UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
|
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
For
the fiscal year ended August
30, 2007
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period
from to
Commission
file number 1-10658
Micron
Technology, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
75-1618004
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
8000
S. Federal Way, Boise, Idaho
|
83716-9632
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code
|
(208)
368-4000
|
|
|
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
Title
of each class
|
Name
of each exchange on which registered
|
Common
Stock, par value $.10 per share
|
New
York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
None
(Title
of
Class)
Indicate
by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes x No
¨
Indicate
by check mark if the
registrant is not required to file reports pursuant to Section 13 or 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. x
Indicate
by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act:
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer 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 March 1, 2007, as reported by the New York Stock
Exchange, was approximately $6.0 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 19, 2007, was
760,412,921.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for
registrant’s 2007 Annual Meeting of Shareholders to be held on December 4, 2007,
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 growth in
production output for NAND Flash memory products; in “Products” regarding new
product offerings in 2008 and continued growth in the NAND Flash and CMOS
image
sensor markets; and in “Manufacturing” regarding the transition to smaller
line-width process technologies, the conversion of wafer fabrication at the
TECH
joint venture to 300mm, overall increases in 300mm wafer fabrication in 2008,
and the ramp of IM Flash’s Singapore wafer fabrication facility in
2009. 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 2007, 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.”)
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.
In
recent years, the Company has taken
several steps towards establishing a significant presence in the NAND Flash
market. The Company has partnered with Intel Corporation (“Intel”) to
form two NAND Flash manufacturing joint ventures (collectively “IM Flash”) that
are consolidated subsidiaries of the Company. In 2007, IM Flash
ramped production at two 300mm wafer fabrication facilities which greatly
increased the Company’s output of NAND Flash. The Company expects its
NAND Flash output will continue to increase significantly in 2008 at these
facilities. IM Flash began construction of a third 300mm wafer
fabrication facility in 2007, which is expected to ramp production in late
2009. In June 2006, the Company acquired Lexar Media, Inc. (“Lexar”),
a designer, developer, manufacturer and marketer of NAND Flash memory products,
which broadened the Company’s NAND Flash product offering, enhanced the
Company’s retail presence and strengthened its intellectual property
portfolio.
Imaging: The
Imaging segment’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
business model alternatives for its Imaging business including partnering
arrangements. Under any of the alternatives being considered, the
Company expects that it will continue to manufacture CMOS image
sensors.
Products
Memory: The
Company’s Memory segment has two primary product types: DRAM and NAND
Flash. Sales of Memory products were 88%, 86% and 94% of the
Company’s total net sales in 2007, 2006 and 2005, 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 65%, 76%
and 87% of the Company’s total net sales in 2007, 2006 and 2005,
respectively. The Company offers DRAM products with a variety of
performance, pricing and other characteristics.
DDR
and
DDR2: DDR and DDR2 are standardized, high-density,
high-volume, DRAM products that are sold primarily for use as main system
memory
in computers and servers. DDR and DDR2 products offer high speed and
high bandwidth at a relatively low cost compared to other DRAM
products. DDR and DDR2 products were the highest volume parts in the
DRAM market in 2007. DDR products were 15%, 26% and 44% of the
Company’s total net sales in 2007, 2006 and 2005, respectively. DDR2
products were 32%, 25% and 14% of the Company’s total net sales in 2007, 2006
and 2005, respectively.
In
response to changes in the DRAM
market, the Company has broadened its DDR and DDR2 product offerings in recent
years. The Company offers DDR products in 128 megabit (“Mb”), 256 Mb,
512 Mb and 1 gigabit (“Gb”) densities. The Company offers DDR2
products in 256 Mb, 512 Mb, 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 DDR and
DDR2 products in multiple configurations, speeds and package
types. The Company has begun sampling next-generation DDR3
products.
Synchronous
DRAM
(“SDRAM”): In 2007, 2006 and 2005, 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 11%, 16% and 20% of the
Company’s total net sales in 2007, 2006 and 2005, 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 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 23% and 6% of the
Company’s total net sales in 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. The Company
also expects new product lines such as solid-state disk to experience
significant demand growth in future periods.
NAND
and DRAM share common
manufacturing processes, enabling the Company to leverage its product and
process technologies and manufacturing infrastructure. 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 2007, the Company offered SLC NAND
products in 1 Gb, 2 Gb, and 4 Gb densities. In 2007, the Company
offered 8 Gb MLC NAND products and began sampling 16 Gb MLC NAND
products. The Company expects to introduce 32 Gb MLC NAND products in
2008.
As
a result of its acquisition of Lexar
in the fourth quarter of 2006, the Company began selling 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,
Secure Digital Card and the xD Picture Card. 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 8-megapixel products. The Company manufactures a number of
CMOS image sensors featuring a leading-edge pixel size of 1.75 square microns
that enable 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
incorporating its DigitalClarity™ technology offered many advantages over other
CMOS image sensors and charge-coupled device (“CCD”) sensors, which enabled the
Company to maintain its leadership position. The Company’s
DigitalClarity™ technology features “active pixels” enabling better sensor
performance that produces higher-quality images at faster frame
rates. The Company’s low-leakage DRAM processes are particularly
well-suited for the manufacture of CMOS image 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. In 2007, the Company’s CMOS image sensors’
active-pixel design architecture enabled the Company to achieve CMOS imager
performance that was comparable to high-end CCD sensors.
Sales
of Imaging products were 12%, 14%
and 6% of the Company’s total net sales in 2007, 2006 and 2005,
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 and CMOS image
sensors are 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 production
processes, reducing die sizes and transitioning to higher density
products. In 2007, the Company manufactured most of its DRAM products
using its 95 nanometer (“nm”) and 78nm line-width process
technology. The Company expects to continue to transfer more of its
DRAM production to 78nm and 68nm line-width process technology in
2008. In 2007, the Company manufactured most of its NAND Flash memory
products using its 72nm line-width process technology and began transferring
its
NAND production to 50nm line-width process technology. The Company
expects that in 2008 most of its NAND Flash memory products will be manufactured
using its 50nm line-width process technology.
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 exploring 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
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 began to
convert its DRAM production to 300mm wafers. The Company expects that
its 300mm wafer production in 2008 will continue to increase significantly
at
these facilities.
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 the 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 (“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 (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 30,
2007. IM Flash’s financial results are included in the consolidated
financial statements of the Company. In 2007, IM Flash began
construction of a new 300mm wafer fabrication facility in Singapore, which
is
expected to ramp in late 2009. (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 30, 2007. 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. TECH
supplied approximately 15% of the total megabits of memory produced by the
Company in 2007 (reflecting approximately 40% of total DRAM
megabits). In 2007, TECH began converting its manufacturing
production from 200mm to 300mm wafers. The conversion is expected to
be completed 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.”)
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.
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 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 2007 were
to the computing market, including desktop PCs, servers, notebooks and
workstations. Sales to Hewlett-Packard Company were 10% of the
Company’s net sales in 2007.
The
Company’s products are offered
under the Micron, Lexar, SpecTek and Crucial brand names, and private
labels. 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 and its 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 ADS; 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
MagnaChip Semiconductor Ltd.; 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
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.
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. The
Company and Intel share R&D process and design costs for NAND Flash
equally. Product development costs are recorded as R&D
expense.
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), CMOS image sensors and
specialty memory products. The Company’s R&D expenses were $805
million, $656 million and $604 million in 2007, 2006 and 2005,
respectively.
Geographic
Information
Sales
to customers outside the United
States totaled $4.0 billion for 2007 and included $1.1 billion in sales to
China, $666 million in sales to Europe, $477 million in sales to Japan and
$1.5
billion in sales to the rest of the Asia Pacific region, excluding China
and
Japan. International sales totaled $3.6 billion for 2006 and $3.2
billion for 2005. As of August 30, 2007, the Company had net
property, plant and equipment of $6.5 billion in the United States, $1.2
billion
in Singapore, $268 million in Italy, $226 million in Japan and $28 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 30, 2007, the Company owned approximately 16,400 U.S. patents and
2,000
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 30, 2007, the Company had
approximately 23,500 employees, including approximately 13,700 in the United
States, 5,700 in Singapore, 2,000 in Italy, 1,500 in Japan and 300 in the
United
Kingdom. The Company’s employees include 2,500 employees in its TECH
joint venture that are located in Singapore and 1,400 employees in its IM
Flash
joint ventures that are primarily located in the United
States. 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 2007, 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 30, 2007, 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
|
43
|
Vice
President of Digital Media Products
|
Steven
R. Appleton
|
47
|
Chairman
and Chief Executive Officer
|
Kipp
A. Bedard
|
48
|
Vice
President of Investor Relations
|
D.
Mark Durcan
|
46
|
President
and Chief Operating Officer
|
Robert
J. Gove
|
54
|
Vice
President of Imaging Group
|
Jay
L. Hawkins
|
47
|
Vice
President of Operations
|
Roderic
W. Lewis
|
52
|
Vice
President of Legal Affairs, General Counsel and Corporate
Secretary
|
Patrick
T. Otte
|
45
|
Vice
President of Human Resources
|
Michael
W. Sadler
|
50
|
Vice
President of Worldwide Sales
|
Brian
J. Shields
|
46
|
Vice
President of Worldwide Wafer Fabrication
|
Brian
M. Shirley
|
38
|
Vice
President of Memory
|
Wilbur
G. Stover, Jr
|
54
|
Vice
President of Finance and Chief Financial Officer
|
Teruaki
Aoki
|
66
|
Director
|
James
W. Bagley
|
68
|
Director
|
Mercedes
Johnson
|
53
|
Director
|
Lawrence
N. Mondry
|
47
|
Director
|
Robert
E. Switz
|
61
|
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. 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 other positions. 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.
Robert
J. Gove joined the
Company in March 1999 as Senior Director of Engineering and has served in
various positions with the Company. In March 2002, he was appointed
Vice President of Imaging. Prior to joining the Company, Dr. Gove
served as Vice President, Engineering, of Equator Technologies,
Inc. Dr. Gove holds a BS in Electrical Engineering from the
University of Washington and an MS in Electrical Engineering and Ph.D. in
Electrical Engineering from Southern Methodist University.
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.
Michael
W. Sadler joined the
Company in September 1992 as a Regional Sales Manager and has held various
sales
and marketing positions since that time. Mr. Sadler became an officer
of the Company in July 1997 and has served as Vice President of Worldwide
Sales
since November 2001. Mr. Sadler holds a BS in Information Systems and
an MBA from the University of Santa Clara.
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.
Wilbur
G. Stover, Jr. joined
the Company in June 1989 and has served in various financial positions with
the
Company and its subsidiaries. Since September 1994, Mr. Stover has
served as the Company’s Vice President of Finance and Chief Financial
Officer. Mr. Stover holds a BA in Business Administration from
Washington State University. In July 2007, Mr. Stover informed the
Company that he will retire after the completion of the Company’s fiscal
2007.
Teruaki
Aoki is Executive
Managing Director of Sony Foundation for Education. 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.
James
W. Bagley served as the
Chairman and Chief Executive Officer of Lam Research Corporation (“Lam”), a
supplier of semiconductor manufacturing equipment, from August 1997 through
June
2005. In June 2005 Mr. Bagley became the Executive Chairman 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.
Mercedes
Johnson has served as
the Senior Vice President and Chief Financial Officer of Avago Technologies
Limited, a semiconductor company, since December 2005. 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. Ms. Johnson is the Chairman of the Board’s
Audit Committee.
Lawrence
N. Mondry currently
serves as the Chief Executive Officer and President of CSK Auto Corporation
(“CSK”), a specialty retailer of automotive aftermarket parts. 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
President and CEO of ADC Telecommunications, Inc., 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 Governance 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.
In
2007, average selling prices for
DRAM products and NAND Flash products decreased 23% and 56%, respectively,
as
compared to 2006. In recent years, we have also experienced annual
decreases in per megabit 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. If average selling prices for our memory
products decrease faster than we can decrease per megabit costs, as they
recently have, our business, results of operations or financial condition
could
be materially adversely affected.
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 ADS; 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.
We
may be unable to reduce our per megabit manufacturing costs at the same rate
as
we have in the past.
Our
gross margins are dependent upon
continuing decreases in per unit 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 unit manufacturing costs at sufficient levels to increase gross margins
due to strategic product diversification decisions affecting product mix,
the
increasing complexity of manufacturing processes, changes in process
technologies or products which inherently may require relatively larger die
sizes. Per unit manufacturing costs may also be affected by the
relatively smaller production quantities and shorter product lifecycles of
Imaging and certain specialty memory products.
Depressed
pricing for semiconductor memory products may lead to future losses and
inventory write-downs.
We
recorded an inventory write-down of
$20 million in the fourth quarter of 2007 as a result of the significant
decreases in average selling prices for our semiconductor memory
products. If average selling prices are below our costs in future
periods, we expect to incur losses on product sales and our business, results
of
operations or financial condition could be materially adversely
affected. 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 $20 million recorded in 2007.
Our
plans to significantly increase our NAND Flash memory production and sales
have
numerous risks.
We
plan to significantly increase our
NAND Flash production and sales in future periods. As part of this
plan, we have formed several manufacturing joint ventures with Intel and
made
substantial investments in capital expenditures for equipment, new facilities
and research and development. Our plans also require significant
investments in capital expenditures and research and development. We
currently expect our capital spending for 2008 to approximate $2.5 billion,
with
a majority of the expenditures being made to support our NAND
operations. These investments involve numerous risks. In
addition, we are required to devote a significant portion of our existing
semiconductor manufacturing capacity to the production of NAND Flash instead
of
the Company's other products. We are party to a contract with Apple
Inc. to provide NAND Flash products for an extended period of time at
contractually determined prices. We currently have a relatively small
share of the world-wide market for NAND Flash.
Our
NAND Flash strategy involves
numerous risks, and may include the following:
·
|
increasing
our exposure to changes in average selling prices for NAND
Flash;
|
·
|
difficulties
in establishing new production operations at multiple
locations;
|
·
|
increasing
capital expenditures to increase production capacity and modify
existing
processes to produce NAND Flash;
|
·
|
raising
funds or increasing debt to finance future
investments;
|
·
|
diverting
management’s attention from DRAM and CMOS image sensor
operations;
|
·
|
managing
larger operations and facilities and employees in separate geographic
areas; and
|
·
|
hiring
and retaining key employees.
|
Our
NAND Flash strategy may not be
successful and could materially adversely affect our business, results of
operations or financial condition.
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 MagnaChip
Semiconductor Ltd.; 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.
Our
Imaging net sales and gross margins
decreased in 2007 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.
|
The
Company is exploring business model
alternatives for its Imaging business including partnering
arrangements. 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. If our efforts to restructure the
Imaging business are unsuccessful, our business, results of operations or
financial condition could be materially adversely affected.
We
may be unable to generate sufficient cash flows to fund our operations and
make
adequate capital investments.
Our
cash flows from operations depend
primarily on the volume of semiconductor memory and CMOS image sensors 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
expect capital spending for 2008 to approximate $2.5 billion. Cash
and investments of IM Flash and TECH are generally not available to finance
our
other operations. In addition to cash provided by operations, we have
from time to time utilized external sources of financing. Access to
capital markets has historically been very important to us. Depending
on market conditions, we may issue registered or unregistered securities
to
raise capital to fund a portion of our operations. There can be no
assurance that we will be able to generate sufficient cash flows to fund
our
operations, make adequate capital investments or access capital markets on
acceptable terms, and an inability to do so could have a material adverse
effect
on our business and results of operations.
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,
|
·
|
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.
We
may not realize the expected benefits of new initiatives to reduce costs
and
increase revenue across our operations.
We
are pursuing a number of initiatives
to reduce costs and increase revenue across our operations. These initiatives
include workforce reductions in certain areas as we realign our
business. Additional initiatives include establishing certain
operations closer in location to our global customers, evaluating functions
more
efficiently performed through partnerships or other outside relationships
and
reducing our overhead costs to meet or exceed industry benchmarks. We
are also exploring opportunities to leverage our technology and diversified
product portfolio to increase revenue and shareholder value. In the
fourth quarter of 2007, we incurred a restructure charge of $19 million
consisting primarily of employee severance and related costs resulting from
a
reduction in our workforce. We anticipate that we will incur some
level of restructure charges through the end of 2008 as we continue to implement
these initiatives. We may not realize the expected benefits of these
new initiatives. As a result of these initiatives, we expect to 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
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
estimate that, based on our assets and liabilities denominated in currencies
other than U.S. dollar as of August 30, 2007, a 1% change in the exchange
rate
versus the U.S. dollar would result in foreign currency gains or losses of
approximately U.S. $3 million for the Singapore dollar, U.S. $2 million for
the
euro and U.S. $1 million for the yen. In the event that the U.S.
dollar weakens significantly compared to the Singapore dollar, euro or yen,
our
results of operations or financial condition will be adversely
affected.
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.
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.
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 our products or manufacturing processes infringe
their intellectual property rights. In this regard, we are engaged in
litigation with Rambus, Inc. ("Rambus") relating to certain of Rambus' patents
and certain of our claims and defenses. On August 28, 2000, we filed
a complaint (subsequently amended) against Rambus in the U.S. District Court
for
the District of Delaware seeking monetary damages and declaratory and injunctive
relief. Among other things, our amended complaint 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
us,
are invalid, and/or are unenforceable, (b) that we have an implied license
to
those patents, and (c) that Rambus is estopped from enforcing those patents
against us. On February 15, 2001, Rambus filed an answer and
counterclaim in Delaware denying that we are entitled to relief, alleging
infringement of the eight Rambus patents named in our declaratory judgment
claim, and seeking monetary damages and injunctive relief. A number
of other suits are pending in Europe alleging that certain of our 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 us and
Reptronic (a distributor of our products) in the Court of First Instance
of
Paris, France; and on September 29, 2000, we filed suit against Rambus in
the
Civil Court of Milan, Italy, alleging invalidity and
non-infringement. In addition, on December 29, 2000, we 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, other suits are pending alleging that certain of
our DDR SDRAM products infringe Rambus' country counterparts to its European
patent 1 022 642, including: on August 10, 2001, Rambus filed suit against
us
and Assitec (an electronics retailer) in the Civil Court of Pavia, Italy;
and on
August 14, 2001, Rambus filed suit against Micron Semiconductor (Deutschland)
GmbH in the District Court of Mannheim, Germany. In the European
suits against us, Rambus is seeking monetary damages and injunctive
relief. Subsequent to the filing of the various European suits, the
European Patent Office declared Rambus' 525 068 and 1 004 956 European patents
invalid and revoked the patents. On January 13, 2006, Rambus filed a
lawsuit against us in the U.S. District Court for the Northern District of
California alleging infringement of eighteen Rambus patents. We are
also engaged in litigation with Mosaid Technologies, Inc.
("Mosaid"). On July 24, 2006, we
filed
a
declaratory judgment action against 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 us
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 two additional Mosaid patents. On October
23, 2006, the California Court dismissed our declaratory judgment suit based
on
lack of jurisdiction. We have appealed that decision to the U.S.
Court of Appeals for the Federal Circuit.
Among
other things, the above lawsuits
pertain to certain of our SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM, and image
sensor
products, which account for a significant portion of our net sales.
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. We are unable to
predict the outcome of assertions of infringement made against
us. Any of the foregoing 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.
On
June 17, 2002, we received a grand
jury subpoena from the U.S. District Court for the Northern District of
California seeking information regarding an investigation by the Antitrust
Division of the Department of Justice (the "DOJ") into possible antitrust
violations in the "Dynamic Random Access Memory" or "DRAM"
industry. We are cooperating fully and actively with the DOJ in its
investigation of the DRAM industry. Our cooperation is pursuant to
the terms of the DOJ's Corporate Leniency Policy, which provides that in
exchange for our full, continuing and complete cooperation in the pending
investigation, we will not be subject to prosecution, fines or other penalties
from the DOJ.
Subsequent
to the commencement of the
DOJ investigation, a number of purported class action lawsuits have been
filed
against us 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 and federal courts (five of which have been dismissed) 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 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
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 June 1, 2007, the Court granted in part
and denied in part our motion to dismiss the consolidated
complaint. Plaintiffs subsequently have filed an amended
complaint.
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
addition, various states, through
their Attorneys General, have filed suit against us and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following states 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. 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. Three states, Ohio, New Hampshire, and Texas, subsequently
have withdrawn from the complaint.
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, we 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. We believe that we are not a target of the investigation
and we are 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 us 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 January
1, 1998
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 January 1, 1998 through December 31, 2005. 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.
In
September 2007, a number of memory
suppliers confirmed that they had received grand jury subpoenas 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
"Flash" industry. We have not received a subpoena and believe that we
are not a target of the investigation.
At
least thirty-four purported class
action lawsuits have been filed against the Company and other suppliers of
Flash
memory products in the U.S. District Court for the Northern District of
California and other federal district courts. These cases assert
claims on behalf of a purported class of individuals and entities that purchased
Flash memory directly or indirectly from various Flash memory suppliers during
the period from January 1, 1999 through the date the various cases were
filed. The complaints generally allege price fixing in violation of
federal antitrust laws and various state antitrust and unfair competition
laws
and seek monetary damages, restitution, costs, interest, and attorneys'
fees.
On
May 5, 2004, Rambus filed a
complaint 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 complaints.
We
are 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 our business, results of operations
or
financial condition.
Allegations
of violations of securities laws.
On
February 24, 2006, a putative class
action complaint was 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. 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 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.
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 our benefit,
against
certain of our current and former officers and directors. We were
also named as a nominal defendant. An amended complaint was filed on
August 23, 2006. The 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 complaint seeks unspecified damages, restitution,
disgorgement of profits, equitable and injunctive relief, attorneys' fees,
costs, and expenses. The complaint is derivative in nature and does
not seek monetary damages from us. However, we may be required,
throughout the pendency of the action, to advance payment of legal fees and
costs incurred by the defendants. On May 29, 2007, the Court granted
our motion to dismiss the complaint but provided plaintiffs leave to file
an
amended complaint. On September 6, 2007, plaintiffs filed an amended
complaint.
In
March 2006, following our
announcement of a definitive agreement to acquire Lexar Media, Inc. ("Lexar")
in
a stock-for-stock merger, four purported class action complaints were filed
in
the Superior Court for the State of California (Alameda County) on behalf
of
shareholders of Lexar against Lexar and its directors. Two of the
complaints also name us as a defendant. The complaints allege that
the defendants breached, or aided and abetted the breach of, fiduciary duties
owed to Lexar shareholders by, among other things, engaging in self-dealing,
failing to engage in efforts to obtain the highest price reasonably available,
and failing to properly value Lexar in connection with a merger transaction
between Lexar and us. The plaintiffs seek, among other things,
injunctive relief preventing, or an order of rescission reversing, the merger,
compensatory damages, interest, attorneys' fees, and costs. On May
19, 2006, the plaintiffs filed a motion for preliminary injunction seeking
to
block the merger. On May 31, 2006, the Court denied the
motion. An amended consolidated complaint was filed on October 10,
2006. On June 14, 2007, the Court granted Lexar's and our motions to
dismiss the amended complaint but allowed plaintiffs leave to file a further
amended complaint. On July 16, 2007, plaintiffs filed an amended
complaint.
We
are unable to predict the outcome of
these cases. A court determination in any of the class actions
against us could result in significant liability and could have a material
adverse effect on our business, results of operations or financial
condition.
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 70% of our consolidated net sales for 2007. 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 megabit manufacturing
costs. Additionally, our control over operations at our IM Flash,
TECH 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 or 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.
Disruptions
in our supply of raw materials could materially adversely affect our business,
results of operations or financial condition.
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.
|
Economic
and political conditions may harm our business.
Global
economic conditions and the
effects of military or terrorist actions may cause significant disruptions
to
worldwide commerce. If these disruptions result in delays or
cancellations of customer orders, a decrease in corporate spending on
information technology or our inability to effectively market, manufacture
or
ship our products. Global economic conditions may also affect
consumer demand for devices that incorporate our products such as mobile
phones,
personal computers, Flash memory cards and USB devices. As a result,
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, research and
development
|
Lehi,
Utah
|
Wafer
fabrication
|
Manassas,
Virginia
|
Wafer
fabrication, research and development
|
Singapore
|
Wafer
fabrication facility 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 – IM NAND Flash Joint Ventures with Intel.”) The
Company’s wafer fabrication facility in Singapore is owned by its TECH joint
venture (See “Item 8. Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements – Joint Ventures – TECH Semiconductor
Singapore Pte. Ltd.”)
The
Company believes that its existing
facilities are suitable and adequate for its present purposes and that the
productive capacity in such facilities is substantially being utilized or
the
Company has plans to utilize it. The Company does not identify or
allocate assets by operating segment. For additional information on
net property, plant and equipment by country, (See “Item 8. Financial Statements
and Supplementary Data – Notes to Consolidated Financial Statements – Geographic
Information.”)
Item
3. Legal
Proceedings
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. A number of other suits 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, other suits are pending alleging that certain
of our DDR SDRAM products infringe Rambus’ country counterparts to its European
patent 1 022 642, including: on August 10, 2001, Rambus filed suit against
the
Company and Assitec (an electronics retailer) in the Civil Court of Pavia,
Italy; and on August 14, 2001, Rambus filed suit against Micron Semiconductor
(Deutschland) GmbH in the District Court of Mannheim, Germany. 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 declared Rambus’ 525 068 and 1 004 956
European patents invalid and revoked the patents. On January 13,
2006, Rambus filed a lawsuit against the Company in the U.S. District Court
for
the Northern District of California alleging infringement of eighteen Rambus
patents.
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
two additional Mosaid patents. On October 23, 2006, the California
Court dismissed the Company’s declaratory judgment suit based on lack of
jurisdiction. The Company has appealed that decision to the U.S.
Court of Appeals for the Federal Circuit.
Among
other things, the above lawsuits
pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM, and
image sensor products, which account for a significant portion of the Company’s
net sales.
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.
On
June 17, 2002, 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 Antitrust
Division of the Department of Justice (the “DOJ”) into possible antitrust
violations in the “Dynamic Random Access Memory” or “DRAM”
industry. The Company is cooperating fully and actively with the DOJ
in its investigation. The Company’s cooperation is pursuant to the
terms of the DOJ’s Corporate Leniency Policy, which provides that in exchange
for our full, continuing and complete cooperation in the pending investigation,
the Company will not be subject to prosecution, fines or other penalties
from
the DOJ.
Subsequent
to the commencement of the
DOJ investigation, a number of purported class action 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 June 1, 2007,
the Court granted in part and denied in part the Company’s motion to dismiss the
consolidated complaint. Plaintiffs subsequently have filed an amended
complaint.
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
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 states 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. 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. Three states, Ohio, New Hampshire, and Texas,
subsequently have withdrawn from the complaint.
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
January 1, 1998 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 January 1, 1998 through December 31,
2005. 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.
In
September 2007, a number of memory
suppliers confirmed that they had received grand jury subpoenas 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
"Flash" industry. The Company has not received a subpoena and
believes that is not a target of the investigation.
At
least thirty-four purported class
action lawsuits have been filed against the Company and other suppliers of
Flash
memory products in the U.S. District Court for the Northern District of
California and other federal district courts. These cases assert
claims on behalf of a purported class of individuals and entities that purchased
Flash memory directly or indirectly from various Flash memory suppliers during
the period from January 1, 1999 through the date the various cases were
filed. The complaints generally allege price fixing in violation of
federal antitrust laws and various state antitrust and unfair competition
laws
and seek monetary damages, restitution, costs, interest, and attorneys’
fees.
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. 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.
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.
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. The 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 complaint seeks unspecified damages, restitution,
disgorgement of profits, equitable and injunctive relief, attorneys’ fees,
costs, and expenses. The 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 May 29, 2007, the Court
granted the Company's motion to dismiss the complaint but provided plaintiffs
leave to file an amended complaint. On June 29, 2007, plaintiffs
filed an amended complaint.
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.
In
March 2006, following the Company’s
announcement of a definitive agreement to acquire Lexar Media, Inc. (“Lexar”) in
a stock-for-stock merger, four purported class action complaints were filed
in
the Superior Court for the State of California (Alameda County) on behalf
of
shareholders of Lexar against Lexar and its directors. Two of the
complaints also name the Company as a defendant. The complaints
allege that the defendants breached, or aided and abetted the breach of,
fiduciary duties owed to Lexar shareholders by, among other things, engaging
in
self-dealing, failing to engage in efforts to obtain the highest price
reasonably available, and failing to properly value Lexar in connection with
a
merger transaction between Lexar and the Company. The plaintiffs
seek, among other things, injunctive relief preventing, or an order of
rescission reversing, the merger, compensatory damages, interest, attorneys’
fees, and costs. On May 19, 2006, the plaintiffs filed a motion for
preliminary injunction seeking to block the merger. On May 31, 2006,
the Court denied the motion. An amended consolidated complaint was
filed on October 10, 2006. On June 14, 2007, the Court granted
Lexar's and the Company's motions to dismiss the amended complaint but allowed
plaintiffs leave to file a further amended complaint. The Company is
unable to predict the outcome of these suits. A court determination
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 “Acquisitions – Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Lexar Media, Inc.”)
(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 2007.
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 2007 and 2006, as reported by
Bloomberg L.P.
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
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
|
|
2006:
|
|
|
|
|
|
|
|
|
4th
quarter
|
|
$ |
17.52
|
|
|
$ |
14.15
|
|
3rd
quarter
|
|
|
17.40
|
|
|
|
14.43
|
|
2nd
quarter
|
|
|
16.99
|
|
|
|
13.13
|
|
1st
quarter
|
|
|
14.67
|
|
|
|
11.67
|
|
Holders
of Record
As
of October 19, 2007, there were
3,378 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 2007, the
Company acquired, as payment of withholding taxes in connection with the
vesting
of restricted stock awards, an aggregate of 44,797 shares of its common stock
as
follow:
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
|
|
|
|
|
|
|
|
|
|
June
1 – July 5
|
|
|
5,362
|
|
|
$ |
12.45
|
|
N/A
|
N/A
|
July
6 – August 2
|
|
|
--
|
|
|
|
--
|
|
N/A
|
N/A
|
August
3 – August 30
|
|
|
39,435
|
|
|
$ |
11.31
|
|
N/A
|
N/A
|
Total
|
|
|
44,797
|
|
|
$ |
11.45
|
|
|
|
The
Company acquired 44,797 shares of
its common stock in the fourth quarter of 2007, retired 9,357 in the fourth
quarter of 2007 and retired the remaining 35,440 shares in the first quarter
of
2008.
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 31, 2002, through August 31, 2007.
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 52/53 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, 2002, 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
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micron
Technology, Inc.
|
|
$ |
100
|
|
|
$ |
83
|
|
|
$ |
67
|
|
|
$ |
69
|
|
|
$ |
100
|
|
|
$ |
66
|
|
S&P
500 Composite Index
|
|
|
100
|
|
|
|
112
|
|
|
|
125
|
|
|
|
141
|
|
|
|
153
|
|
|
|
176
|
|
Philadelphia
Semiconductor Index (SOX)
|
|
|
100
|
|
|
|
132
|
|
|
|
130
|
|
|
|
152
|
|
|
|
151
|
|
|
|
187
|
|
Item
6. Selected Financial Data
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in
millions except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,688
|
|
|
$ |
5,272
|
|
|
$ |
4,880
|
|
|
$ |
4,404
|
|
|
$ |
3,091
|
|
Gross
margin
|
|
|
1,078
|
|
|
|
1,200
|
|
|
|
1,146
|
|
|
|
1,314
|
|
|
|
(21 |
) |
Operating
income (loss)
|
|
|
(280 |
) |
|
|
350
|
|
|
|
217
|
|
|
|
250
|
|
|
|
(1,186 |
) |
Net
income (loss)
|
|
|
(320 |
) |
|
|
408
|
|
|
|
188
|
|
|
|
157
|
|
|
|
(1,273 |
) |
Diluted
earnings (loss) per share
|
|
|
(0.42 |
) |
|
|
0.57
|
|
|
|
0.29
|
|
|
|
0.24
|
|
|
|
(2.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and short-term investments
|
|
|
2,616
|
|
|
|
3,079
|
|
|
|
1,290
|
|
|
|
1,231
|
|
|
|
922
|
|
Total
current assets
|
|
|
5,234
|
|
|
|
5,101
|
|
|
|
2,926
|
|
|
|
2,639
|
|
|
|
2,037
|
|
Property,
plant and equipment, net
|
|
|
8,279
|
|
|
|
5,888
|
|
|
|
4,684
|
|
|
|
4,713
|
|
|
|
4,510
|
|
Total
assets
|
|
|
14,818
|
|
|
|
12,221
|
|
|
|
8,006
|
|
|
|
7,760
|
|
|
|
7,158
|
|
Total
current liabilities
|
|
|
2,026
|
|
|
|
1,661
|
|
|
|
979
|
|
|
|
972
|
|
|
|
993
|
|
Long-term
debt
|
|
|
1,987
|
|
|
|
405
|
|
|
|
1,020
|
|
|
|
1,028
|
|
|
|
997
|
|
Redeemable
common stock
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
67
|
|
Total
shareholders’ equity
|
|
|
7,752
|
|
|
|
8,114
|
|
|
|
5,847
|
|
|
|
5,615
|
|
|
|
4,971
|
|
In
the third quarter of 2006, the
Company entered into an agreement with the Singapore Economic Development
Board
(“EDB”), a partner in its TECH Semiconductor joint venture, and on March 30,
2007, the Company acquired all of the shares of TECH common stock held by
EDB,
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. (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Acquisitions – Lexar Media, Inc.”)
(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 production
growth for NAND Flash memory products, contributions to IM Flash and anticipated
restructure initiatives; in “Net Sales” regarding increases in NAND Flash memory
production and revenue; in “Selling, General and Administrative”
regarding SG&A expenses for the first quarter of 2008; in “Research and
Development” regarding R&D expenses for the first quarter of 2008; in
“Stock-Based Compensation” regarding increases in future stock-based
compensation costs; in “Restructure” regarding future charges; in “Recently
Issued Accounting Standards” regarding the adoption of new accounting standards;
and in “Liquidity and Capital Resources” regarding capital spending in 2008; and
future capital contributions to IM Flash. 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 30, 2007. All period references are to the
Company’s fiscal periods unless otherwise indicated. 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.
The
Company is focused on improving its
competitiveness by increasing manufacturing scale, improving its cost
competitiveness and expanding its product portfolio within the semiconductor
memory market. The Company has increased its manufacturing scale in
2007 by ramping NAND Flash production at two 300mm wafer fabrication facilities
and beginning the conversion of another facility to 300mm DRAM wafer
fabrication. The Company continues to explore other options to
increase its manufacturing scale. To reduce costs, the Company is
implementing restructure initiatives aimed at reducing manufacturing and
overhead costs through outsourcing, relocation of operations and workforce
reductions. In recent years the Company has strategically entered
into the NAND Flash memory and specialty DRAM markets and has experienced
significant revenue growth from these products. The Company is able
to leverage its existing product and process technology and semiconductor
memory
manufacturing expertise in these markets.
To
improve its focus on the
semiconductor memory market, the Company is exploring business model
alternatives for its Imaging business including partnering
arrangements. Under any of the alternatives being considered, the
Company expects that it will continue to manufacture CMOS image
sensors.
The
Company has partnered with Intel to
form two NAND Flash manufacturing joint ventures: IM Flash
Technologies, LLC and IM Flash Singapore LLP (collectively “IM
Flash”). IM Flash operations include two 300mm wafer fabrication
facilities that are expected to greatly increase the Company’s production of
NAND Flash in 2008. IM Flash Singapore LLP began construction of a
new 300mm wafer fabrication facility in Singapore in 2007. The
Company expects to contribute approximately $1.7 billion in cash to IM Flash
over the next three years, with similar contributions to be made by
Intel. Completion of the facility in Singapore is subject to the
mutual agreement of the joint venture partners. As of August 30,
2007, the Company owned 51% and Intel owned 49% of IM Flash. The
parties share output of IM Flash generally in proportion to their ownership
in
IM Flash.
The
Company makes significant ongoing
investments to implement its proprietary product and process technology in
its
facilities in the United States, Europe and Asia to manufacture semiconductor
products with increasing functionality and performance at lower
costs. 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. 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.
In
order to maximize returns from
investments in research and development (“R&D”), the Company develops
process technology that effectively reduces production costs and leverages
the
Company’s capital expenditures. To be successfully incorporated in
customers’ end products, the Company must offer qualified semiconductor
solutions at a time when customers are developing their design specifications
for their end products. In addition, DRAM and NAND Flash products
necessarily incorporate highly advanced design and process
technologies. The Company must make significant investments in
R&D to expand its product offering and develop its leading-edge product and
process technologies. To leverage its R&D investments, the
Company has formed strategic joint ventures under which the costs of developing
NAND Flash memory product and process technologies are shared with its joint
venture partner. 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.
Restructure: The
Company is pursuing a number of initiatives to reduce costs and increase
revenue
across its operations. These initiatives include workforce reductions
in certain areas of the Company as the Company’s business is
realigned. Additional initiatives include establishing certain
operations closer in location to the Company’s global customers, evaluating
functions more efficiently performed through partnerships or other outside
relationships and reducing the Company’s overhead costs to meet or exceed
industry benchmarks. The Company is also exploring opportunities to
leverage the Company’s technology and diversified product portfolio to increase
revenue and shareholder value. It is anticipated that these
initiatives will be implemented over several quarters.
In
the fourth quarter of 2007, the
Company incurred a restructure charge of $19 million in connection with the
implementation of these cost reduction initiatives. The fourth
quarter charge was comprised primarily of employee severance and related
costs
resulting from a reduction in the Company’s workforce. The Company
anticipates that it will incur some level of restructure charges through
the end
of 2008 as it continues to implement these initiatives, but is currently
unable
to estimate the aggregate amount of such charges.
Results
of Operations
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
|
(in
millions and as a percent of net sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
5,001
|
|
|
|
88 |
|
% |
|
$ |
4,523
|
|
|
|
86 |
|
% |
|
$ |
4,577
|
|
|
|
94 |
|
% |
Imaging
|
|
|
687
|
|
|
|
12 |
|
% |
|
|
749
|
|
|
|
14 |
|
% |
|
|
303
|
|
|
|
6 |
|
% |
|
|
$ |
5,688
|
|
|
|
100 |
|
% |
|
$ |
5,272
|
|
|
|
100 |
|
% |
|
$ |
4,880
|
|
|
|
100 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
845
|
|
|
|
17 |
|
% |
|
$ |
878
|
|
|
|
19 |
|
% |
|
$ |
1,020
|
|
|
|
22 |
|
% |
Imaging
|
|
|
233
|
|
|
|
34 |
|
% |
|
|
322
|
|
|
|
43 |
|
% |
|
|
126
|
|
|
|
42 |
|
% |
|
|
$ |
1,078
|
|
|
|
19 |
|
% |
|
$ |
1,200
|
|
|
|
23 |
|
% |
|
$ |
1,146
|
|
|
|
23 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
administrative
|
|
$ |
610
|
|
|
|
11 |
|
% |
|
$ |
460
|
|
|
|
9 |
|
% |
|
$ |
348
|
|
|
|
7 |
|
% |
Research
and
development
|
|
|
805
|
|
|
|
14 |
|
% |
|
|
656
|
|
|
|
12 |
|
% |
|
|
604
|
|
|
|
12 |
|
% |
Restructure
|
|
|
19
|
|
|
|
0 |
|
% |
|
|
--
|
|
|
|
--
|
|
|
|
|
(1 |
) |
|
|
(0 |
) |
% |
Other
operating (income)
expense, net
|
|
|
(76 |
) |
|
|
(1 |
) |
% |
|
|
(266 |
) |
|
|
(5 |
) |
% |
|
|
(22 |
) |
|
|
(0 |
) |
% |
Net
income
|
|
|
(320 |
) |
|
|
(6 |
) |
% |
|
|
408
|
|
|
|
8 |
|
% |
|
|
188
|
|
|
|
4 |
|
% |
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 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 sales for 2007
reflect a 204% increase in megabits sold partially offset by a 64% decline
in
per megabit average selling prices from 2006. Memory sales were 88%
of total net sales in 2007 compared to 86% in 2006 and 94% in
2005. Imaging sales for 2007 decreased 8% from 2006 reflecting
industry softness in mobile handset sales and pricing pressure. Total
net sales for 2006 increased 8% as compared to 2005 primarily reflecting
a 147%
increase in Imaging sales as Memory sales declined 1%.
Memory: 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 megabits
manufactured 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 megabit. Megabit 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
NAND Flash products represented 23% of the Company’s total net sales for 2007 as
compared to 6% for 2006. The Company expects that sales of NAND Flash
products will continue to increase in 2008 as it continues to ramp production
capacity at its 300mm wafer fabrication facilities.
Sales
of DRAM products for 2007
decreased from 2006 primarily due to a 23% decline in average selling prices
(which includes 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 megabits sold. Megabit production of DRAM products
increased 23% for 2007, primarily due to transitions to higher density, advanced
geometry devices. Sales of DDR and DDR2 DRAM products were 47% of the
Company’s total net sales in 2007 as compared to 51% for 2006 and 59% for
2005.
Memory
sales for 2006 declined 1% from
2005 as a 287% increase in sales of NAND Flash products was offset by a 5%
decrease in sales of DRAM products. Sales of NAND Flash products for
2006 increased from 2005 primarily due to a significant increase in megabits
sold partially offset by an approximate 35% decline in average selling
prices. Sales of NAND Flash products increased significantly for 2006
as compared to 2005, primarily due to significant increases in manufacturing
resources allocated to their production. The decrease in sales of
DRAM products in 2006 from 2005 was the result of a 22% decline in average
selling prices mitigated by a 22% increase in megabits sold. Megabit
production of DRAM products increased 14% for 2006 as compared to 2005,
primarily due to production efficiencies including improvements in product
and
process technologies partially offset by a reduction in wafer
starts.
Imaging: 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 were partially
mitigated by increased sales of higher resolution products. Imaging
sales were 12% of the Company’s total net sales in 2007 as compared to 14% for
2006 and 6% for 2005. Imaging sales for 2006 increased by 147% from
2005 as unit sales tripled, partially offset by a 19% decrease in average
selling price per unit. The decrease in average selling price per
unit was due primarily to a significant increase of lower priced VGA products
sold in 2006 as compared to 2005. The growth in Imaging unit sales
for 2006 reflected strong demand for the Company’s products and increased
production.
Gross
Margin
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. The
Company’s overall gross margin percentage of 23% for 2006 was unchanged from
2005 as a decrease in the gross margin percentage for Memory in 2006 to 19%
from
22% for 2005 was offset by a slight increase in the gross margin percentage
for
Imaging products and a shift in product mix to higher margin Imaging
products.
Memory: 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 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 27% reduction in costs per megabit,
partially offset by a decline in average selling prices of 23%. The
Company achieved cost reductions for DRAM products through transitions to
production of devices utilizing the Company’s advanced 78nm process
technologies.
The
Company’s gross margin on NAND
Flash products for 2007 improved slightly from 2006 primarily due to a 57%
reduction in costs per megabit, partially offset by a 56% decline in average
selling prices. 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. 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 $255 million and
$111 million in 2007 and 2006, respectively.
The
Company’s gross margin for memory
in 2007 was adversely impacted by an inventory write-down of $20 million
in the
fourth quarter as a result of the significant decreases in average selling
prices for our semiconductor memory products. The Company may record
additional write-downs in future periods 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 percentage
for Memory products declined to 19% for 2006 from 22% for 2005 primarily
due to
declining margins for NAND Flash products as a result of the 33% decrease
in the
average selling price per megabit and costs associated with the ramp in
production at two facilities. The gross margin percentage for DRAM
products in 2006 was approximately the same as for 2005 as a 22% decrease
in the
average selling price per megabit was offset by cost reductions. The
Company achieved cost reductions for DRAM products in 2006 through improved
product yields and an increase in production utilizing the Company’s 110nm and
95nm process technologies. The cost per megabit for products
manufactured on 300mm wafers decreased significantly in 2006 compared to
2005 as
the Company continued to increase 300mm wafer production.
In
2007, the Company’s TECH
Semiconductor Singapore Pte. Ltd. (“TECH”) joint venture supplied approximately
15% of the total megabits of memory produced by the Company (reflecting
approximately 40% of total DRAM megabits). TECH primarily produced
DDR and DDR2 products in 2007 and 2006. Since the beginning of the
third quarter of 2006, TECH’s results have been included in the Company’s
consolidated results. Through the second quarter of 2006, the
Company’s results reflected memory products purchased from TECH at prices
generally based on a discount from average selling prices realized by the
Company for the preceding quarter. In the first six months of 2006,
the Company realized higher gross margin percentages on sales of TECH products
than on sales of similar products manufactured by the Company’s wholly-owned
operations. 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 since the third quarter of 2006 approximated
those on sales of similar products manufactured by the Company’s wholly-owned
operations. In 2005, the Company’s gross margin percentages on sales
of TECH products were approximately the same as on sales of similar products
manufactured by the Company’s wholly-owned operations. (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial
Statements – Joint Ventures – TECH Semiconductor Singapore Pte.
Ltd.”)
Imaging: 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. The Company’s gross margin percentage for Imaging products
for 2006 increased to 43% from 42% for 2005, primarily due to reductions
in
costs partially offset by decreases in average selling prices.
Selling,
General and Administrative
Selling,
general and administrative
(“SG&A”) expenses for 2007 increased 33% from 2006 primarily due to higher
personnel costs and higher legal costs including a $31 million charge to
SG&A as a result of the settlement of certain antitrust class action (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. SG&A expenses for 2006 increased 32% from
2005 primarily due to higher compensation costs and increased costs associated
with outstanding legal matters. Payroll costs in 2006 increased from
2005 primarily due to increased headcount resulting in part from the acquisition
of Lexar, the ramp of IM Flash and the consolidation of TECH. The
Company expects SG&A expenses to approximate $125 million to $135 million
for the first quarter of 2008. Future SG&A expense is expected to
vary, potentially significantly, depending on the number of legal matters
that
are resolved relatively early in their life-cycle and the number of matters
that
progress to trial. The Company is involved in a number of significant
cases which are scheduled for trial in 2008. Additionally, the timing
and final resolution of legal matters may cause SG&A expense to vary
significantly. For the Company’s Memory segment, SG&A expenses as
a percentage of sales were 11% in 2007, 8% in 2006 and 7% in
2005. For the Imaging segment, SG&A expenses as a percentage of
sales were 11% in 2007, 12% in 2006 and 11% in 2005.
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 2007 increased 23%
from 2006 principally 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 $240 million in 2007
and $86 million in 2006 for amounts reimbursable from Intel under the NAND
Flash
R&D cost-sharing arrangement. R&D expenses for 2006 increased
9% from 2005, principally due to increases in development wafers processed,
higher compensation costs and increases in R&D equipment depreciation
partially mitigated by reimbursements under the NAND Flash R&D cost sharing
arrangement. The Company expects that its R&D expenses, net of
amounts reimbursable from Intel, will approximate $165 million to $175 million
for the first quarter of 2008. For the Memory segment, R&D
expenses as a percentage of sales were 13% for 2007, 13% for 2006 and 12%
for
2005. For the Imaging segment, R&D expenses as a percentage of
sales were 23% for 2007, 11% for 2006 and 23% for 2005.
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 multi-level cell technology), CMOS image
sensors and specialty memory products.
Restructure
The
Company is pursuing a number of
initiatives to reduce costs and increase revenue across its
operations. These initiatives include workforce reductions in certain
areas of the Company as the Company’s business is
realigned. Additional initiatives include establishing certain
operations closer in location to the Company’s global customers, evaluating
functions more efficiently performed through partnerships or other outside
relationships and reducing the Company’s overhead costs to meet or exceed
industry benchmarks. The Company is also exploring opportunities to
leverage the Company’s technology and diversified product portfolio to increase
revenue and shareholder value. It is anticipated that these
initiatives will be implemented over several quarters.
In
the fourth quarter of 2007, the
Company incurred a restructure charge of $19 million in connection with the
implementation of these cost reduction initiatives. The fourth
quarter charge was comprised primarily of employee severance and related
costs
resulting from a reduction in the Company’s workforce. The Company
anticipates that it will incur some level of restructure charges through
the end
of 2008 as it continues to implement these initiatives, but is currently
unable
to estimate the aggregate amount of such charges. As of August 30,
2007, $5 million of the restructure costs remained unpaid and were included
in
accounts payable and accrued expenses.
Other
Operating (Income) Expense, Net
Other
operating income for 2007
includes $43 million from gains on disposals of semiconductor equipment,
a gain
of $30 million from the sale of certain intellectual property rights and
$7
million in grants received in connection with the Company’s operations in
China. Other operating expense for 2007 includes losses of $14
million from changes in currency exchange rates. Other operating
income for 2006 includes $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
includes $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 the IM Flash’s
Utah facility. Other operating income for 2005 includes gains net of
losses on disposals of semiconductor equipment of $13 million and $12 million
in
receipts from the U.S. Government in connection with anti-dumping
tariffs.
Income
Taxes
Income
taxes for 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 in 2007 and provision in 2006 for taxes on U.S. operations was
substantially offset by changes in the valuation allowance. As of
August 30, 2007, the Company had aggregate U.S. tax net operating loss
carryforwards of $2.2 billion and unused U.S. tax credit carryforwards of
$202
million. The Company also had unused state tax net operating loss
carryforwards of $1.5 billion and unused state tax credits of $169 million
as of
August 30, 2007. Substantially all of the net operating loss
carryforwards expire in 2022 to 2027 and substantially all of the tax credit
carryforwards expire in 2013 to 2027.
Noncontrolling
Interests in Net (Income) Loss
Noncontrolling
interests for 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
Through
2005, the Company accounted for
its stock plans using the intrinsic value method. Effective the
beginning of 2006, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the Company
to use a fair-value based method to account for stock-based
compensation. Total compensation cost for the Company’s equity plans
in 2007 and 2006 was $44 million and $26 million, respectively, of which
$3
million and $1 million were capitalized and remained in inventory at the
end of
2007 and 2006, respectively. As of August 30, 2007, there was $113
million of total unrecognized compensation cost related to equity plans,
which
is expected to be recognized through the fourth quarter of 2011. In
2005, the Company accelerated the vesting of substantially all of its unvested
stock options then outstanding under the Company’s stock plans to reduce
compensation costs recognized subsequent to the adoption in 2006 of SFAS
No.
123(R), “Share-Based Payment.” Because the Company’s stock-based
compensation costs were reduced by the effect of the acceleration of vesting
in
2005, the Company expects that stock-based compensation costs will continue
to
grow in future periods.
Liquidity
and Capital Resources
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. As of August 30, 2007, the Company had cash and equivalents
and short-term investments totaling $2.6 billion compared to $3.1 billion
as of
August 31, 2006. The balance as of August 30, 2007, included an
aggregate of $610 million held at, and anticipated to be used in the near
term
by, IM Flash and TECH.
Operating
Activities: The Company generated $937 million of cash
from operating activities in 2007, which principally reflects the Company’s $320
million of net loss adjusted by $1.7 billion for non-cash depreciation and
amortization expense. Net cash provided by operating activities was
net of the effects of an increase of $591 million in inventories primarily
due
to increases in production, growth in output that exceeded growth in demand
for
the Company’s Memory products and, with respect to Imaging, industry softness in
the mobile handset market.
Investing
Activities: Net cash used by investing activities was
$2.4 billion in 2007, which included cash expenditures for property, plant
and
equipment of $3.6 billion partially offset by the net effect of purchases,
sales
and maturities of investment securities of $1.2 billion. 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 2008 capital spending to approximate $2.5 billion, primarily
for
expenditures on 300mm fabrication facilities. The Company expects
that approximately $750 million of the capital expenditure requirement will
come
from joint venture partners through new investment and payment for product
purchases. As of August 30, 2007, the Company had commitments of
approximately $1.2 billion for the acquisition of property, plant and equipment,
nearly all of which are expected to be paid within one year.
On
December 11, 2006, the Company
acquired the CMOS image sensor business of Avago Technologies
Limited. The Company made payments of $55 million in 2007 in
connection with this acquisition and is obligated to make additional contingent
payments up to $15 million if certain milestones are met through
2008.
On
March 30, 2007, the Company acquired
all of the shares of TECH common stock held by the Singapore Economic
Development Board for approximately $290 million payable over nine months,
increasing the Company’s ownership interest in TECH from 43% to
73%. As of August 30, 2007, $216 million of this amount remained in
notes payable.
Financing
Activities: Net cash provided by financing activities
was $2.2 billion in 2007. 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. In connection with the offering of the Senior Notes, the
Company also entered into capped call transactions (“Capped Calls”) with the
intent to reduce the potential dilution upon conversion of the Senior
Notes. Micron paid approximately $151 million from the net proceeds
from the issuance and sale of the Senior Notes to purchase the Capped
Calls. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Supplemental Balance Sheet
Information – Debt” and “Supplemental Balance Sheet Information – Capped Call
Transactions.”)
In
2007, the Company received $1.2
billion in capital contributions from joint venture partners and $454 million
in
proceeds from equipment financing arrangements, payable in periodic installments
through July 2011. The Company made an aggregate of $680 million in
scheduled debt payments and payments on equipment purchase contracts in
2007.
The
Company’s TECH joint venture has a
credit facility that enabled it to borrow up to $360 million as of August
30,
2007. The amount available under the credit facility decreased to
$320 million as of September 27, 2007, and will decline by approximately
$40
million every calendar quarter thereafter until the facility expires in
September 2009. As of August 30, 2007, TECH had not borrowed any
amounts against the credit facility.
Access
to capital markets has
historically been important to the Company. Depending on market
conditions, the Company may issue registered or unregistered securities to
raise
capital to fund a portion of its operations.
Joint
Ventures: As of August 30, 2007, IM Flash had $407
million of cash and marketable investment securities. IM Flash’s cash
and marketable investment securities are not anticipated to be made available
to
finance the Company’s other operations. Subject to certain
conditions, the Company expects to make additional contributions to IM Flash
of
approximately $1.7 billion over the next three years, with similar contributions
to be made by Intel. The Company anticipates additional investments
as appropriate to support the growth of IM Flash’s operations.
As
of August 30, 2007, TECH had $203
million of cash and marketable investment securities. TECH’s cash and
marketable investment securities are not anticipated to be made available
to
finance the Company’s other operations.
(See
“Item
8. Financial Statements and
Supplementary Data – Notes to Consolidated Financial Statements – Joint
Ventures.”)
Contractual
Obligations: The following table summarizes the
Company’s significant contractual obligations at August 30, 2007, 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 (including
interest)
|
|
$ |
1,940
|
|
|
$ |
318
|
|
|
$ |
220
|
|
|
$ |
53
|
|
|
$ |
1,349
|
|
Capital
lease
obligations
|
|
|
794
|
|
|
|
185
|
|
|
|
284
|
|
|
|
240
|
|
|
|
85
|
|
Operating
leases
|
|
|
117
|
|
|
|
31
|
|
|
|
29
|
|
|
|
22
|
|
|
|
35
|
|
Purchase
obligations
|
|
|
1,659
|
|
|
|
1,334
|
|
|
|
279
|
|
|
|
13
|
|
|
|
33
|
|
Other
long-term
liabilities
|
|
|
421
|
|
|
|
--
|
|
|
|
287
|
|
|
|
37
|
|
|
|
97
|
|
Total
|
|
$ |
4,931
|
|
|
$ |
1,868
|
|
|
$ |
1,099
|
|
|
$ |
365
|
|
|
$ |
1,599
|
|
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
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.”)
As
of August 30, 2007, the Company had
stock warrants outstanding that may be considered off-balance sheet
arrangements. 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 entitle the holders to exercise their warrants
and purchase shares of the Company’s common stock for $56.00 per share (the
“Exercise Price”) at any time through May 15, 2008 (the “Expiration
Date”). Warrants exercised prior to the Expiration Date will be
settled on a “net share” basis, wherein investors receive common stock equal to
the difference between $56.00 and the average closing sale price for the
common
shares over the 30 trading days immediately preceding the Exercise
Date. At expiration, the Company may elect to settle the warrants on
a net share basis or for cash, provided certain conditions are
satisfied. As of August 30, 2007, there had been no exercises of
warrants and all warrants issued remained outstanding.
Recently
Issued Accounting Standards
In
February 2007, the Financial
Accounting Standards Board (“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 impact of the adoption of SFAS No. 159 will depend on the
extent to which the Company elects to measure eligible items at fair
value.
In
September 2006, the SEC staff issued
Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” In SAB No. 108, the SEC staff established an approach
that requires quantification of financial statement misstatements based on
the
effects of the misstatements on each of a company’s financial statements and the
related financial statement disclosures. SAB No. 108 permits
companies to initially apply its provisions either by (i) restating prior
financial statements or (ii) recording the cumulative effect as adjustments
to
the carrying values of assets and liabilities with an offsetting adjustment
recorded to the opening balance of retained earnings. The Company
adopted SAB No. 108 as of August 30, 2007. The adoption of SAB No.
108 did not impact the Company’s results of operations or financial
condition.
In
September 2006, the FASB issued SFAS
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and
132(R).” SFAS No. 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan
(other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the
year in
which the changes occur through comprehensive income. SFAS No. 158
also requires an employer to measure the funded status of a plan as of the
date
of its year-end statement of financial position, with limited
exceptions. The Company adopted SFAS No. 158 as of August 30,
2007. The adoption of SFAS No. 158 did not have a material impact the
Company’s results of operations or financial condition.
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. The
Company is required to adopt FAS No. 157 effective at the beginning of
2009. The Company is evaluating the impact this statement will have
on its consolidated financial statements.
In
June 2006, the FASB issued
Interpretation Number 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes
– an interpretation of FASB Statement No. 109.” The interpretation
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 each 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 is required to adopt FIN 48 effective
at
the beginning of 2008. The Company does not expect any material
adjustments upon adoption.
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. As of August 30, 2007, the Company did not have any
hybrid financial instruments subject to the fair value election under SFAS
No.
155. The Company is required to adopt SFAS No. 155 effective at the
beginning of 2008.
In
May 2005, the FASB issued SFAS No.
154, “Accounting Changes and Error Corrections.” SFAS No. 154 changes
the requirements for the accounting for and reporting of a change in accounting
principle. The Company adopted SFAS No. 154 at the beginning of 2007.
The adoption of SFAS No. 154 did not impact 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 require management’s most difficult,
subjective or complex judgments.
Acquisitions
and
consolidations: Determination and the allocation
thereof 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. 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. The estimation of the fair values of
consideration given and assets and liabilities acquired involves a number
of
judgments, assumptions and estimates that could materially affect the amount
and
timing of costs recognized.
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: 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 or a decision to sell or dispose of a reporting
unit. Determining whether impairment has occurred requires valuation
of the respective reporting unit. If the analysis indicates goodwill
is impaired, measuring the impairment requires a fair value estimate of each
identified tangible and intangible asset. 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 is
required to adopt FIN 48 effective at the beginning of 2008.
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 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
fair
value of the Company’s semiconductor memory inventory by approximately $85
million at August 30, 2007. 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.
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. 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. Estimated option life and forfeiture rate
assumptions are derived from historical data. For stock based
compensation awards with graded vesting that were granted after 2005, the
Company recognizes compensation expense using the straight-line amortization
method.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
Interest
Rate Risk
As
of August 30, 2007, $2,335 million
of the Company’s $2,410 million in total 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 $2,411 million as of August 30, 2007. The
Company estimates that as of August 30, 2007, a 1% change in market interest
rates would change the fair value of the fixed-rate debt by approximately
$100
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. $448 million as of August 30, 2007, and U.S. $425 million as of August
31,
2006 (including cash and equivalents denominated in yen valued at U.S. $180
million as of August 30, 2007 and U.S. $222 million as of August 31, 2006;
cash
and equivalents denominated in Singapore dollars valued at U.S. $58 million
as
of August 30, 2007 and U.S. $42 million as of August 31, 2006; and deferred
income tax assets denominated in yen valued at U.S. $76 million as of August
30,
2007, and U.S. $64 million as of August 31, 2006). The Company also
held aggregate foreign currency liabilities valued at U.S. $979 million as
of
August 30, 2007, and U.S. $615 million as of August 31, 2006 (including debt
denominated in Singapore dollars valued at U.S. $258 million as of August
30,
2007, and U.S. $38 million as of August 31, 2006; debt denominated in yen
valued
at U.S. $165 million as of August 30, 2007, and U.S. $228 million as of August
31, 2006; accounts payable and accrued expenses denominated in yen valued
at
U.S. $168 million as of August 30, 2007, and U.S. $124 million as of August
31,
2006; accounts payable and accrued expenses denominated in euros valued at
U.S.
$137 million as of August 30, 2007, and U.S. $68 million as of August 31,
2006;
and accounts payable and accrued expenses denominated in Singapore dollars
valued at U.S. $116 million as of August 30, 2007, and U.S. $48 million as
of
August 31, 2006). Foreign currency receivables and payables as of
August 30, 2007, were comprised primarily of yen, euros and Singapore
dollars. The Company estimates that, based on its assets and
liabilities denominated in currencies other than U.S. dollar as of August
30,
2007, a 1% change in the exchange rate versus the U.S. dollar would result
in
foreign currency gains or losses of approximately U.S. $3 million for the
Singapore dollar, U.S. $2 million for the euro and U.S. $1 million for the
yen.
Item
8. Financial Statements and Supplementary
Data
Index
to Consolidated Financial Statements
|
Page
|
|
|
Consolidated
Financial Statements as of August 30, 2007, and August 31, 2006,
and for
the fiscal years ended August 30, 2007, August 31, 2006, and September
1,
2005:
|
|
|
|
Consolidated
Statements of
Operations
|
39
|
|
|
Consolidated
Balance
Sheets
|
40
|
|
|
Consolidated
Statements of
Shareholders’ Equity
|
41
|
|
|
Consolidated
Statements of Cash
Flows
|
42
|
|
|
Notes
to Consolidated Financial
Statements
|
43
|
|
|
Report
of Independent Registered
Public Accounting Firm
|
64
|
|
|
Financial
Statement Schedule:
|
|
|
|
Schedule
II – Valuation and
Qualifying Accounts
|
70
|
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions except per share amounts)
For
the year ended
|
|
August
30,
2007
|
|
|
August
31,
2006
|
|
|
September
1,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,688
|
|
|
$ |
5,272
|
|
|
$ |
4,880
|
|
Cost
of goods sold
|
|
|
4,610
|
|
|
|
4,072
|
|
|
|
3,734
|
|
Gross
margin
|
|
|
1,078
|
|
|
|
1,200
|
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
610
|
|
|
|
460
|
|
|
|
348
|
|
Research
and development
|
|
|
805
|
|
|
|
656
|
|
|
|
604
|
|
Restructure
|
|
|
19
|
|
|
|
--
|
|
|
|
(1 |
) |
Other
operating (income) expense, net
|
|
|
(76 |
) |
|
|
(266 |
) |
|
|
(22 |
) |
Operating
income
(loss)
|
|
|
(280 |
) |
|
|
350
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
143
|
|
|
|
101
|
|
|
|
32
|
|
Interest
expense
|
|
|
(40 |
) |
|
|
(25 |
) |
|
|
(47 |
) |
Other
non-operating income (expense), net
|
|
|
9
|
|
|
|
7
|
|
|
|
(3 |
) |
Income
(loss) before taxes and
noncontrolling interests in net income
|
|
|
(168 |
) |
|
|
433
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (provision)
|
|
|
(30 |
) |
|
|
(18 |
) |
|
|
(11 |
) |
Noncontrolling
interests in net income
|
|
|
(122 |
) |
|
|
(7 |
) |
|
|
--
|
|
Net
income (loss)
|
|
$ |
(320 |
) |
|
$ |
408
|
|
|
$ |
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.42 |
) |
|
$ |
0.59
|
|
|
$ |
0.29
|
|
Diluted
|
|
|
(0.42 |
) |
|
|
0.57
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
769.1
|
|
|
|
691.7
|
|
|
|
647.7
|
|
Diluted
|
|
|
769.1
|
|
|
|
725.1
|
|
|
|
702.0
|
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
BALANCE SHEETS
(in
millions except par value amounts)
As
of
|
|
August
30,
2007
|
|
|
August
31,
2006
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
2,192
|
|
|
$ |
1,431
|
|
Short-term
investments
|
|
|
424
|
|
|
|
1,648
|
|
Receivables
|
|
|
994
|
|
|
|
956
|
|
Inventories
|
|
|
1,532
|
|
|
|
963
|
|
Prepaid
expenses
|
|
|
67
|
|
|
|
77
|
|
Deferred
income taxes
|
|
|
25
|
|
|
|
26
|
|
Total
current
assets
|
|
|
5,234
|
|
|
|
5,101
|
|
Intangible
assets, net
|
|
|
401
|
|
|
|
388
|
|
Property,
plant and equipment, net
|
|
|
8,279
|
|
|
|
5,888
|
|
Deferred
income taxes
|
|
|
65
|
|
|
|
49
|
|
Goodwill
|
|
|
515
|
|
|
|
502
|
|
Other
assets
|
|
|
324
|
|
|
|
293
|
|
Total
assets
|
|
$ |
14,818
|
|
|
$ |
12,221
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,385
|
|
|
$ |
1,319
|
|
Deferred
income
|
|
|
84
|
|
|
|
53
|
|
Equipment
purchase contracts
|
|
|
134
|
|
|
|
123
|
|
Current
portion of long-term debt
|
|
|
423
|
|
|
|
166
|
|
Total
current
liabilities
|
|
|
2,026
|
|
|
|
1,661
|
|
Long-term
debt
|
|
|
1,987
|
|
|
|
405
|
|
Deferred
income taxes
|
|
|
25
|
|
|
|
28
|
|
Other
liabilities
|
|
|
421
|
|
|
|
445
|
|
Total
liabilities
|
|
|
4,459
|
|
|
|
2,539
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests in subsidiaries
|
|
|
2,607
|
|
|
|
1,568
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.10 par value, authorized 3 billion shares, issued and
outstanding 757.9 million and 749.4 million shares,
respectively
|
|
|
76
|
|
|
|
75
|
|
Additional
capital
|
|
|
6,519
|
|
|
|
6,555
|
|
Retained
earnings
|
|
|
1,164
|
|
|
|
1,486
|
|
Accumulated
other comprehensive loss
|
|
|
(7 |
) |
|
|
(2 |
) |
Total
shareholders’
equity
|
|
|
7,752
|
|
|
|
8,114
|
|
Total
liabilities and
shareholders’ equity
|
|
$ |
14,818
|
|
|
$ |
12,221
|
|
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 2, 2004
|
|
|
611.5
|
|
|
$ |
61
|
|
|
$ |
4,664
|
|
|
$ |
890
|
|
|
$ |
--
|
|
|
$ |
5,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
|
|
|
|
|
|
188
|
|
Stock
issued under stock plans
|
|
|
4.7
|
|
|
|
1
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Balance
at September 1, 2005
|
|
|
616.2
|
|
|
$ |
62
|
|
|
$ |
4,707
|
|
|
$ |
1,078
|
|
|
$ |
--
|
|
|
$ |
5,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
408
|
|
Other
comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gain
(loss) on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Total
comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
For
the year ended
|
|
August
30,
2007
|
|
|
August
31,
2006
|
|
|
September
1,
2005
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(320 |
) |
|
$ |
408
|
|
|
$ |
188
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
1,718
|
|
|
|
1,281
|
|
|
|
1,265
|
|
Noncash
restructure charges
(benefits)
|
|
|
5
|
|
|
|
--
|
|
|
|
(2 |
) |
Provision
to write-down
inventories to estimated fair market values
|
|
|
20
|
|
|
|
--
|
|
|
|
--
|
|
Gain
from write-down or
disposition of equipment
|
|
|
(43 |
) |
|
|
(2 |
) |
|
|
(13 |
) |
Gain
from sale of product and
process technology
|
|
|
(30 |
) |
|
|
--
|
|
|
|
--
|
|
Stock-based
compensation
|
|
|
44
|
|
|
|
26
|
|
|
|
2
|
|
Change
in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in
receivables
|
|
|
5
|
|
|
|
(62 |
) |
|
|
(22 |
) |
Increase
in
inventories
|
|
|
(591 |
) |
|
|
(12 |
) |
|
|
(193 |
) |
Increase
(decrease) in
accounts payable and accrued expenses
|
|
|
(1 |
) |
|
|
130
|
|
|
|
11
|
|
Increase
(decrease) in
customer prepayments
|
|
|
(4 |
) |
|
|
249
|
|
|
|
(2 |
) |
Deferred
income
taxes
|
|
|
(11 |
) |
|
|
(24 |
) |
|
|
(10 |
) |
Other
|
|
|
145
|
|
|
|
25
|
|
|
|
13
|
|
Net
cash provided by operating
activities
|
|
|
937
|
|
|
|
2,019
|
|
|
|
1,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for property, plant and equipment
|
|
|
(3,603 |
) |
|
|
(1,365 |
) |
|
|
(1,065 |
) |
Purchases
of available-for-sale securities
|
|
|
(1,466 |
) |
|
|
(3,080 |
) |
|
|
(1,849 |
) |
Acquisition
of noncontrolling interest in TECH
|
|
|
(73 |
) |
|
|
--
|
|
|
|
--
|
|
Proceeds
from maturities of available-for-sale securities
|
|
|
2,156
|
|
|
|
2,189
|
|
|
|
1,826
|
|
Proceeds
from sales of available-for-sale securities
|
|
|
540
|
|
|
|
33
|
|
|
|
10
|
|
Proceeds
from sales of property, plant and equipment
|
|
|
94
|
|
|
|
55
|
|
|
|
47
|
|
Proceeds
from sale of product and process technology
|
|
|
30
|
|
|
|
--
|
|
|
|
--
|
|
Consolidation
of TECH
|
|
|
--
|
|
|
|
319
|
|
|
|
--
|
|
Cash
acquired from acquisition of Lexar
|
|
|
--
|
|
|
|
97
|
|
|
|
--
|
|
Other
|
|
|
(69 |
) |
|
|
(4 |
) |
|
|
(53 |
) |
Net
cash used for investing
activities
|
|
|
(2,391 |
) |
|
|
(1,756 |
) |
|
|
(1,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of debt
|
|
|
1,300
|
|
|
|
--
|
|
|
|
221
|
|
Cash
received from noncontrolling interests
|
|
|
1,249
|
|
|
|
984
|
|
|
|
--
|
|
Proceeds
from equipment sale-leaseback transactions
|
|
|
454
|
|
|
|
--
|
|
|
|
161
|
|
Proceeds
from issuance of common stock
|
|
|
69
|
|
|
|
113
|
|
|
|
41
|
|
Payments
on equipment purchase contracts
|
|
|
(487 |
) |
|
|
(209 |
) |
|
|
(236 |
) |
Repayments
of debt
|
|
|
(193 |
) |
|
|
(415 |
) |
|
|
(300 |
) |
Cash
received (paid) for capped call transactions
|
|
|
(151 |
) |
|
|
171
|
|
|
|
--
|
|
Other
|
|
|
(26 |
) |
|
|
--
|
|
|
|
(2 |
) |
Net
cash provided by (used for)
financing activities
|
|
|
2,215
|
|
|
|
644
|
|
|
|
(115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and
equivalents
|
|
|
761
|
|
|
|
907
|
|
|
|
38
|
|
Cash
and equivalents at beginning of year
|
|
|
1,431
|
|
|
|
524
|
|
|
|
486
|
|
Cash
and equivalents at end of year
|
|
$ |
2,192
|
|
|
$ |
1,431
|
|
|
$ |
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid, net
|
|
$ |
(41 |
) |
|
$ |
(52 |
) |
|
$ |
(21 |
) |
Interest
paid, net of amounts capitalized
|
|
|
(22 |
) |
|
|
(28 |
) |
|
|
(58 |
) |
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
acquisitions on
contracts payable and capital leases
|
|
|
1,010
|
|
|
|
326
|
|
|
|
372
|
|
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’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. 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 2007, 2006 and 2005 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 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.
Certain
concentrations: Approximately 50% of the Company’s net sales
for 2007 were to the computing market, including desktop PCs, servers, notebooks
and workstations. Sales to Hewlett-Packard Company (“HP”) were 10% of
the Company’s net sales in 2007 and were included in the Memory
segment. Sales of DRAM, NAND Flash and CMOS image sensor products
constituted 65%, 23% and 12%, respectively, of the Company’s net sales for
2007. 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.
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. Because of
frequent changes in market prices for the Company’s products, 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: Effective the beginning of 2006, the Company
adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R),
“Share-Based Payment,” and elected to adopt the modified prospective application
method. Accordingly, 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. (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 earnings 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. The estimated fair value of the Company’s debt was $2,411
million and $627 million as of August 30, 2007, and August 31, 2006,
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