Exhibits,
Financial Statement Schedules
The following documents are filed as
part of this report:
1.
|
Financial
Statement: See Index to Consolidated Financial Statements under
Item 8.
|
2.
|
Certain
Financial Statement Schedules have been omitted since they are either not
required, not applicable or the information is otherwise
included.
|
ExhibitNumber
|
Description of Exhibits
|
|
|
1.1
|
Underwriting
Agreement dated as of May 17, 2007, by and between Micron Technology, Inc.
and Morgan Stanley & Co. Incorporated, as representative of the
underwriters (1)
|
2.1
|
Agreement
and Plan of Merger by and among Micron Technology, Inc., March 2006 Merger
Corp. and Lexar Media, Inc., dated as of March 8, 2006
(2)
|
2.2
|
First
Amendment to Agreement and Plan of Merger dated as of May 30, 2006, by and
among Micron Technology, Inc., March 2006 Merger Corp. and Lexar Media,
Inc. (3)
|
2.3
|
Second
Amendment to Agreement and Plan of Merger dated as of June 4, 2006, by and
among Micron Technology, Inc., March 2006 Merger Corp. and Lexar Media,
Inc. (4)
|
3.1
|
Restated
Certificate of Incorporation of the Registrant (5)
|
3.2
|
Bylaws
of the Registrant, as amended (6)
|
4.2
|
Securities
Purchase Agreement dated September 24, 2003, between the Registrant and
Intel Capital Corporation (7)
|
4.3
|
Stock
Rights Agreement dated September 24, 2003, between the Registrant and
Intel Capital Corporation (7)
|
4.4
|
Indenture
dated March 30, 2005, by and between Lexar Media, Inc. and U.S. Bank
National Association (8)
|
4.5
|
First
Supplemental Indenture to the Lexar Indenture dated as of June 21, 2006,
between Lexar and U.S. Bank National Association (9)
|
4.6
|
Indenture
dated as of May 23, 2007 by and between Micron Technology, Inc. and Wells
Fargo Bank, National Association, as trustee (1)
|
10.1
|
Executive
Officer Performance Incentive Plan (10)
|
10.2
|
1989
Employee Stock Purchase Plan (11)
|
10.3
|
1994
Stock Option Plan (12)
|
10.4
|
1994
Stock Option Plan Form of Agreement and Terms and Conditions
(11)
|
10.5
|
1997
Nonstatutory Stock Option Plan (13)
|
10.6
|
1998
Non-Employee Director Stock Incentive Plan
(14)
|
10.7
|
1998
Nonstatutory Stock Option Plan (13)
|
10.8
|
2001
Stock Option Plan (15)
|
10.9
|
2001
Stock Option Plan Form of Agreement (16)
|
10.10
|
2002
Employment Inducement Stock Option Plan (15)
|
10.11
|
2004
Equity Incentive Plan (25)
|
10.12
|
2004
Equity Incentive Plan Forms of Agreement and Terms and Conditions
(11)
|
10.13
|
Nonstatutory
Stock Option Plan (17)
|
10.14
|
Nonstatutory
Stock Option Plan Form of Agreement and Terms and Conditions
(11)
|
10.15
|
Lexar
Media, Inc. 2000 Equity Incentive Plan (18)
|
10.16
|
Micron
Quantum Devices, Inc. 1996 Stock Option Plan (12)
|
10.17
|
Micron
Quantum Devices, Inc. 1996 Stock Option Plan Sample Stock Option
Assumption Letter (12)
|
10.18
|
Rendition,
Inc. 1994 Equity Incentive Plan (19)
|
10.19
|
Rendition,
Inc. 1994 Equity Incentive Plan Sample Stock Option Assumption Letter
(19)
|
10.20*
|
Settlement
and Release Agreement dated September 15, 2006, by and among Toshiba
Corporation, Micron Technology, Inc. and Acclaim Innovations, LLC
(20)
|
10.21*
|
Patent
License Agreement dated September 15, 2006, by and among Toshiba
Corporation, Acclaim Innovations, LLC and Micron Technology, Inc.
(20)
|
10.22*
|
Omnibus
Agreement dated as of February 27, 2007, between Micron Technology, Inc.
and Intel Corporation (9)
|
10.23*
|
Limited
Liability Partnership Agreement dated as of February 27, 2007, between
Micron Semiconductor Asia Pte. Ltd. and Intel Technology Asia Pte. Ltd.
(9)
|
10.24*
|
Supply
Agreement dated as of February 27, 2007, between Micron Semiconductor Asia
Pte. Ltd. and IM Flash Singapore, LLP (9)
|
10.25*
|
Amended
and Restated Limited Liability Company Operating Agreement of IM Flash
Technologies, LLC dated as of February 27, 2007, between Micron
Technology, Inc. and Intel Corporation (9)
|
10.26*
|
Supply
Agreement dated as of February 27, 2007, between Intel Technology Asia
Pte. Ltd. and IM Flash Singapore, LLP (9)
|
10.27
|
Form
of Indemnification Agreement between the Registrant and its officers and
directors (21)
|
10.28
|
Form
of Severance Agreement between the Company and its officers
(22)
|
10.29
|
Form
of Agreement and Amendment to Severance Agreement between the Company and
its officers (23)
|
10.30
|
Purchase
Agreement dated October 1, 1998, between the Registrant and TECH
Semiconductor Singapore Pte. Ltd. (24)
|
10.34*
|
Business
Agreement dated September 24, 2003, between the Registrant and Intel
Corporation (7)
|
10.35
|
Securities
Rights and Restrictions Agreement dated September 24, 2003, between the
Registrant and Intel Capital (7)
|
10.36*
|
Master
Agreement dated as of November 18, 2005, between Micron Technology, Inc.
and Intel Corporation (25)
|
10.37*
|
Limited
Liability Company Operating Agreement of IM Flash Technologies, LLC dated
as of January 6, 2006, between Micron Technology, Inc. and Intel
Corporation (25)
|
10.38*
|
Manufacturing
Services Agreement dated as of January 6, 2006, between Micron Technology,
Inc. and IM Flash Technologies, LLC (25)
|
10.39*
|
Boise
Supply Agreement dated as of January 6, 2006, between IM Flash
Technologies, LLC and Micron Technology, Inc. (25)
|
10.40*
|
MTV
Lease Agreement dated as of January 6, 2006, between Micron Technology,
Inc. and IM Flash Technologies, LLC (25)
|
10.41*
|
Product
Designs Assignment Agreement dated January 6, 2006, between Intel
Corporation and Micron Technology, Inc. (25)
|
10.42*
|
NAND
Flash Supply Agreement, effective as of January 6, 2006, between Apple
Computer, Inc. and Micron Technology, Inc. (25)
|
10.43*
|
Supply
Agreement dated as of January 6, 2006, between Micron Technology, Inc. and
IM Flash Technologies, LLC (25)
|
10.44*
|
Supply
Agreement dated as of January 6, 2006, between Intel Corporation and IM
Flash Technologies, LLC (25)
|
10.45
|
Capped
Call Confirmation (Reference No.CEODL6) by and between Micron Technology,
Inc. and Morgan Stanley & Co. International plc (1)
|
10.46
|
Capped
Call Confirmation (Reference No. 53228800) by and between Micron
Technology, Inc. and Credit Suisse International (1)
|
10.47
|
Capped
Call confirmation (Reference No. 53228855) by and between Micron
Technology, Inc. and Credit Suisse International
(1)
|
10.48
|
2007
Equity Incentive Plan (27)
|
10.49
|
2007
Equity Incentive Plan Forms of Agreements (27)
|
10.50
|
Severance
Agreement dated April 9, 2008, between Micron Technology, Inc. and Ronald
C. Foster (28)
|
10.51*
|
Master
Agreement, dated as of April 21, 2008, by and between Nanya Technology
Corporation and Micron Technology, Inc. (26)
|
10.52*
|
Joint
Venture Agreement, dated as of April 21, 2008, by and between Micron
Semiconductor B.V. and Nanya Technology Corporation
(26)
|
10.53*
|
Supply
Agreement, dated as of June 6, 2008, by and among Micron Technology, Inc.,
Nanya Technology Corporation and MeiYa Technology Corporation
(26)
|
10.54*
|
Joint
Development Program Agreement, dated as of April 21, 2008, by and between
Nanya Technology Corporation and Micron Technology, Inc.
(26)
|
10.55*
|
Technology
Transfer and License Agreement for 68-50nm Process Nodes, dated as of
April 21, 2008, by and between Micron Technology, Inc. and Nanya
Technology Corporation (26)
|
10.56*
|
Technology
Transfer and License Agreement, dated as of April 21, 2008, by and between
Micron Technology, Inc. and Nanya Technology Corporation
(26)
|
10.57*
|
Technology
Transfer Agreement for 68-50nm Process Nodes, dated as of May 13, 2008, by
and between Micron Technology, Inc. and MeiYa Corporation
(26)
|
10.58*
|
Technology
Transfer Agreement, dated as of May 13, 2008, by and among Nanya
Technology Corporation, Micron Technology, Inc. and MeiYa Technology
Corporation (26)
|
10.59
|
Services
Agreement, dated as of June 6, 2008, by and between Nanya Technology
Corporation and MeiYa Technology Corporation (26)
|
10.60
|
Micron
Guaranty Agreement, dated April 21, 2008, by and between Nanya Technology
Corporation and Micron Semiconductor B.V. (26)
|
10.61
|
TECH
Facility Agreement, dated March 31, 2008, among TECH Semiconductor
Singapore Pte. Ltd. and ABN Amro Bank N.V., Citibank, N.A., Singapore
Branch, Citigroup Global Markets Singapore Pte Ltd., DBS Bank Ltd and
Oversea-Chinese Banking Corporation Limited, as Original Mandated Lead
Arrangers (26)
|
10.62
|
Guarantee,
dated March 31, 2008, by Micron Technology, Inc. as Guarantor in favor of
ABN Amro Bank N.V., Singapore Branch acting as Security Trustee
(26)
|
10.63
|
Form
of Severance Agreement (29)
|
21.1
|
Subsidiaries
of the Registrant
|
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C.
1350
|
________________________
(1)
|
Incorporated
by reference to Current Report on Form 8-K dated May 17,
2007
|
(2)
|
Incorporated
by reference to Current Report on Form 8-K dated March 8,
2006
|
(3)
|
Incorporated
by reference to Current Report on Form 8-K dated May 30,
2006
|
(4)
|
Incorporated
by reference to Current Report on Form 8-K dated June 4,
2006
|
(5)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
May 31, 2001
|
(6)
|
Incorporated
by reference to Current Report on Form 8-K dated December 5,
2006
|
(7)
|
Incorporated
by reference to Current Report on Form 8-K dated September 24,
2003
|
(8)
|
Incorporated
by reference to Lexar Media, Inc.’s Current Report on Form 8-K dated March
30, 2005
|
(9)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
March 1, 2007
|
(10)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
December 2, 2004
|
(11)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
March 3, 2005
|
(12)
|
Incorporated
by reference to Registration Statement on Form S-8 (Reg. No.
333-50353)
|
(13)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
November 28, 2002
|
(14)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
June 3, 1999
|
(15)
|
Incorporated
by reference to Registration Statement on Form S-8 (Reg. No.
333-102545)
|
(16)
|
Incorporated
by reference to Current Report on Form 8-K dated April 3,
2005
|
(17)
|
Incorporated
by reference to Registration Statement on Form S-8 (Reg. No.
333-103341)
|
(18)
|
Incorporated
by reference to Registration Statement on Form S-8 (Reg. No.
333-135459)
|
(19)
|
Incorporated
by reference to Registration Statement on Form S-8 (Reg. No.
333-65449)
|
(20)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2006
|
(21)
|
Incorporated
by reference to Proxy Statement for the 1986 Annual Meeting of
Shareholders
|
(22)
|
Incorporated
by reference to Annual Report on Form 10-K for the fiscal year ended
August 28, 2003
|
(23)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
February 27, 1997
|
(24)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
December 3, 1998
|
(25)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
December 1, 2005
|
(26)
|
Incorporated
by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended
May 29, 2008
|
(27)
|
Incorporated
by reference to Registration Statement on Form S-8 (Registration No.
333-148357)
|
(28)
|
Incorporated
by reference to Current Report on Form 8-K dated April 9,
2008
|
(29)
|
Incorporated
by reference to Current Report on Form 8-K dated October 26,
2007
|
________________________
*
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Commission.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boise, State of Idaho, on the 27th day of October
2008.
|
Micron
Technology, Inc.
|
|
|
|
|
|
|
|
By: /s/ Ronald C.
Foster
|
|
Ronald C. Foster
Vice
President of Finance and Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, this Annual Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature
|
|
Title
|
Date
|
|
|
|
|
|
|
|
|
/s/
Steven R. Appleton
|
|
Chairman
of the Board,
|
October
27, 2008
|
(Steven
R. Appleton)
|
|
Chief
Executive Officer
|
|
|
|
(Principal
Executive
|
|
|
|
Officer)
|
|
|
|
|
|
/s/
Ronald C. Foster
|
|
Vice
President of Finance,
|
October
27, 2008
|
(Ronald
C. Foster)
|
|
Chief
Financial Officer
|
|
|
|
(Principal
Financial and
|
|
|
|
Accounting
Officer)
|
|
|
|
|
|
/s/
Teruaki Aoki
|
|
Director
|
October
27, 2008
|
(Teruaki
Aoki)
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James W. Bagley
|
|
Director
|
October
27, 2008
|
(James
W. Bagley)
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Robert L. Bailey
|
|
Director
|
October
27, 2008
|
(Robert
L. Bailey)
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Mercedes Johnson
|
|
Director
|
October
27, 2008
|
(Mercedes
Johnson)
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lawrence N. Mondry
|
|
Director
|
October
27, 2008
|
(Lawrence
N. Mondry)
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Robert E. Switz
|
|
Director
|
October
27, 2008
|
(Robert
E. Switz)
|
|
|
|
MICRON
TECHNOLOGY, INC.
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
(in
millions)
|
|
Balance
at
Beginning
of
Year
|
|
|
Acquisitions
and Consolidation of TECH
|
|
|
Charged
(Credited)
to
Costs
and
Expenses
|
|
|
Deductions/
Write-Offs
|
|
|
Balance
at
End of
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 28,
2008
|
|
$ |
4 |
|
|
$ |
-- |
|
|
$ |
(1 |
) |
|
$ |
(1 |
) |
|
$ |
2 |
|
Year ended August 30,
2007
|
|
|
4 |
|
|
|
-- |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
4 |
|
Year ended August 31,
2006
|
|
|
2 |
|
|
|
-- |
|
|
|
2 |
|
|
|
-- |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset Valuation
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 28,
2008
|
|
$ |
1,142 |
|
|
$ |
-- |
|
|
$ |
446 |
|
|
$ |
(19 |
) |
|
$ |
1,569 |
|
Year ended August 30,
2007
|
|
|
915 |
|
|
|
(12 |
) |
|
|
219 |
|
|
|
20 |
|
|
|
1,142 |
|
Year ended August 31,
2006
|
|
|
1,029 |
|
|
|
(36 |
) |
|
|
(103 |
) |
|
|
25 |
|
|
|
915 |
|