Micron Annual Report 1999

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FY1999 Annual Report · Micron

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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

September 2, 1999

(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

1-10658

Micron Technology, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

8000 S. Federal Way, P.O. Box 6, Boise, Idaho
(Address of principal executive offices)

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.10 per share

75-1618004
(IRS Employer
Identification No.)

83707-0006
(Zip Code)

(208) 368-4000

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

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 (cid:3) No (cid:2)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will
not be contained to the best of registrants 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. (cid:3)

The aggregate market value of the voting stock held by nonaffiliates of the registrant, based upon the closing price of such stock
on September 2, 1999, as reported by the New York Stock Exchange, was approximately $13.4 billion. Shares of common stock held
by each 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 29, 1999, was 253,628,373 shares of common

stock and 15,810,277 shares of Class A Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for registrant’s 1999 Annual Meeting of Shareholders to be held on January 18, 2000, are

incorporated by reference into Part III of this Annual Report on Form 10-K.

Item 1. Business

PART I

The following discussion may contain trend information and other forward-looking statements (including, for

example, statements regarding future operating results, future capital expenditures and facility expansion, new
product introductions, technological developments and industry trends) that involve a number of risks and
uncertainties. The Company’s actual results could differ materially from the Company’s historical results of
operations 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 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Certain Factors.” All period references are to the Company’s
fiscal periods ended September 2, 1999, September 3, 1998, or August 28, 1997, unless otherwise indicated. All
1998 and 1997 financial data of the Company has been restated to include the results of operations of Rendition,
Inc., which was merged into the Company on September 11, 1998.

General

Micron Technology, Inc. and its subsidiaries (hereinafter referred to collectively as the “Company”) principally
design, develop, manufacture and market semiconductor memory products and personal computer (“PC”) systems.
Micron Technology, Inc. and its wholly-owned subsidiaries are hereinafter referred to collectively as “MTI.”
The Company’s PC operations are operated through Micron Electronics, Inc. (“MEI”), a 63% owned, publicly-
traded subsidiary of MTI.

On September 30, 1998, MTI completed the acquisition of substantially all of the semiconductor memory
operations of Texas Instruments Incorporated (“TI”). As a result of the acquisition, the Company now operates a
fabrication facility in Avezzano, Italy, an assembly and test facility in Singapore and a design engineering center in
Richardson, Texas. MTI also has interests in two joint venture wafer fabrication facilities in Singapore and Japan.
The Company’s results of operations for fiscal 1999 reflect eleven months results of operations for the acquired
operations.

MTI, a Delaware corporation, was incorporated in 1978. MTI’s executive offices are located at 8000 South
Federal Way, Boise, Idaho 83716-9632 and its telephone number is (208) 368-4000. MEI’s executive offices are
located at 900 East Karcher Road, Nampa, Idaho 83687-3045 and its telephone number is (208) 898-3434.

In connection with the preparation of its Consolidated Financial Statements for 1999, the Company

implemented a recently issued accounting standard which calls for information regarding the Company’s operations
to be reported by segments. The Company is organized into two primary operating segments pursuant to its primary
product categories: “Semiconductor operations” and “PC operations.” Reference is made to the information
regarding net sales, operating profit and identifiable assets by reportable segments and net sales by geographic
region, under the heading “Operating Segment and Geographic Information” in the “Notes to Consolidated Financial
Statements.”

Products and Services

Semiconductor operations

The Company’s semiconductor operations focus primarily on the design, development and manufacture of
leading edge semiconductor memory products. In recent periods, the Company’s customers have demanded a wider
variety of packaging and configuration options, architectures and performance characteristics to meet their particular
needs. Industry experts expect this proliferation of products to continue as technological advances in the PC and
electronics industries require different memory solutions.

Dynamic Random Access Memory (“DRAM”). DRAM is the Company’s primary semiconductor memory

product. A DRAM is a high density, low-cost-per-bit, random access memory component which stores digital

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information in the form of bits and provides high-speed storage and retrieval of data. DRAMs are the most widely
used semiconductor memory component in PC systems. The DRAM market is diversifying, with customers
demanding specific memory solutions to meet their particular memory needs. The Company is committed to
offering customers multiple DRAM solutions and maintaining long-term support of those solutions. DRAM sales
(exclusive of intersegment sales) represented approximately 64%, 42% and 45% of the Company’s total net sales in
1999, 1998 and 1997, respectively.

Synchronous DRAMs (“SDRAMs”) are memory components which operate faster than standard DRAMs,
due in part to the addition of a clock input that synchronizes all operations and allows PC systems to transfer data at
faster rates, allowing subsystems to maintain pace with high speed CPUs and graphics engines. The Company’s
primary product during 1999 was the 64 Meg SDRAM, available in multiple configurations, speeds and package
types. The Company is in the process of ramping volume production of the 128 Meg SDRAM and expects to
transition to the 128 Meg SDRAM as its primary product by the end of calendar 2000. The Company offers PC100
and PC133 64 Meg and 128 Meg SDRAMs. These devices, which in some cases have the same functionality as
higher bandwidth DRAMS, are primarily used in high-performance PCs. PC133 is a faster speed grade SDRAM
and is a cost-effective, incremental technology improvement over PC100.

The Company has developed higher bandwidth DRAM products such as Double Date Rate (“DDR”)

SDRAM and Direct Rambus™ DRAM (“RDRAM®”). DDR SDRAM is a wide-bus memory solution that
leverages off of existing SDRAM technology by supporting data transfers on both edges of each clock cycle
effectively doubling the memory chip’s data throughput. The Company anticipates that DDR SDRAM will be
widely used in high-end server, workstation and desktop applications. The Company expects to offer DDR SDRAM
in 64 Meg and 128 Meg configurations in fiscal 2000. RDRAM is a technology that uses a narrow bus, high speed
memory interface and is expected to be used in high-performance PC applications and servers. The Company
announced sampling of RDRAM products in August 1999 and expects to be positioned to meet the demand for
RDRAM as the market for RDRAM develops.

The Company continues to produce lower bandwidth DRAM products such as extended data out (“EDO”)
and fast page mode (“FPM”) and earlier generation products such as the 16 Meg DRAM in order to support major
OEM customer needs.

Other Semiconductor Memory Products. Other semiconductor memory products produced by the

Company include Static Random Access Memory (“SRAM”) and Flash (“Flash”) memory devices. SRAM is a
semiconductor device which performs memory functions much the same as DRAM, but does not require memory
cells to be electronically refreshed and operates faster than DRAM. The Company produces SRAMs for the high-
performance, or “Very Fast,” sector which are used in applications that require a “buffer” or “cache” of high speed
memory between the CPU and main DRAM memory. Flash components are non-volatile semiconductor devices
that retain memory content when the power is turned off and are electrically erasable and reprogrammable. Flash
devices are used in digital cellular phones, networking applications, workstations, servers and PCs. Sales of SRAM
and Flash products together represented less than 3% of the Company’s total net sales in each of 1999, 1998 and
1997.

PC operations

PC Systems and Services. The Company’s PC operations develop, market, manufacture, sell and support a

wide range of desktop and notebook PC systems and network servers and sell, resell and support a variety of
additional peripherals, software and services. These PC systems use microprocessors manufactured by Intel
Corporation (“Intel”). The Company’s PC systems are assembled to order with differing processing and memory
configurations as well as various operating systems and application software. The Company’s Mservices™ line is a
portfolio of enhanced support and professional services.

The Company’s current product lines include: the high-performance Millennia line of PC systems

targeted for consumer, business and government users; the ClientPro, which is a scalable and affordable line of
managed PCs designed as a network solution for businesses demanding computing stability and performance; the
Transport Trek2™ notebook, designed for affordable desktop-like performance for business applications; the
TransPort NX, designed for ultimate desktop-like performance for small business and Small-Office-Home-Office
“SOHO” applications and NetFRAME series workgroup servers which provide server solutions specifically

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designed for small to medium sized businesses and for decentralized remote locations and departments. Net sales of
PC systems (exclusive of intersegment sales) represented 33%, 49% and 43% of the Company’s total net sales for
1999, 1998 and 1997, respectively.

E-Services. The Company offers a variety of e-services to its customers. Through Micron Internet

Services, the Company provides internet access, including integrated information systems solutions encompassing
data, video, voice and software applications. Through HostPro, the Company offers a full range of web-hosting
services ranging from e-commerce solutions to multimedia technologies.

Subsequent to the end to the fiscal year, the Company’s PC operations announced the introduction of

“Subscription Computing.” Through Subscription Computing, customers receive one monthly bill for a customized
combination of hardware, hardware and software services, internet access, web hosting and e-commerce services.
The Company anticipates making significant strategic investments during fiscal 2000 in support of e-services and
Subscription Computing.

Manufacturing

Semiconductor operations

The Company is a global leader in the manufacture of semiconductor memory products. The Company’s
manufacturing process technology is developed at its research and development wafer fabrication facility in Boise,
Idaho and then deployed to its two manufacturing fabs in Boise, its Avezzano, Italy fab and its two joint venture
fabs, TECH Semiconductor Singapore Pte. Ltd. (“TECH”) and KMT Semiconductor Limited (“KMT”). (TECH and
KMT are collectively referred to herein as the “JVs.”) The Company focuses on developing leading edge
manufacturing processes that maximize throughput of high quality memory components.

The manufacturing of the Company’s semiconductor products is a complex process and involves a number of
precise steps, including wafer fabrication, assembly, burn-in and final test. Efficient production of the Company’s
semiconductor memory products requires utilization of advanced semiconductor manufacturing techniques and the
effective deployment of these techniques across multiple facilities. Cost per unit is primarily a function of die size
(since the potential number of good die per wafer increases with reduced die size), number of mask layers, the yield
of acceptable die produced on each wafer and labor productivity. Product costs are also affected by MTI’s
arrangements with the JVs, including supply agreements which allow MTI to purchase JV products at a discount to
its average selling prices. Other factors which contribute to manufacturing costs are wafer size, number of
fabrication steps, cost and sophistication of the manufacturing equipment, equipment utilization, process
complexity, package type and cleanliness. The Company is continuously enhancing its production processes,
reducing the die size of existing products and increasing capacity utilization throughout its worldwide operations.
The Company is in the process of transferring its .18 micron (µ) product and process technology capability to
Avezzano, TECH and KMT and expects the transfer to be substantially complete by the end of calendar 1999.

Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and
quality-limiting contaminants. Despite stringent manufacturing controls, equipment does not consistently perform
flawlessly and minute impurities, defects in the photomasks or other difficulties in the process may cause a
substantial percentage of the wafers to be scrapped or individual circuits to be nonfunctional. The success of the
Company’s manufacturing operations is largely dependent on its ability to minimize such impurities and to
maximize its yield of acceptable, 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 certain
nonstandard devices by testing and grading them to their highest level of functionality.

After fabrication, each silicon wafer is separated into individual die. Functional die are connected to external
leads by extremely fine wire and are assembled into plastic packages. Each completed package is then inspected,
sealed and tested. The assembly process uses high-speed automatic systems such as wire bonders, as well as semi-
automatic plastic encapsulation and solder systems. 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, through the utilization of its proprietary
AMBYX line of intelligent test and burn-in systems, the Company simultaneously conducts circuit testing of all die

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during the burn-in process, capturing quality and reliability data and reducing testing time and cost. Assembly and
test of the Company’s products is completed at its Boise and Singapore facilities. All the Company’s manufacturing
facilities operate 24 hours per day, 7 days per week.

Joint Ventures. In connection with the acquisition of substantially all of TI’s memory operations in

September 1998, MTI acquired interests in TECH and KMT. TECH and KMT operate wafer fabrication facilities
for the manufacture of DRAM products. TECH, which operates in Singapore, is a joint venture between MTI, the
Singapore Economic Development Board, Canon Inc. and Hewlett-Packard Company. KMT, which operates in
Japan, is a joint venture between MTI and Kobe Steel, Ltd.

MTI has made significant progress in the transfer of its product and process technology to the JVs and

expects to complete the transfer of its .18µ product and process technology capability in late calendar 1999. Subject
to certain terms and conditions, MTI has agreed to purchase all of the JV production. Certain joint venture partners
have the right to buy a portion of TECH’s output from the Company. MTI is a party to various agreements with the
JVs whereby MTI provides technology, engineering support and training to the JVs. MTI also performs assembly
and test services on products manufactured by the JVs. The net cost of products purchased from the JVs, amounting
to $322 million in 1999, reflects all transactions with the JVs.

Historically the JVs have required external financing to transition to the latest generation technologies. In

the event either the JVs are unable to secure adequate financing, the Company’s results of operations and cash flows
could be adversely affected.

PC operations

The Company’s PC manufacturing process is designed to provide custom-configured products to its customers
and includes assembling components, loading software and testing each system prior to shipment. The Company’s
PC systems are generally assembled to order (“ATO”) based on customer specifications. Most components are held
by suppliers in a third-party logistics providers’ warehouse and delivered as order flow demands. The Company’s
ATO manufacturing process promotes rapid inventory turnover and reduced inventory levels, while allowing the
Company to efficiently manufacture customized computer systems. The Company’s desktop PC systems and
servers are generally assembled in the Company’s facility. The Company’s notebook PC systems, which are
designed to include feature sets defined by the Company, are assembled by third party suppliers and tested
according to the Company’s standards.

Availability of Raw Materials

Semiconductor operations

The raw materials utilized by the Company’s semiconductor operations generally must meet exacting product

specifications. The Company generally uses multiple sources of supply, but the number of suppliers capable of
delivering certain raw materials is very limited. The availability of raw materials, such as silicon wafers, certain
chemicals, lead frames and molding compound, may decline due to the increase in worldwide semiconductor
manufacturing. Although shortages have occurred from time to time and lead times in the industry have been
extended on occasion, to date the Company has not experienced any significant interruption in operations as a result
of a difficulty in obtaining raw materials for its semiconductor operations. Interruption of any one raw material
source could adversely affect the Company’s semiconductor operations.

PC operations

The Company relies on third-party suppliers for its PC system components and seeks to identify suppliers able

to provide state-of-the-art technology, product quality and prompt delivery at competitive prices. The Company
purchases substantially all of its PC components, subassemblies and software from suppliers on a purchase order
basis and generally does not have long-term supply arrangements with its suppliers. Although the Company
attempts to use standard components, subassemblies and software available from multiple suppliers, certain of its
components, subassemblies and software are available only from sole suppliers or a limited number of suppliers.
The microprocessors used in the Company’s PC systems are manufactured exclusively by Intel. From time to time,

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the Company has been unable to obtain a sufficient supply of certain Intel microprocessors. Any interruption in the
supply of any of the components, subassemblies and software currently obtained from a single source or relatively
few sources, or a decrease in the general availability of any other components, subassemblies or software used in the
Company’s PC systems, could result in production delays and adversely affect the Company’s PC systems business
and results of operations.

Marketing and Customers

Semiconductor operations

The Company’s semiconductor memory products are sold primarily to PC manufacturers. The Company has a

significant market share with several large PC OEMs and intends to expand its customer base in the
telecommunications and networking hardware markets in the next year.

The Company markets its semiconductor memory products primarily through its own direct sales force. The
Company also sells products through its retail sales division, Crucial Technology, independent sales representatives
and distributors. The Company maintains semiconductor sales offices in North America, Europe and Asia. The
Company’s global presence promotes sales and marketing functions by facilitating international customer service
and allowing for expedient shipping and billing worldwide. Sales representatives are compensated on a commission
basis and obtain orders subject to final acceptance by the Company. 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. Semiconductor memory products sold through
distributors approximated 11%, 11% and 7% of semiconductor net sales in 1999, 1998 and 1997, respectively. The
Company also markets application specific DRAM under the SpecTek brand name.

The semiconductor memory industry is characterized by rapid technological change, relatively short product life

cycles, frequent product introductions and enhancements, difficult product transitions and volatile market
conditions. Historically, the semiconductor industry and the DRAM market in particular, has been highly cyclical.
DRAMs have typically been considered commodity products as most suppliers have historically produced large
volumes of the most cost-effective density. The Company’s primary semiconductor memory products are
essentially interchangeable with, and have similar functionality to, products offered by the Company’s competition.
The DRAM market is currently in the process of segmenting, with diverse memory needs being driven by the
different requirements of low-end, mid-range and high-end PC’s, servers, workstations, notebooks, hand-helds,
communications, industrial and other applications that are demanding specific memory solutions.

As manufacturers expand their business to include a wider variety of products, the Company expects to expand
its memory product offerings to meet the needs of these products, as is evidenced by the Company’s development of
DDR SDRAM and RDRAM products. The Company is dedicated to offering customers multiple DRAM solutions
and maintaining long-term support of those solutions.

Many of the Company’s customers require a thorough review or “qualification” of new semiconductor memory
products and processes each of which may take several months. As the Company further diversifies its product lines
and reduces the die sizes of existing memory products, acceptance of these products and processes is subject to this
qualification procedure. There can be no assurance that new products or processes will be qualified for purchase by
existing or potential customers.

Sales to Dell Computer Corporation represented approximately 13%, 15% and 11% of the Company’s net sales
of semiconductor memory products in 1999, 1998 and 1997, respectively. Sales to Compaq Computer Corporation
represented approximately 10% of the Company’s net sales of semiconductor memory products in 1999. No other
customer individually accounted for 10% or more of the Company’s net sales of semiconductor memory products in
1999, 1998 or 1997.

PC operations

The Company’s direct marketing approach is aimed toward PC users and companies who evaluate products
based on performance, price, reliability and service and support. The Company markets its PC systems primarily by

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strategically placing advertisements in personal computer trade publications, submitting its products for review and
evaluation by these publications and advertising its products in certain newspapers and other publications and on its
home page on the internet. The Company also markets its PC systems through direct-mail campaigns and sells a
limited number of PCs through its factory outlet store located in Boise, Idaho. In addition, the Company sells PC
systems through strategic relationships with third parties having large government procurement contracts. Pricing
and terms for such procurement contracts are generally subject to re-negotiation or termination by third parties and
governmental entities. The Company’s field sales force focuses primarily on soliciting and servicing the emerging
“mid market” comprised of medium and small sized businesses and on sales to public entities.

By focusing on the direct sales channel, the Company can avoid dealer markups typically experienced in the

retail sales channel, limit inventory carrying costs and maintain closer contact with its target markets. Direct sales
orders are received primarily via telephone, facsimile, the internet and through its direct sales force. The
Company’s sales representatives assist customers in determining system configuration, compatibility and current
pricing. Customers generally order systems configured with varying feature sets differentiated by microprocessor
speed, hard drive capacity, amount of memory, monitor size and resolution and bundled software, as well as other
features.

The Company also applies the direct marketing approach to its e-services and Subscription Computing offerings

by advertising in traditional media publications augmented by online marketing programs. In connection with its
Subscription Computing initiative, the Company is conducting television and radio advertising in selected markets.
The Company is creating an integrated marketing program under the brand name of “micronpc.com™” to effect its
e-services and Subscription Computing strategies.

International Sales

International sales totaled $1.1 billion for 1999 and included approximately $464 million in sales to Europe and
$420 million in sales to Asia Pacific. International sales approximated $599 million and $708 million for 1998 and
1997, respectively. The Company expects international sales to continue to increase as a result of increased
production from its worldwide operations.

Backlog

Semiconductor operations

Cyclical industry conditions make it difficult for many customers to enter into long-term, fixed-price contracts

and, accordingly, new order volumes for the Company’s semiconductor memory products fluctuate significantly.
Orders are typically accepted with acknowledgment that the terms may be adjusted to reflect market conditions at
the delivery date. For the foregoing reasons as well as the possibility of customer changes in delivery schedules or
cancellation of orders without significant penalty, the Company does not believe that its backlog of semiconductor
memory products as of any particular date is firm or a reliable indicator of actual sales for any succeeding period.

PC operations

Levels of unfilled orders for PC systems fluctuate depending upon component availability, demand for certain

products, the timing of large volume customer orders and the Company’s production schedules. Customers
frequently change delivery schedules and orders depending on market conditions and other reasons and the
Company generally allows the cancellation of unfilled PC orders without penalty any time prior to shipment. As of
September 2, 1999, the Company had unfilled orders for PC systems of approximately $15.6 million compared to
$22.0 million as of September 3, 1998. The Company anticipates that substantially all of the unfilled PC orders as
of September 2, 1999, other than those subsequently canceled, will be shipped within 30 days. The Company
believes that PC backlog is not indicative of actual sales of any succeeding period.

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Product Warranty

Semiconductor operations

Consistent with semiconductor memory industry practice, the Company generally provides a limited warranty

that its semiconductor memory products are in compliance with specifications existing at the time of delivery.
Liability for a stated warranty period is usually limited to replacement of defective items or return of amounts paid.

PC operations

Customers may generally return PC products purchased from the Company within a limited period of time after
shipment. Specifically, consumer customers may return PC products within 15 days for a full refund of the purchase
price, while commercial and government customers will receive a full refund if they return the product within 30
days. The Company sells desktop and notebook PC systems and servers with the Micron PowerSM limited warranty,
consisting of a five-year limited warranty on the microprocessor and main memory, a three-year limited warranty on
the hardware and one year on-site service provided by a third party. The Micron Power Limited Warranty covers
repair or replacement for defects in workmanship or materials.

Competition

Semiconductor operations

The Company’s semiconductor operations experience intense competition from a number of companies,
including Hyundai Electronics Industries Co., Ltd., Infineon Technologies AG, NEC Corporation and Samsung
Semiconductor, Inc. Some of the Company’s competitors are very large corporations or conglomerates, which may
have greater resources for research and new product development and a greater ability to withstand current or future
downturns in the semiconductor memory market. The Company’s competitors are also aggressively seeking
improved yields, smaller die size and fewer mask levels in their product designs. These improvements could result
in a significant increase in worldwide capacity leading to downward pressures on prices.

PC operations

The PC industry is highly competitive and has been characterized by intense pricing pressure, generally low
gross margin percentages, rapid technological advances in hardware and software, frequent introduction of new
products and declining component costs. Competition in the PC industry is based primarily upon brand name
recognition, performance, price, reliability and service and support. The Company’s sales of PC systems have
historically benefited from awards received from trade publications recognizing the price and performance
characteristics of the Company’s PC systems and its service and support functions. The Company competes with a
number of PC manufacturers, which sell their products primarily through direct channels, including Dell Computer
Corporation and Gateway, Inc.

The Company also competes with PC manufacturers, such as Apple Computer, Inc., Compaq Computer
Corporation, Hewlett-Packard Company, International Business Machines Corporation (“IBM”), NEC Corporation
and Toshiba Corporation among others. Several of these manufacturers, which have traditionally sold their products
through national and regional distributors, dealers and value-added resellers and retail stores, now sell their products
through the direct channel. In addition, the Company expects to face increased competition in the U.S. direct sales
market from foreign PC suppliers and from foreign and domestic suppliers of PC products that decide to implement,
or devote additional resources to, a direct sales strategy.

The Company’s initiatives in Subscription Computing and e-services face intense competition. A significant
number of enterprises have targeted the e-commerce opportunity and it is too early to determine what capabilities
the marketplace will dictate as critical for success. A large number of companies, including Verio Inc. (“Verio”)
and Concentric Network Corporation (“Concentric”), offer e-services similar to those provided and anticipated to be
provided by the Company. Further, a large number of diversified companies, such as Intel, IBM and AT&T Corp.
(“AT&T”), have indicated an intent to compete in e-services markets. Many companies competing for leadership in

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the e-services marketplace already have capabilities and strategic relationships that may prove critical for success in
the e-services marketplace.

Research and Development

Rapid technological change and intense price competition place a premium on both new product and new

process development efforts. Substantially all the Company’s research and development efforts relate to its
semiconductor operations. The Company’s continued ability to compete in the semiconductor memory market will
depend in part on its ability to continue to develop technologically advanced products and processes, of which there
can be no assurance. The Company believes that the expansion of semiconductor product offerings is necessary to
meet expected market demand for specific memory solutions and to support the customer base required for sale of
the Company’s increased production. Research and development is being performed in strategic areas related to the
Company’s semiconductor expertise and market requirements. Total research and development expenditures for the
Company were $322 million, $286 million and $224 million in 1999, 1998 and 1997, respectively.

Research and development expenses relating to the Company’s semiconductor operations vary primarily with

personnel costs, the cost of advanced equipment dedicated to new product and process development and the number
of wafers processed. Research and development efforts are focused on advanced process technology, which is the
primary determinant in transitioning to next generation products. Simultaneous research and development efforts
across multiple products prepare the Company for future product introductions and allow current products to utilize
the advanced process technology to achieve higher performance at lower production costs. Application of advanced
process technology currently is concentrated on design of shrink versions of the Company’s 64 Meg and 128 Meg
SDRAMs and on design and development of the Company’s 256 Meg SDRAM and RDRAM, DDR SDRAM, Flash
and SRAM memory products.

In 1999, the Company substantially transitioned all operations from .25µ to .21µ process technology capability.

The Company expects the transition to .18µ capability to be substantially complete in late calendar 1999. The
Company anticipates that process technology will move to .15µ line widths in the next few years as needed for the
development of future generation semiconductor products. Transitions to smaller line widths at the Company’s
international operations are expected to lag behind transitions at the Boise site by several months as process
technology development and initial manufacturing are expected to be completed first at the Boise site.

Patents and Licenses

As of September 2, 1999, the Company owned approximately 2,800 United States patents and 220 foreign
patents relating to the use of its products and processes. In addition, the Company has numerous United States and
international patent applications pending.

The Company has entered into a number of cross-license agreements with third parties. The agreements may

require one-time and/or periodic royalty payments and expire at various times. One-time payments are typically
capitalized and amortized over the shorter of the estimated useful life of the technology, the patent term or the term
of the agreement. In the future, it may be necessary or advantageous for the Company to obtain additional patent
licenses or to renew existing license agreements. The Company is unable to predict whether these license
agreements can be obtained or renewed on terms acceptable to the Company. Adverse determinations that the
Company’s manufacturing processes or products have infringed on the product or process rights held by others
could subject the Company to significant liabilities to third parties or require material changes in production
processes or products, any of which could have a material adverse effect on the Company’s business, results of
operations and financial condition. (See “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Certain Factors.”)

Employees

As of September 2, 1999, the Company had approximately 15,700 full-time employees, including

approximately 13,500 in semiconductor operations and 2,200 in PC operations. The Company has approximately

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2,400 and 1,300 employees in Singapore and Italy, respectively. The Company’s Italian employees 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 and administrative support activities. 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 an adverse effect on the Company’s results of
operations.

Environmental Compliance

Government regulations impose various environmental controls on discharges, emissions and solid wastes from

the Company’s manufacturing processes. The Company believes that its activities conform to present
environmental regulations. In 1999, MTI continued to conform to the requirements of ISO 14001 certification
including a successful independent surveillance audit. To continue certification, MTI met requirements in
environmental policy, 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 or other
government regulations, there can be no assurance that changes in such regulations will not impose the need for
additional capital equipment or other compliance requirements. Additionally, the extensive process required to
obtain permits for expansion of the Company’s facilities may impact how quickly the Company can respond to
increases in market demand.

10/57

Officers and Directors 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 November 1, 1999, the following executive officer 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
Steven R. Appleton ..........................
Donald D. Baldwin ..........................
Kipp A. Bedard ................................
Robert M. Donnelly .........................
D. Mark Durcan ...............................

Age
39
39
40
60
38

Jay L. Hawkins.................................
Joel J. Kocher...................................

Roderic W. Lewis ............................

Wilbur G. Stover, Jr. .......................

James W. Bagley..............................
Robert A. Lothrop............................
Thomas T. Nicholson.......................
Don J. Simplot .................................
Gordon C. Smith ..............................
William P. Weber ............................

39
43

60
73
63
64
70
59

Position
Chairman, Chief Executive Officer and President
Vice President of Sales and Marketing
Vice President of Corporate Affairs
Vice President of Memory Products
Chief Technical Officer and Vice President of
Research & Development
Vice President of Operations
Chairman and Chief Executive Officer of Micron
Electronics, Inc.
Vice President of Legal Affairs, General Counsel
and Corporate Secretary
Vice President of Finance and Chief Financial
Officer
Director
Director
Director
Director
Director
Director

Steven R. Appleton joined MTI in February 1983 and has served in various capacities with the Company and its

subsidiaries. Mr. Appleton first became an officer of MTI in August 1989 and has served in various officer
positions, including overseeing the Company’s semiconductor operations as President, Chief Executive Officer and
Director of Micron Semiconductor, Inc. (“MSI”), then a wholly-owned subsidiary of MTI, from July 1992 to
November 1994. From April 1991 until July 1992 and since May 1994, Mr. Appleton has served on MTI’s Board of
Directors. Since September 1994, Mr. Appleton has served as the Chief Executive Officer, President and Chairman
of the Board of Directors of MTI. Mr. Appleton also serves as a Director of MEI. Mr. Appleton holds a BA in
Business Management from Boise State University.

Donald D. Baldwin joined MTI in April 1984 and has served in various capacities with the Company and its

subsidiaries. Mr. Baldwin first became an officer of MTI in May 1991 and has served in various officer positions,
including Vice President, Sales of MSI from July 1992 to November 1994. Mr. Baldwin served as Vice President,
Sales for MTI from November 1994 through June 1997, at which time he became Vice President of Sales and
Marketing. Mr. Baldwin holds a BA in Marketing from Boise State University.

Kipp A. Bedard joined MTI in November 1983 and has served in various capacities with the Company and its
subsidiaries. Mr. Bedard first became an officer of MTI in April 1990 and has served in various officer positions,
including Vice President, Corporate Affairs of MSI from July 1992 to January 1994. Since January 1994, Mr.
Bedard has served as Vice President of Corporate Affairs for MTI. Mr. Bedard holds a BBA in Accounting from
Boise State University.

Robert M. Donnelly joined MTI in September 1988 and has served in various technical positions with the
Company and its subsidiaries. Mr. Donnelly first became an officer of MTI in August 1989 and has served in
various officer positions, including Vice President, SRAM Products Group of MSI from July 1992 to November
1994. Mr. Donnelly was named Vice President, SRAM Products Group for MTI in November 1994. Mr. Donnelly
served as Vice President, SRAM Design and Product Engineering for MTI from October 1995 through November

11/57

1996, at which time he became Vice President of Memory Products. Mr. Donnelly holds a BS in Electrical
Engineering from the University of Louisville.

D. Mark Durcan joined MTI in 1984 and has served in various technical positions with the Company and its

subsidiaries, including Process Integration Manager from December 1989 until May 1995 and Manager of Process
Research and Development from May 1995 until June 1996. Mr. Durcan served as Vice President, Process
Research and Development from June 1996 through June 1997, at which time he became Chief Technical Officer
and Vice President of Research & Development. Mr. Durcan holds a BS and MS in Chemical Engineering from
Rice University.

Jay L. Hawkins joined MTI in March 1984 and has served in various manufacturing positions for the Company
and its subsidiaries, including Director of Manufacturing for MSI from July 1992 to November 1994 and Director of
Manufacturing for MTI from November 1994 to February 1996. 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.

Joel J. Kocher joined MEI in January 1998. Prior to joining MEI, Mr. Kocher was employed by Dell Computer

Corporation from 1987 until September 1994, most recently serving as President of Worldwide Marketing, Sales
and Service. In October 1994, Mr. Kocher joined Artistsoft, where he initially served as Executive Vice President
and Chief Operating Officer and subsequently served from October 1995 until December 1996 as President, Chief
Operating Officer and Director of Artistsoft. From December 1996 until August 1997, Mr. Kocher served as
President and Chief Operating Officer at Power Computing Corporation. Since January 1998, Mr. Kocher has
served as the President of MEI and since June 1998 has also served as Chairman and Chief Executive Officer of
MEI. Mr. Kocher holds a BBA in Marketing from the University of Florida.

Roderic W. Lewis joined MTI in 1991 and has served in various capacities with the Company and its

subsidiaries, including Assistant General Counsel for MTI from August 1993 to April 1995. From April 1995 to
July 1996, Mr. Lewis served as Vice President, General Counsel and Corporate Secretary for MEI. Mr. Lewis
served as Vice President, General Counsel and Corporate Secretary for MTI from July 1996 until November 1996,
at which time he became Vice President of Legal Affairs, General Counsel and Corporate Secretary. Mr. Lewis
holds a BA in Economics and Asian Studies from Brigham Young University and a JD from Columbia University
School of Law.

Wilbur G. Stover, Jr. joined MTI in June 1989 and has served in various financial positions with the Company

and its subsidiaries, including Vice President, Finance and Chief Financial Officer of MSI from August 1992 to
September 1994. Since September 1994, Mr. Stover has served as MTI’s Chief Financial Officer and Vice
President of Finance. From October 1994 through September 1996, Mr. Stover served on MTI’s Board of Directors.
Mr. Stover holds a BA in Business Administration from Washington State University.

James W. Bagley became the Chairman and Chief Executive Officer of Lam Research Corporation (“Lam”) in
August 1997, upon consummation of a merger of OnTrak Systems, Inc. (“OnTrak”) into Lam. From June 1996 to
August 1997, Mr. Bagley served as the Chairman and Chief Executive Officer of OnTrak. Prior to joining OnTrak,
Mr. Bagley was employed by Applied Materials, Inc. for 15 years in various senior management positions, including
Chief Operating Officer and Vice Chairman of the Board. Mr. Bagley currently is a Director of KLA-Tencor
Corporation, Teradyne, Inc. and Kulicke & Soffe Industries, Inc. He has served on MTI’s Board of Directors since
June 1997. Mr. Bagley holds a BS in Electrical Engineering and MS in Electrical Engineering from Mississippi
State University.

Robert A. Lothrop served as Senior Vice President of the J.R. Simplot Company from January 1986 until his
retirement in January 1991. From August 1986 until July 1992 and since May 1994, Mr. Lothrop has served on the
Board of Directors of MTI. From July 1992 until November 1994, he served as a Director of MSI. Mr. Lothrop
also serves as a Director of MEI. Mr. Lothrop holds a BS in Engineering from the University of Idaho.

Thomas T. Nicholson has served as Vice President and a Director of Honda of Seattle and Toyota of Seattle
since 1988. Mr. Nicholson has also served since 1982 as President of Mountain View Equipment Company and
since 1962 has been a partner of CCT Land & Cattle. He has served on MTI’s Board of Directors since May 1980.
Mr. Nicholson holds a BS in Agriculture from the University of Idaho.

12/57

Don J. Simplot served as the President of Simplot Financial Corporation, a wholly-owned subsidiary of the J.R.

Simplot Company, from February 1985 until January 1992. Since 1955, Mr. Don J. Simplot has served in various
capacities with the J.R. Simplot Company and presently serves as a Corporate Vice President. Since April 1994, he
has also served as a member of the Office of the Chairman of the J.R. Simplot Company. He has served on MTI’s
Board of Directors since February 1982. Mr. Don Simplot is also a Director of AirSensors, Inc.

Gordon C. Smith has served as President of Wesmar, Inc. since September 1996 and has served as Secretary
and Treasurer of SSI Management Corp. since September 1994. Mr. Smith served in various management positions
from July 1980 until January 1992 for Simplot Financial Corporation, a wholly-owned subsidiary of the J.R.
Simplot Company. From May 1988 until his retirement in March 1994, Mr. Smith served as the President and Chief
Executive Officer of the J.R. Simplot Company. From February 1982 until February 1984 and since September
1990, he has served on MTI’s Board of Directors. Mr. Smith holds a bachelor’s degree in Accounting from Idaho
State University.

William P. Weber served in various capacities with Texas Instruments Incorporated and its subsidiaries from
1962 until April 1998. From December 1986 until December 1993 he served as the President of Texas Instrument’s
worldwide semiconductor operations and from December 1993 until his retirement in April 1998, he served as Vice
Chairman of Texas Instruments Incorporated. He is a member of the Board of Directors of Kmart Corporation and
Unigraphics Solutions, Inc. He has served on MTI's Board of Directors since July 1998. Mr. Weber holds a BS in
Engineering from Lamar University and a MS in Engineering from Southern Methodist University.

There is no family relationship between any director or executive officer of the Company.

13/57

Item 2. Properties

Semiconductor operations

The Company’s corporate headquarters and principal semiconductor manufacturing, engineering, administrative

and support facilities are located on an approximately 830 acre site in Boise, Idaho. All facilities have been
constructed since 1981 and are owned by the Company. The Company has approximately 1.9 million square feet of
building space at this primary site. Of the total, approximately 494,000 square feet is production space, 633,000
square feet is facility support space and 770,000 square feet is office and other space.

The Company also has a number of additional properties including a 590,000 square foot wafer fabrication
facility located on 61 acres in Avezzano, Italy and a 532,000 square foot assembly and test facility located on 7
acres in Singapore. The Avezzano facility is comprised of 115,000 square feet of production space, 251,000 square
feet of facility support space and 224,000 of office and other space. The Singapore assembly and test facility is
comprised of 205,000 square feet of production space, 186,000 square feet of facility support space and 141,000
square feet of office and other space. Approximately 15,000 square feet out of a total 418,000 square foot wafer
fabrication facility at the Richardson facility is being used for design engineering.

In 1995, the Company initiated construction of an approximate 2 million square foot semiconductor memory

manufacturing facility located on 2,400 acres in Lehi, Utah. Completion of this facility was suspended in February
1996 as a result of the decline in average selling prices for semiconductor memory products. As of September 2,
1999, the Company had incurred construction costs of $707 million to build the existing structure. Market
conditions for semiconductor memory products will dictate when the Lehi complex is completed.

Equipment with a net book value of approximately $200 million was pledged as collateral for outstanding debt
and capital leases as of September 2, 1999. Substantially all of the Company’s facilities and equipment at the Boise
and Lehi sites not otherwise collateralized for outstanding debt and capital leases is pledged as collateral for MTI’s
$400 million credit agreement.

PC Operations

The Company’s PC operations are based in a number of MEI-owned or leased facilities aggregating
approximately 625,000 square feet located in Nampa, Idaho. Approximately 215,000 square feet of the Nampa
facilities are dedicated to PC manufacturing. The balance of the Nampa facilities is dedicated to sales, technical
support, customer service, administrative functions, semiconductor operations and warehouse space. MEI leases a
81,000 square foot facility in Minneapolis, Minnesota, dedicated primarily to PC sales, technical support and
administrative functions and a 74,000 square foot facility in Meridian, Idaho, dedicated to a PC call center.

Item 3. Legal Proceedings

The Company is a party in various legal actions arising out of the normal course of business. (See “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations–Certain 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 1999.

14/57

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market for Common Stock

MTI’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 MTI’s common stock for each quarter of
1999 and 1998, as reported by The Wall Street Journal.

1999:

4th quarter .......................
3rd quarter .......................
2nd quarter ......................
1st quarter........................

1998:

4th quarter .......................
3rd quarter .......................
2nd quarter ......................
1st quarter........................

High

Low

$ 75.250
59.937
79.500
47.625

$ 35.250
34.938
38.000
45.312

$ 38.063
34.500
46.875
25.062

$ 20.125
23.813
22.000
23.125

Holders of Record

As of October 29, 1999, there were 4,955 shareholders of record of MTI’s common stock and one

shareholder of record of MTI’s Class A Common Stock.

Dividends

MTI did not declare or pay any dividends during 1999 or 1998. Future dividends, if any, will vary

depending on MTI’s profitability and anticipated capital requirements.

Item 6. Selected Financial Data

1999

Net sales.......................................................
Gross margin................................................
Operating income (loss) ...............................
Net income (loss) .........................................
Diluted earnings (loss) per share..................
Cash dividend declared per share.................
Current assets ...............................................
Property, plant and equipment, net ..............
Total assets...................................................
Current liabilities .........................................
Long-term debt.............................................
Shareholders’ equity ....................................

$ 3,764.0
813.6
(47.0)
(68.9)
(0.26)
--
2,830.0
3,799.6
6,965.2
922.0
1,527.5
3,964.1

1996

1998

1997
(Amounts in millions, except for per share data)
$ 3,653.8
$ 3,523.2
$ 3,025.3
1,455.4
974.8
280.4
940.5
374.1
(516.4)
593.5
315.0
(247.1)
2.78
1.44
(1.15)
0.15
--
--
964.0
1,983.4
1,500.9
2,708.1
2,763.9
3,035.3
3,751.5
4,876.9
4,703.5
664.5
753.2
745.7
314.6
758.8
762.3
2,502.0
2,904.2
2,701.3

1995

$ 2,952.7
1,624.0
1,307.8
844.1
4.00
0.15
1,274.1
1,385.6
2,774.9
604.8
129.4
1,896.2

Certain Fiscal 1998 and 1997 amounts have been restated as a result of a merger with Rendition, Inc. which was

accounted for as a business combination using the pooling-of-interests method.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Certain

Factors.”

15/57

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

On September 30, 1998, MTI completed the acquisition of substantially all of the semiconductor memory
operations of Texas Instruments Incorporated (“TI”). As a result of the acquisition, the Company now operates a
wafer fabrication facility in Avezzano, Italy, an assembly and test facility in Singapore and a design engineering
center in Richardson, Texas. MTI also has interests in two joint venture wafer fabrication facilities located in
Singapore and Japan. The Company's results of operations for fiscal 1999 reflect eleven months results of
operations for the acquired operations.

The following discussion contains trend information and other forward-looking statements (including, for
example, statements regarding future operating results, future capital expenditures and facility expansion, new
product introductions, technological developments, acquisitions and the effect thereof and industry trends) that
involve a number of risks and uncertainties. The Company’s actual results could differ materially from the
Company’s historical results of operations 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 “Certain Factors.”
This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes.
All period references are to the Company’s fiscal periods ended September 2, 1999, September 3, 1998, or August
28, 1997, unless otherwise indicated. All per share amounts are presented on a diluted basis unless otherwise
stated. All 1998 and 1997 financial data of the Company has been restated to include the results of operations of
Rendition, Inc., which was merged with the Company on September 11, 1998.

In connection with the preparation of its Consolidated Financial Statements for 1999, the Company

16/57

Results of Operations

Net sales:

1999

1998
(dollars in millions)

1997

Semiconductor operations .........................
PC operations ............................................
All other ....................................................
Intersegment..............................................

$ 2,569.7
1,239.9
5.2
(50.8)

68%
33%
0%
(1)%

$ 1,421.2
1,497.6
167.3
(60.8)

47%
50%
5%
(2)%

$ 1,772.4
1,529.3
387.8
(166.3)

50%
44%
11%
(5)%

Consolidated net sales ....................................

$ 3,764.0

100%

$ 3,025.3

100%

$ 3,523.2

100%

Operating income (loss):

42.8
(32.3)
(58.3)
0.8

Consolidated operating income (loss).............

(47.0)

Net income (loss)............................................

(68.9)

(370.6)
(108.8)
(36.9)
(0.1)

(516.4)

(247.1)

311.7
76.2
(13.8)
0.0

374.1

315.0

Earnings (loss) per share.................................

(0.26)

(1.15)

1.44

Financial information for “All other” segments of the Company in 1999 primarily reflects the operating results

for the Company’s flat panel and radio frequency identification (“RFID”) operations. Financial information for “All
other” segments in 1998 and 1997 also reflects operating results for the Company’s former contract manufacturing
and construction subsidiaries. Results of operations for 1999 were adversely affected by $24 million in combined
charges related to the Company’s flat panel display and RFID operations. In the third quarter of 1999, the Company
sold certain of its flat panel display assets to PixTech, Inc. In the fourth quarter of 1999, the Company’s majority
owned RFID subsidiary, Micron Communications, Inc., ceased operations. (See “Other Operating Expense
(Income).”)

Intersegment sales represent sales between different segments of the Company and are eliminated to arrive at
consolidated net sales. Intersegment sales for 1999 and 1998 are primarily comprised of sales from the Company’s
semiconductor operations segment to the Company’s PC operations segment. Intersegment sales for 1998 and 1997
also include intersegment sales generated by the Company’s construction and contract manufacturing subsidiaries,
both of which have been sold. All other net sales for 1998 and 1997 include sales of $145.7 million and $292.4
million, respectively, from MEI’s contract manufacturing subsidiary, which was sold in February 1998. (See “Notes
to Consolidated Financial Statements - Operating Segment and Geographic Information.”)

Net Sales

Consolidated net sales for 1999 increased by 24% compared to 1998, principally due to an increase in the
volume of semiconductor memory sold, partially offset by an approximate 37% decline in average selling prices of
semiconductor memory products. Consolidated net sales in 1998 decreased by 14% compared to 1997, principally
due to an approximate 60% decline in average selling prices of semiconductor memory products.

Net sales from the Company’s semiconductor operations for 1999 increased by 81% as compared to 1998, due

primarily to a 187% increase in total megabits of semiconductor memory shipped, partially offset by the 37%
decline in average selling prices of semiconductor memory products. This increase in shipments occurred as a result
of increased product availability from continued improvements in manufacturing efficiencies due to shifts in the
Company’s mix of semiconductor memory products to higher average density products, ongoing transitions to
successive reduced die size (“shrink”) versions of existing memory products and, to a lesser extent, additional output
from the Company’s acquired international operations and joint ventures.

17/57

The Company’s primary memory product in 1999 was the 64 Meg Synchronous DRAM (“SDRAM”), which
comprised approximately 68% of the net sales of semiconductor memory for the period. The Company’s primary
memory product in 1998 and 1997 was the 16 Meg DRAM (inclusive of both EDO DRAM and SDRAM), which
comprised approximately 74% and 80%, respectively, of net sales of semiconductor memory. Average selling
prices for the Company’s primary product, the 64 Meg SDRAM, declined by 22% for 1999 as compared to 1998.

Net sales from semiconductor operations for 1998 decreased by 20% compared to 1997, primarily due to an
approximate 60% decline in average selling prices of semiconductor memory products for the year, partially offset
by a 110% increase in total megabits of semiconductor memory shipped. The increase in megabits shipped was
principally a result of shifts in the Company’s mix of semiconductor memory products to a higher average density,
transitions to successive shrink versions of existing products and improved manufacturing yields on existing
products.

Net sales from the Company’s PC operations for 1999 were 17% lower compared to 1998 primarily due to a

12% decrease in average selling prices for the Company’s PC systems and to a lesser extent, a 2% decrease in unit
sales. The decline in average selling prices for the Company’s desktop, notebook and server system sales, was 11%,
16% and 15%, respectively. The decline in average selling prices for the Company’s PC systems was primarily a
result of continued price competition in the PC industry. The 2% decrease in unit sales in 1999 is primarily
attributed to a 3% decrease in sales of the Company’s desktop computer systems, which was partially offset by a
30% increase in sales of the Company’s server systems.

Net sales from PC operations for 1998 were flat compared to 1997 primarily due to a 11% decrease in average

selling prices for the Company’s PC systems offset by an increase in unit sales and a higher level of non-system
revenue. The decline in average selling prices was primarily attributable to a 12% decrease in the selling prices for
the Company’s desktop PC systems and a 24% decline in selling prices for notebook systems. Lower prices were
largely the result of industry price competitiveness, particularly for notebook products and to the Company’s efforts
to price its products more in line with its competition. Unit sales were 5% higher in 1998 compared to 1997 due
primarily to a 49% increase in unit sales of the Company’s notebook products.

Gross Margin

Gross margin ..................................................
as a % of net sales...........................................

$ 813.6

190.2%

21.6%

1999

% Change

1998
(dollars in millions)
$280.4

9.3%

% Change

1997

(71.2)%

$974.8

27.7%

The increase in the Company’s overall gross margin for 1999 as compared to 1998 is primarily attributable to the

Company’s semiconductor operations and is principally the result of decreases in per megabit manufacturing costs,
partially offset by a 37% decline in average selling prices. The decrease in gross margin percentage for 1998
compared to 1997 was principally the result of lower gross margin percentages on sales of the Company’s
semiconductor memory products resulting primarily from a 60% decline in average selling prices.

The gross margin percentage for the Company’s semiconductor operations for 1999 was 25%, compared to 6%

for 1998. The gross margin increase was due to comparative decreases in per megabit manufacturing costs which
were achieved primarily through continued improvements in manufacturing efficiencies principally due to shifts in
the Company’s mix of semiconductor memory products to a higher average density and transitions to shrink versions
of existing products. The effect of these factors was partially offset by the 37% overall decrease in average selling
prices for 1999 as compared to 1998 and, to a lesser extent, the inclusion of eleven months of results for the acquired
international operations which had higher per unit manufacturing costs.

In connection with the acquisition of substantially all of TI’s memory operations in September 1998, subject to

certain terms and conditions, MTI has agreed to purchase all of the production from two joint venture wafer
fabrication facilities, TECH Semiconductor Singapore Pte. Ltd. (“TECH”) and KMT Semiconductor Limited
(“KMT”). TECH and KMT are collectively referred to herein as the “JVs.” MTI purchases semiconductor memory
products from the JVs at prices generally determined quarterly and based on a discount from the Company’s average
selling prices. MTI is a party to various agreements with the JVs whereby MTI provides technology, engineering
support and training to the JVs. MTI also performs assembly and test services on product

18/57

manufactured by the JVs. All transactions with the JVs are recognized as part of the net cost of products purchased
from the JVs. The Company realized substantially lower gross margins for sales of JV products than for products
manufactured by its wholly-owned facilities in 1999.

The gross margin percentage for the Company’s semiconductor operations for 1997 was 39%. The decrease in
the gross margin percentage for the Company’s semiconductor operations for 1998 compared to 1997 was primarily
the result of the 60% decline in average selling prices for the year, partially offset by a decline in per megabit
manufacturing costs. Decreases in per megabit manufacturing costs resulted principally from shifts in the Company’s
mix of semiconductor memory products to a higher average density, transitions to successive shrink versions of
existing products and improved manufacturing yields.

The gross margin percentage for the Company’s PC operations was 15% in 1999 as compared to 12% in 1998.

The increase for the PC operations gross margin is principally due to lower component costs and a change in the
sales mix towards higher margin systems, partially offset by a decline in average selling prices. The Company
continues to experience significant pressure on its gross margins as a result of intense competition in the PC industry
and consumer expectations of more powerful PC systems at lower prices. In addition, the Company’s gross margin
percentage will continue to depend in large part on its ability to effectively manage its inventories of PC system
components.

The gross margin percentage for the Company’s PC operations for 1997 was 17%. The gross margin
percentage for PC operations decreased in 1998 compared to 1997 primarily as a result of significantly lower
margins realized on sales of the Company’s notebook systems as a result of intense price pressure on these products
during the year and due to losses realized from disposition of PC component inventories. The Company’s gross
margin in 1998 was favorably affected, however, by an adjustment made in the fourth quarter of $12 million related
to revisions of estimates for certain contingencies for product and process technology costs.

Selling, General and Administrative

Selling, general and administrative.................
as a % of net sales...........................................

$486.0

12.9%

2.1%

$ 476.1

24.4%

15.7%

$382.7

10.9%

1999

% Change

1998
(dollars in millions)

% Change

1997

Selling, general and administrative expenses were relatively flat in 1999 as compared to 1998. Selling, general

and administrative expenses associated with the Company’s semiconductor operations increased significantly for
1999 as compared to 1998 and include approximately $43 million in expenses associated with the international
operations acquired from TI. Selling, general and administrative expenses for the Company’s PC operations
decreased substantially for these comparative periods primarily as a result of enhanced operational efficiencies and
cost reductions and the sale of 90% of MEI’s interest in its contract manufacturing subsidiary in 1998. As the
Company’s semiconductor operations and PC operations grow, selling, general and administrative expenses are
expected to increase in future periods as a result of increased personnel, advertising and other costs necessary to
support the expanding operations.

Selling, general and administrative expenses were higher in 1998 as compared to 1997 primarily due to
increased expenses associated with the Company’s PC operations. The higher level of selling, general and
administrative expenses for the Company’s PC operations was principally due to higher levels of personnel,
advertising and technical and professional fees associated with information technology consulting services. The
higher selling, general and administrative expenses for 1998 were partially offset by a lower level of performance
based compensation than in 1997.

Research and Development

Research and development .............................
as a % of net sales...........................................

$ 322.1

12.5%

$ 286.4

27.9%

$ 223.9

8.6%

9.5%

6.4%

1999

% Change

1998
(dollars in millions)

% Change

1997

19/57

Substantially all the Company’s research and development efforts relate to its semiconductor operations.
Research and development expenses vary primarily with personnel costs, the cost of advanced equipment dedicated
to new product and process development and the number of wafers processed. The increase in research and
development expenses in 1999 as compared to 1998 is primarily due to increased personnel costs. Research and
development efforts are focused on advanced process technology, which is the primary determinant in transitioning
to next generation and future products. Simultaneous research and development efforts across multiple products
prepare the Company for future product introductions and allow current products to utilize the advanced process
technology to achieve higher performance at lower production costs. Application of advanced process technology
currently is concentrated on design of shrink versions of the Company’s 64 Meg and 128 Meg SDRAMs and on
design and development of the Company’s 256 Meg SDRAM and direct Rambus DRAM (“RDRAM”), Double
Data Rate (“DDR”) SDRAM, Flash and SRAM memory products. Other research and development efforts are
currently devoted to the design and development of embedded memory products and PC core logic.

In 1999, the Company substantially completed the transition of its operations from .25µ to .21µ process
technology. The Company expects the transition to .18µ capability to be substantially complete in late calendar
1999. The Company anticipates that process technology will move to .15µ line widths in the next few years as
needed for the development of future generation semiconductor products. Transitions to smaller line widths at the
Company’s international operations are expected to lag behind transitions at the Boise site by several
months as process technology development and initial manufacturing are expected to be completed first at the Boise
site.

Other Operating Expense (Income)

Other operating expense for 1999 includes a $15 million charge from the write down and disposal of flat panel
display assets, a loss of $12 million from the write down and disposal of semiconductor operations equipment, a $9
million charge resulting from the discontinuation of the Company’s RFID efforts and $6 million in employee stock
compensation expense related to the 1999 acquisition of substantially all of the semiconductor memory operations of
TI and the 1998 purchase of the minority interest in the Company’s subsidiary, Micron Quantum Devices, Inc.

Other operating expense for 1998 includes a loss of $14 million from the write down and disposal of

semiconductor manufacturing equipment and charges associated with the Company’s PC operations of $11 million
resulting from employee termination benefits and consolidation of domestic and international operations and $5
million from the write off of software development costs.

Gain on Sale of Investments and Subsidiary Stock

In February 1998, MEI sold 90% of its interest in its contract manufacturing subsidiary, Micron Custom
Manufacturing Services, Inc. for cash proceeds of $249 million, resulting in a pre-tax gain to the Company of $157
million (approximately $38 million or $0.18 per share after taxes and minority interests).

In a public offering in February 1997, MTI sold 12.4 million shares of MEI common stock for net proceeds of

$200 million and MEI sold 3 million newly issued shares for net proceeds of $48 million, resulting in a consolidated
pre-tax gain of $190 million. The sales reduced the Company’s ownership of the outstanding MEI common stock
from approximately 79% to approximately 64%. The Company also recorded pre-tax gains totaling $22 million for
1997 relating to sales of investments. Diluted earnings per share for 1997 benefited by $0.50 from these gain
transactions.

Income Tax Provision (Benefit)

The effective tax rate for 1999, 1998 and 1997 was 39%, 36% and 43%, respectively. The effective tax rate
primarily reflects the following: (i) the statutory corporate income tax rate and the net effect of state taxation, (ii)
the effect of taxes on the parent of the earnings or loss of domestic subsidiaries not consolidated with the Company
for federal income tax purposes, (iii) in 1999, the impact of a $10 million valuation allowance recorded for a
deferred tax asset relating to realizability of certain tax credit carryforwards and (iv) in 1998, the impact of a $4
million valuation allowance recorded for a deferred tax asset relating to MEI’s consolidation of its NetFRAME
enterprise server operations. The relatively higher effective tax rate in 1997 was principally due to the provision for

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income taxes by the Company on earnings of its domestic subsidiaries and the gain on the sale of MEI common
stock by the Company and the issuance of common stock by MEI in 1997. Taxes on earnings of domestic
subsidiaries not consolidated for tax purposes may cause the effective tax rate to vary significantly from period to
period. In 1999, certain of the Company’s foreign operations were granted favorable tax treatment. The Company
expects to permanently reinvest earnings from these foreign operations and anticipates a favorable impact on its
effective tax rate in future periods as a result.

Recently Issued Accounting Standards

Recently issued accounting standards include Statement of Position (“SOP”) 98-1 “Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,” issued by the AICPA in March 1998 and Statement of
Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging
Activities,” issued by the FASB in June 1998.

SOP 98-1 requires companies to capitalize certain costs of computer software developed or obtained for internal

use. The Company, which currently capitalizes costs of purchased internal-use computer software and expenses
costs of internally developed internal-use software as incurred, is adopting the standard in the first quarter of fiscal
2000 for developmental costs incurred in that quarter and thereafter. The adoption is expected to result in an initial
decrease in selling, general and administrative expense due to the capitalization of certain business system software
costs that were not capitalized under the Company’s past practice. Subsequent period expenses are expected to
reflect a higher level of depreciation expense resulting from the relatively higher carrying value of the Company’s
capitalized software accounted for under SOP 98-1.

SFAS No. 133 requires that all derivatives be recorded as either assets or liabilities in the balance sheet and
marked to market on an ongoing basis. SFAS No. 133 applies to all derivatives including stand-alone instruments,
such as forward currency exchange contracts and interest rate swaps, or embedded derivatives, such as call options
contained in convertible debt investments. The underlying hedged items are to be marked to market on an ongoing
basis along with the derivatives. These market value adjustments are to be included either in the statement of
operations or as a component of comprehensive income, depending on the nature of the transaction. Implementation
of SFAS No. 133 is required for the Company by the first quarter of 2001. Given the Company’s current business
practices, the implementation of SFAS 133 is not expected to have a significant impact on the Company’s future
results of operations or financial position.

Liquidity and Capital Resources

As of September 2, 1999, the Company had cash and liquid investments totaling $1.6 billion, representing an
increase of $1.0 billion during 1999. In the first quarter of 1999, the Company received $681 million in conjunction
with the acquisition of substantially all of TI’s memory operations and $500 million from the sale of stock to Intel
Corporation. The Company’s other principal source of liquidity during 1999 was net cash flow from operations of
$848 million. The principal uses of funds during 1999 were $804 million for property, plant and equipment
expenditures and $421 million for repayments of equipment contracts and debt.

The Company believes that in order to develop new product and process technologies, support future growth,
achieve operating efficiencies and maintain product quality, it must continue to invest in manufacturing technology,
facilities and capital equipment, research and development, and product and process technology. The Company
currently estimates it will spend approximately $1.1 billion in the next fiscal year for purchases of equipment and for
construction and improvement of buildings. As of September 2, 1999, the Company had entered into contracts
extending into 2003 for approximately $720 million for equipment purchases and approximately $40 million for the
construction of facilities.

The Company has an aggregate of $500 million in revolving credit agreements, including a $400 million
secured agreement expiring in May 2000 which contains certain restrictive covenants pertaining to the Company’s
semiconductor operations, including a maximum total debt-to-equity ratio. As of September 2, 1999, the Company
was in compliance with all covenants under the facilities and had no borrowings outstanding under the agreements.

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There can be no assurance that the Company will continue to be able to meet the terms of the covenants and
conditions in the agreements, borrow under the agreements or negotiate satisfactory successor agreements.

As of September 2, 1999, approximately $340 million of the Company’s consolidated cash and liquid
investments were held by MEI. Cash generated by MEI is not readily available to finance operations or other
expenditures of MTI’s semiconductor operations.

Year 2000

Like many other companies, the Year 2000 computer issue creates risks for the Company. If internal systems
do not correctly recognize and process date information beyond the year 1999, the Company’s operations could be
adversely impacted as a result of system failures and business interruption.

The Company began addressing the Year 2000 computer issue in early 1996. To manage its Year 2000
program, the Company divided its efforts into the primary program areas of: (i) information technology (“IT”),
which includes computer and network hardware, operating systems, purchased development tools, third-party and
internally developed software, files and databases, end-user extracts and electronic interfaces, (ii) embedded
technology within manufacturing and facilitation equipment and (iii) external dependencies, which include
relationships with suppliers and customers.

The Company followed four general steps for each of these program areas: “Ownership,” wherein each

department manager was assigned ownership for the various Year 2000 issues to be tested; “Identification” of
systems and equipment and collection of Year 2000 data in a centralized place to track results of compliance testing
and subsequent remediation; “Compliance Testing,” which included the determination of the specific test routine to
be performed on the software or equipment and determination of Year 2000 compliance for the item being tested
and “Remediation,” which involves implementation of corrective action, verification of successful implementation,
finalization of and, if need be, execution of contingency plans.

As of September 2, 1999, the Ownership and Identification steps were complete for all three program areas: IT,

manufacturing and facilitation equipment and external dependencies. The Company is relying in part on TI
computer networks, information technology services and licensed software with respect to certain of its international
semiconductor operations. In September 1999, the Company implemented new business systems which have
eliminated much of the Company’s dependence on TI systems and the Company is working aggressively to remove
any remaining dependence on TI systems by the end of calendar 1999. However, some dependency upon TI
systems may continue into calendar year 2000 and Year 2000 issues could arise.

Compliance Testing and Remediation efforts for the Company’s manufacturing and facilitation equipment are
substantially complete. The Company is working with suppliers of products and services to determine and monitor
their level of compliance and Compliance Testing. Year 2000 readiness of significant customers is also being
assessed. The Company’s evaluation of Year 2000 compliance as it relates to the Company’s external dependencies
is substantially complete.

As of September 2, 1999, the Company had incurred aggregate incremental costs of approximately $5.5 million

and estimates it will spend an additional $500,000 to $1 million to address the Year 2000 issue.

With respect to Remediation, the Company has prepared various types of contingency plans to address potential

problem areas with internal systems and with suppliers and other third parties. Internally, each software and
hardware system has been assigned to on-call personnel who are responsible for bringing the system back on line in
the event of a failure. Externally, the Company’s Year 2000 plans include identification of alternate sources for
providers of goods and services. The Company’s internal contingency plans are complete and its external
contingency plans are substantially complete.

All PC hardware products shipped by the Company since August 26, 1996 are Year 2000 compliant.

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Certain 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.

The semiconductor memory industry is characterized by rapid technological change, frequent product

introductions and enhancements, difficult product transitions, relatively short product life cycles and volatile market
conditions. These characteristics historically have made the semiconductor industry highly cyclical, particularly in
the market for DRAMs, which are the Company’s primary products. The semiconductor industry has a history of
declining average sales prices as products mature. Long-term average decreases in sales prices for semiconductor
memory products approximate 30% on an annualized basis; however, significant fluctuations from this rate have
occurred from time to time, including in recent years.

The selling prices for the Company’s semiconductor memory products fluctuate significantly with real and
perceived changes in the balance of supply and demand for these commodity products. Growth in worldwide supply
outpaced growth in worldwide demand in recent years, resulting in a significant decrease in average selling
prices for the Company’s semiconductor memory products. The semiconductor industry in general and the DRAM
market, in particular, experienced a severe downturn. Average per megabit prices declined approximately 37%
comparing 1999 to 1998, following a 60% decline comparing 1998 to 1997 and a 75% decline comparing 1997 to
1996. Although the Company has experienced improvements in per megabit prices beginning late in the fourth
quarter of 1999 and continuing into the first weeks of fiscal 2000, the Company is unable to predict pricing
conditions for future periods. In the event that average selling prices decline at a faster rate than the rate at which
the Company is able to decrease per unit manufacturing costs, the Company’s operations, cash flows and financial
condition would be adversely affected.

The Company and its competitors are seeking improved yields, smaller die size and fewer mask levels in their

product designs. These improvements could result in a significant increase in worldwide capacity leading to further
downward pressures on prices. The increase in worldwide semiconductor memory production resulting from the
Company’s full utilization of its international wafer fabrication operations and the transfer of its product and process
technology to these operations may result in further downward pricing pressure on semiconductor memory products.
In addition, consolidation by competitors in the semiconductor memory industry could provide competitors with
greater capital resources and create the potential for greater worldwide investment in semiconductor memory
capacity, which could exert further downward pressure on prices. Many of the Company’s Asian semiconductor
memory competitors have been impacted by deteriorating economic conditions in Asia, resulting in decreased
capital investment by Asian DRAM manufacturers. Increased sources of capital in Asia to finance technology
advancements and expansion projects could result in a significant increase in worldwide supply leading to further
downward pricing pressure.

The PC market continues to consume the majority of the Company’s semiconductor production. In 1999,
approximately 81% of the Company’s sales of semiconductor memory products were into the PC or peripheral
markets. DRAMs are the most widely used semiconductor memory component in most PC systems. Should the
rate of growth for PC industry units decrease or the rate of growth in the amount of memory per PC system
decrease, the growth rate for sales of semiconductor memory could also decrease, placing further downward
pressure on selling prices for the Company’s semiconductor memory products. While the economic impact has not
yet been fully determined, the recent earthquake disaster in Taiwan could disrupt the supply of PC components,
thereby slowing production in the PC industry and possibly slowing near-term demand for memory. The Company
is unable to predict changes in industry supply, major customer marketing or inventory management strategies or
end user demand, which are significant factors that influence prices for the Company’s semiconductor memory
products.

Over the past several years, the Company’s productivity gains have continued to increase its semiconductor

memory output. In recent periods, the Company has sold this additional semiconductor memory output by
increasing its market share with several of the Company’s larger OEM customers and through sales to a broader
customer base including accounts of lesser size and potentially lesser financial stability. In the event the Company
is unable to further increase its market share with OEM customers, broaden its customer base, or if the Company

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experiences reductions in the level of OEM orders, the Company’s results of operations and cash flows could be
adversely affected.

The Company’s semiconductor operations experience intense competition from a number of companies,
including Hyundai Electronics Industries Co., Ltd., Infineon Ltd., NEC Corporation and Samsung Semiconductor,
Inc. Some of the Company’s competitors may have long-term advantages in research and development and in their
ability to withstand current or future downturns in the semiconductor memory market.

The semiconductor memory industry is characterized by frequent product introductions and enhancements. The

Company’s ability to reduce per unit manufacturing costs of its semiconductor memory products is largely
dependent on its ability to design and develop new generation products and shrink versions of existing products and
its ability to ramp such products at acceptable rates to acceptable yields, of which there can be no assurance. As the
semiconductor industry transitions to higher bandwidth products including DDR SDRAM and RDRAM, the
Company may encounter difficulties in achieving the semiconductor manufacturing efficiencies that it has
historically achieved. The Company's productivity levels, die per wafer yields and in particular, backend assembly
and test equipment requirements are expected to be affected by a transition to higher bandwidth products, likely
resulting in higher per megabit production costs. There can be no assurance that the Company will successfully
transition to these products or that it will be able to achieve its historical rate of cost per megabit reductions.

The Company is engaged in ongoing efforts to enhance its production processes to reduce per unit costs by
reducing the die size of existing products. The result of such efforts has generally led to significant increases in
megabit production. There can be no assurance that the Company will be able to maintain or approximate the rate of
increase in megabit production at a level approaching that experienced in recent years or that the Company will not
experience decreases in manufacturing yield or production as it attempts to implement future technologies. Further,
from time to time, the Company experiences volatility in its manufacturing yields, as it is not unusual to encounter
difficulties in ramping latest shrink versions of existing devices or new generation devices to commercial volumes.

The raw materials utilized by the Company’s semiconductor operations generally must meet exacting product

MTI expects to complete the transfer of its .18µ product and process technology capability to the JVs in late

calendar 1999. Subject to certain terms and conditions, MTI has agreed to purchase all of the JV production.
Historically, the JVs have required external financing to fund operations and to transition to the latest generation
technologies in a timely or efficient manner. The JVs are also dependent on certain key personnel and on a limited
number of sources for certain raw materials. In the event either of the JVs are unable to secure required external
financing, experience a loss of key personnel, or incur significant interruption in the delivery of raw materials, the
Company would experience a reduction in supply of product from the JVs. Any reduction of supply could adversely
affect the Company’s results of operations and cash flows.

The Company’s operating results are significantly impacted by the operating results of MEI. MEI’s past
operating results have been, and its future operating results may be, subject to seasonality and other fluctuations, on
a quarterly and an annual basis, as a result of a wide variety of factors, including, but not limited to, industry
competition, MEI’s ability to accurately forecast demand and selling prices for its PC products, declining PC prices,
seasonal government purchasing cycles, inventory obsolescence, MEI’s ability to effectively manage inventory
levels, changes in product mix, manufacturing and production constraints, fluctuating component costs, the effects
of product reviews and industry awards, critical component availability, seasonal cycles common in the PC industry,
the timing of new product introductions by MEI and its competitors and global market and economic conditions.

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recognition and market share, offer broader product lines and have substantially greater financial, technical,
marketing and other resources than the Company. The Company’s PC competitors may also benefit from
component volume purchasing and product and process technology license arrangements that are more favorable in
terms of pricing and availability than the Company's arrangements. In addition, the Company may be at a relative
cost disadvantage to certain of its competitors as a result of the Company’s U.S. dollar denominated purchases of PC
components during a period of relative weakening of the U.S. dollar. The failure of the Company to compete
effectively in the PC marketplace could have a material adverse effect on the Company's business, financial
position, results of operations and cash flows.

The Company’s PC operations compete with a number of PC manufacturers, which sell their products primarily

through direct channels, including Dell Computer Corporation and Gateway 2000, Inc. The Company also
competes with PC manufacturers, such as Apple Computer, Inc., Compaq Computer Corporation, Hewlett-Packard
Company, International Business Machines Corporation, NEC Corporation and Toshiba Corporation among others.
Several of these manufacturers, which have traditionally sold their products through national and regional
distributors, dealers and value added resellers, retail stores and direct sales forces, now sell their products through
the direct channel. In addition, the Company expects to face increased competition in the U.S. direct sales market
from foreign PC suppliers and from foreign and domestic suppliers of PC products that decide to implement, or
devote additional resources to, a direct sales strategy. In order to gain an increased share of the United States PC
direct sales market, these competitors may effect a pricing strategy that is more aggressive than the current pricing in
the direct sales market or may have pricing strategies influenced by relative fluctuations in the U.S. dollar compared
to other currencies. The Company continues to experience significant pressure on its PC operating results as a result
of intense competition in the PC industry and consumer expectations of more powerful PC systems at lower prices.

In the fourth quarter of 1999, MEI acquired 100% of the outstanding stock of NetLimited, Inc., d.b.a. HostPro

(“HostPro”), a web and applications provider. MEI also acquired the property and equipment of Micron Internet
Services (“MIS”), formerly a division of MTI, a provider of dedicated dial-up and broadband internet access, virtual
private network solutions and e-commerce services. Subsequent to the Company’s year end, the Company’s PC
operations announced the introduction of a “Subscription Computing” initiative, under which the Company
anticipates making substantial additional strategic investments to build its e-services infrastructure and deliver
customized computing solutions to customers. The acquisitions of HostPro and MIS, as well as the introduction of
the Subscription Computing initiative, increase the complexity of the Company’s PC operations. This increased
complexity has resulted in new and increased responsibilities on management and there can be no assurance that
management and other resources will be adequate to support the operations of the Company’s PC operations. In
addition, the Company’s initiatives in the area of Subscription Computing and provision of e-services face severe
competition. A significant number of enterprises have targeted the e-commerce opportunity and it is too early to
determine what capabilities the marketplace will dictate as critical for success. A large number of companies,
including Verio and Concentric, offer e-services similar to those provided by the Company. Further, a large number
of diversified companies, such as Intel, IBM and AT&T, have indicated an intent to compete in e-services markets.
Many companies competing for leadership in the e-services marketplace already have capabilities and strategic
relationships that may prove critical for success in the e-services and Subscription Computing marketplace. There
can be no assurance that the Company’s PC operations will either effectively compete against companies with
greater capital resources, capabilities or strategic relationships or that the Company’s PC operations will realize the
anticipated benefits of the acquisitions of HostPro and MIS, including the retention of key personnel, or that the
market will receive positively the Subscription Computing initiative. Any failure of the Company’s PC operations to
realize the anticipated benefits of the acquisitions or failure of the market to receive positively the Subscription
Computing initiative could have a material adverse effect on the Company’s business, results of operations and
financial condition.

The semiconductor and PC industries have experienced a substantial amount of litigation regarding patent and
other intellectual property rights. In the future, litigation may be necessary to enforce patents issued to the Company,
to protect trade secrets or know-how owned by the Company, or to defend the Company against claimed
infringement of the rights of others. The Company has from time to time received, and may in the future receive,
communications alleging that its products or its processes may infringe product or process technology rights held by
others. The Company has entered into a number of patent and intellectual property license agreements with third
parties from time to time, some of which may require one-time or periodic royalty payments. It may be necessary or
advantageous in the future for the Company to obtain additional patent licenses or to renew existing license
agreements. The Company is unable to predict whether these license agreements can be obtained or renewed on
terms acceptable to the Company. Adverse determinations that the Company’s manufacturing processes or products
have infringed on the product or process rights held by others could subject the Company to significant liabilities to

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third parties or require material changes in production processes or products, any of which could have a material
adverse effect on the Company’s business, results of operations and financial condition.

The Company is dependent upon a limited number of key management and technical personnel. In addition, the

Company’s future success will depend in part upon its ability to attract and retain highly qualified personnel,
particularly as the Company engages in worldwide operations and adds different product types to its product line,
which will require parallel design efforts and significantly increase the need for highly skilled technical personnel.
The Company competes for such personnel with other companies, academic institutions, government entities and
other organizations. The Company has experienced, and expects to continue to experience, increased recruitment of
its existing personnel by other employers. There can be no assurance that the Company will be successful in hiring
or retaining qualified personnel. Any loss of key personnel or the inability to hire or retain qualified personnel could
have a material adverse effect on the Company’s business and results of operations.

International sales comprised approximately 29%, 20% and 20% of the Company’s consolidated net sales in
1999, 1998 and 1997, respectively. The Company expects international sales to continue to increase as a result of
the acquired operations. International sales and operations are subject to a variety of risks, including those arising
from currency fluctuations, export duties, changes to import and export regulations, possible restrictions on the
transfer of funds, employee turnover, labor unrest, longer payment cycles, greater difficulty in collecting accounts
receivable, the burdens and costs of compliance with a variety of international laws and, in certain parts of the
world, political and economic instability. While to date these factors have not had a significant adverse impact on
the Company’s results of operations, there can be no assurance that there will not be such an impact in the future.

Historically, the Company has reinvested substantially all cash flow from its semiconductor operations in
capacity expansion and enhancement programs. The Company’s cash flow from operations depends primarily on
average selling prices and per unit manufacturing costs of the Company’s semiconductor memory products. If for
any extended period of time average selling prices decline faster than the rate at which the Company is able to
decrease per unit manufacturing costs, the Company may not be able to generate sufficient cash flows from
operations to sustain operations. Cash generated by MEI is not readily available to finance operations or other
expenditures of MTI’s semiconductor operations. The Company has an aggregate of $500 million in revolving
credit agreements, $100 million of which is available to PC operations and $400 million of which is available to
semiconductor operations. The $400 million facility expires in May 2000 and the $100 million facility expires in
June 2001. There can be no assurance that either or both of the facilities will be renewed. Each of the respective
facilities contains certain financial and other restrictive covenants pertaining to the Company’s operations. There
can be no assurance that the Company will continue to be able to meet the terms of the covenants or be able to
borrow the full amount of the credit facilities. There can be no assurance that, if needed, external sources of
liquidity will be available to fund the Company’s operations or its capacity and product and process technology
enhancement programs. Failure to obtain financing could hinder the Company’s ability to make continued
investments in such programs, which could materially adversely affect the Company’s business, results of
operations and financial condition.

As of September 2, 1999, TI and Intel held an aggregate of 44,743,369 shares of common stock, representing
17% of the Company’s total outstanding common stock. These shares have not been registered with the Securities
and Exchange Commission (“SEC”), however TI and Intel each have registration rights. Until such time as TI and
Intel substantially reduce their holdings of Company common stock, the Company may be hindered in obtaining
new equity capital. As of September 2, 1999, the Company also had outstanding $500 million of convertible
subordinated notes that were issued in an SEC registered offering in June 1997 that are convertible into 7,413,997
shares of common stock. TI holds notes with a face value of $740 million which are convertible into 12,333,333
shares of common stock. TI’s resale of these notes could limit the Company’s ability to raise capital through the
issuance of additional convertible debt instruments.

In accordance with a transition services agreement, the Company continues to rely in part on TI computer
networks and information technology services with respect to certain of the acquired international operations. In
September 1999, the Company implemented new business systems which have eliminated much of the Company’s
dependence on TI systems and the Company is working aggressively to remove any remaining dependence on TI
systems by the end of calendar 1999. However, some dependency upon TI systems may continue into calendar year
2000, during which period Year 2000 issues could arise.

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Completion of the Company’s semiconductor manufacturing facility in Lehi, Utah, was suspended in February

1996, as a result of the decline in average selling prices for semiconductor memory products. As of September 2,
1999, the Company had invested approximately $700 million in the Lehi facility. Timing of completion of the
remainder of the Lehi production facilities is dependent upon market conditions. Market conditions which the
Company expects to evaluate include, but are not limited to, worldwide market supply and demand of
semiconductor products and the Company’s operations, cash flows and alternative uses of capital. There can be no
assurance that the Company will be able to fund the completion of the Lehi manufacturing facility. The failure by
the Company to complete the facility would likely result in the Company being required to write off all or a portion
of the facility’s cost, which could have a material adverse effect on the Company’s business and results of operations.
In addition, in the event that market conditions improve, there can be no assurance that the Company can commence
manufacturing at the Lehi facility in a timely, cost effective manner that enables it to take advantage of the improved
market conditions.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Substantially all of the Company’s liquid investments and long-term debt are at fixed interest rates; therefore,
the fair value of these instruments is affected by changes in market interest rates. However, substantially all of the
Company’s liquid investments mature within one year. As a result, the Company believes that the market risk
arising from its holdings of financial instruments is minimal. The Company’s results of operations and financial
position for 1999 reflect a higher volume of foreign currency transactions and account balances than in previous
periods related to the acquired international operations. As of September 2, 1999, the Company held aggregate cash
and receivables in foreign currency valued at approximately US $58 million and aggregate foreign currency
payables valued at approximately US $129 million (including long-term liabilities denominated in Italian Lira
valued at approximately US $18 million). Foreign currency receivables and payables are comprised primarily of
Italian Lira, Singapore Dollars and Japanese Yen.

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Consolidated Financial Statements as of September 2, 1999, and September 3, 1998, and for fiscal years
ended September 2, 1999, September 3, 1998, and August 28, 1997:

Consolidated Statements of Operations .....................................................................................................

Consolidated Balance Sheets .....................................................................................................................

Consolidated Statements of Shareholders’ Equity .....................................................................................

Consolidated Statements of Cash Flows ....................................................................................................

Consolidated Statements of Comprehensive Income (Loss)......................................................................

Notes to Consolidated Financial Statements ..............................................................................................

Report of Independent Accountants...........................................................................................................

Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts for the Fiscal Years Ended September 2, 1999,
September 3, 1998, and August 28, 1997 ..................................................................................................

Page

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MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in millions, except for earnings per share data)

Net sales..................................................................................
Costs and expenses:

Fiscal year ended
August 28,
September 3,
September 2,
1997
1998
1999
$ 3,523.2
$ 3,025.3
$ 3,764.0

Cost of goods sold..........................................................
Selling, general and administrative ................................
Research and development.............................................
Other operating expense (income), net ..........................

2,950.4
486.0
322.1
52.5

2,744.9
476.1
286.4
34.3

2,548.4
382.7
223.9
(5.9)

Total costs and expenses...........................................

3,811.0

3,541.7

3,149.1

Operating income (loss) ..........................................................
Gain (loss) on sale of investments and subsidiary stock, net ..
Gain on issuance of subsidiary stock, net ...............................
Interest income........................................................................
Interest expense.......................................................................
Income (loss) before income taxes and minority

(47.0)
(0.1)
2.1
83.6
(130.1)

(516.4)
157.0
1.3
49.7
(50.5)

374.1
186.7
29.1
32.9
(32.4)

interests................................................................................

(91.5)

(358.9)

590.4

Income tax benefit (provision) ................................................
Minority interests in net income .............................................
Net income (loss) ....................................................................

36.0
(13.4)
$ (68.9)

129.1
(17.3)
$ (247.1)

(255.8)
(19.6)
$ 315.0

Earnings (loss) per share:

Basic .............................................................................
Diluted ...........................................................................

Number of shares used in per share calculation:

Basic .............................................................................
Diluted ...........................................................................

$ (0.26)
(0.26)

260.7
260.7

$ (1.15)
(1.15)

215.6
215.6

$ 1.49
1.44

211.9
219.3

Certain Fiscal 1998 and 1997 amounts have been restated as a result of a pooling-of-interests merger.
See accompanying notes to consolidated financial statements.

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MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except for par value data)

As of
September 3,
September 2,
1998
1999

ASSETS

Cash and equivalents....................................................................................
Liquid investments .......................................................................................
Receivables ..................................................................................................
Inventories ..................................................................................................
Prepaid expenses ..........................................................................................
Deferred income taxes..................................................................................
Total current assets...............................................................................
Product and process technology, net ............................................................
Property, plant and equipment, net...............................................................
Other assets ..................................................................................................
Total assets ...................................................................................

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable and accrued expenses......................................................
Short-term debt ............................................................................................
Deferred income...........................................................................................
Equipment purchase contracts......................................................................
Current portion of long-term debt ................................................................
Total current liabilities .........................................................................
Long-term debt.............................................................................................
Deferred income taxes..................................................................................
Other liabilities.............................................................................................
Total liabilities .............................................................................

294.6
1,318.9
692.6
365.7
38.3
119.9
2,830.0
212.6
3,799.6
123.0
$ 6,965.2

705.4
--
23.4
81.5
111.7
922.0
1,527.5
309.1
74.2
2,832.8

558.8
90.8
489.5
291.6
8.5
61.7
1,500.9
84.9
3,035.3
82.4
$ 4,703.5

460.7
10.1
7.5
168.8
98.6
745.7
758.8
284.2
61.4
1,850.1

Minority interests .........................................................................................

168.3

152.1

Commitments and contingencies

Common stock, $0.10 par value, authorized 1.0 billion shares, issued

and outstanding 252.2 million and 217.1 million shares, respectively.....

25.2

21.7

Class A Common Stock, $0.10 par value, authorized 32 million shares,

issued and outstanding 15.8 million shares ..............................................
Additional capital .........................................................................................
Retained earnings .........................................................................................
Accumulated other comprehensive loss .......................................................
Total shareholders’ equity....................................................................
Total liabilities and shareholders’ equity......................................

1.6
1,894.0
2,045.4
(2.1)
3,964.1
$ 6,965.2

--
565.4
2,114.3
(0.1)
2,701.3
$ 4,703.5

Certain Fiscal 1998 and 1997 amounts have been restated as a result of a pooling-of-interests merger.
See accompanying notes to consolidated financial statements.

30/57

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars and shares in millions)

Common stock
Balance at beginning of year.............
Stock issued under stock plans .........
Stock issued in conjunction with

mergers and acquisitions .............
Balance at end of year.......................

Class A Common Stock
Balance at beginning of year.............
Stock issued to Intel..........................
Balance at end of year.......................

Additional capital
Balance at beginning of year.............
Stock issued to Intel..........................
Stock issued in conjunction with

mergers and acquisitions .............
Stock issued under stock plans .........
Tax effect of stock purchase plans....
Balance at end of year.......................

Retained earnings
Balance at beginning of year.............
Net income (loss) ..............................
Balance at end of year.......................

Accumulated other comprehensive

income (loss)

Balance at beginning of year.............
Foreign currency translation .............
Unrealized loss on investments.........
Balance at end of year.......................

September 2, 1999
Shares Amount

Fiscal year ended
September 3, 1998
Shares Amount

August 28, 1997
Amount

217.1
6.2

21.7
0.6

214.5
1.6

21.4
0.2

210.6
2.5

21.1
0.2

28.9
252.2

2.9
$ 25.2

1.0
217.1

0.1
$ 21.7

1.4
214.5

0.1
$ 21.4

--
15.8
15.8

$
--
1.6
$ 1.6

--
--
--

$
--
--
$ --

--
--
--

$
--
--
$ --

$ 565.4
498.4

653.5
121.8
54.9
$1,894.0

$2,114.3
(68.9)
$2,045.4

(0.1)
--
(2.0)
$ (2.1)

$ 521.9
--

17.8
20.5
5.2
$ 565.4

$2,361.4
(247.1)
$2,114.3

(0.5)
0.4
--
$ (0.1)

$ 450.4
--

22.4
34.6
14.5
$ 521.9

$2,046.4
315.0
$2,361.4

--
(0.5)
--
$ (0.5)

Certain Fiscal 1998 and 1997 amounts have been restated as a result of a pooling-of-interests merger.
See accompanying notes to consolidated financial statements.

31/57

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)

Cash flows from operating activities
Net income (loss)................................................................................................
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

Depreciation and amortization........................................................................
Gain on sale and issuance of investments and subsidiary stock, net...............
Additional paid in capital tax effect from stock purchase plans .....................
Change in assets and liabilities, net of effects of acquisition and sale of

MCMS in 1998:
Increase in receivables ..............................................................................
Decrease (increase) in inventories ............................................................
Increase (decrease) in accounts payable and accrued expenses,

Fiscal year ended
September 3,
September 2,
1998
1999

August 28,
1997

(68.9)

$ (247.1)

315.0

843.3
(2.1)
54.9

(98.9)
(42.8)

606.6
(157.0)
5.2

(73.8)
140.0

476.3
(186.6)
14.5

(97.7)
(194.2)

net of plant and equipment purchases .................................................
Other...............................................................................................................
Net cash provided by operating activities ...........................................................

142.4
20.0
847.9

(86.1)
(22.4)
165.4

143.7
105.3
576.3

Cash flows from investing activities
Expenditures for property, plant and equipment.................................................
Purchase of available-for-sale securities.............................................................
Purchase of held-to-maturity securities ..............................................................
Proceeds from maturities of available-for-sale securities ...................................
Proceeds from sales of available-for-sale securities ...........................................
Proceeds from maturities of held-to-maturity securities .....................................
Proceeds from sale of subsidiary stock, net of MCMS cash ...............................
Proceeds from sale of equipment........................................................................
Other ..................................................................................................................
Net cash used for investing activities..................................................................

Cash flows from financing activities
Cash received in conjunction with acquisition ...................................................
Proceeds from issuance of common stock ..........................................................
Proceeds from issuance of debt ..........................................................................
Net repayments of borrowings on lines of credit ................................................
Payments on equipment purchase contracts........................................................
Repayments of debt ............................................................................................
Proceeds from issuance of stock by subsidiaries ................................................
Other ..................................................................................................................
Net cash provided by (used for) financing activities...........................................
Net increase (decrease) in cash and equivalents .................................................
Cash and equivalents at beginning of year..........................................................

(803.9)
(2,683.4)
(205.3)
1,437.5
154.1
98.4
--
41.2
(66.6)
(2,028.0)

681.1
617.2
34.0
(11.1)
(302.9)
(106.7)
4.7
(0.4)
915.9
(264.2)
558.8

(707.1)
(601.1)
(52.5)
892.5
23.6
34.0
235.9
33.4
(24.8)
(166.1)

--
20.6
102.9
--
(63.5)
(125.7)
3.4
0.3
(62.0)
(62.7)
621.5

(516.9)
(436.7)
(10.1)
80.6
33.2
--
199.9
15.5
(55.8)
(690.3)

--
34.8
587.8
(90.0)
(53.9)
(101.1)
55.4
26.4
459.4
345.4
276.1

Cash and equivalents at end of year....................................................................

$ 294.6

$ 558.8

$ 621.5

Supplemental disclosures:
Income taxes refunded (paid), net.......................................................................
Interest paid, net of amounts capitalized.............................................................
Noncash investing and financing activities:

185.6
(90.2)

(21.7)
(59.9)

$ (122.9)
(27.9)

Equipment acquisitions on contracts payable and capital leases.....................

219.3

212.6

41.5

Cash received in conjunction with acquisition:

Fair value of assets acquired...........................................................................
Liabilities assumed .........................................................................................
Debt issued .....................................................................................................
Stock issued....................................................................................................

949.3
(138.0)
(836.0)
(656.4)
$ (681.1)

--
--
--
--
$ --

Certain Fiscal 1998 and 1997 amounts have been restated as a result of a pooling-of-interests merger.
See accompanying notes to consolidated financial statements.

32/57

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in millions)

Net income (loss)................................................................................................
Foreign currency translation adjustment.............................................................
Unrealized loss in investments ...........................................................................
Total comprehensive income (loss) ................................................................

(68.9)
--
(2.0)
$ (70.9)

$ (247.1)
(0.4)
--
$ (246.7)

315.0
(0.5)
--
$ 314.5

Fiscal year ended
September 3,
September 2,
1998
1999

August 28,
1997

Certain Fiscal 1998 and 1997 amounts have been restated as a result of a pooling-of-interests merger.
See accompanying notes to consolidated financial statements.

33/57

MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular dollars in millions except for per share data)

Significant Accounting Policies

Basis of presentation: The consolidated financial statements include the accounts of Micron Technology, Inc.

and its domestic and foreign subsidiaries (the “Company”). The Company designs, develops, manufactures and
markets semiconductor memory products, primarily DRAM, principally for use in personal computers (“PCs”).
Through Micron Electronics, Inc. (“MEI”), the Company offers PC systems, notebooks and servers. MEI is a 63%
owned subsidiary of the Company. Micron Technology, Inc. and its wholly-owned subsidiaries are hereinafter
referred to collectively as “MTI.” All significant intercompany accounts and transactions have been eliminated.
The Company’s fiscal year is the 52 or 53 week period ending on the Thursday closest to August 31. The fiscal
years ended September 2, 1999, and August 28, 1997, contained 52 weeks compared to 53 weeks in fiscal year
ended September 3, 1998.

Certain concentrations and estimates: Approximately 81% of the Company’s sales of semiconductor
memory products are to the PC or peripheral markets. Certain components used by the Company in manufacturing
of PC systems are purchased from a limited number of suppliers.

The preparation of financial statements in conformity with generally accepted accounting principles requires

management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition: Revenue from product sales to direct customers is recognized when title transfers to the

customer, primarily upon shipment. The Company defers recognition of sales to distributors, which allow certain
rights of return and price protection, until distributors have sold the products. Net sales include PC operations
revenue from web services, service and support contracts and sales of third party services contracts. Revenue from
web services is recognized as the services are performed. Revenue from service and support contracts for which the
Company is primarily obligated is recognized over the term of the contract. Revenue from sales of third party
service contracts for which the Company is not obligated is recognized at the time of sale.

Earnings (loss) per share: Basic earnings per share is calculated using the average number of shares of

common stock outstanding during the year. Diluted earnings per share is computed on the basis of the average
number of common shares outstanding plus the effect of outstanding stock options using the "treasury stock
method" and convertible debentures using the "if-converted" method. Common stock equivalents consist of stock
options. Diluted earnings per share further assumes the conversion of the Company’s convertible subordinated
notes for the period they were outstanding, unless such assumed conversion would result in anti-dilution.

Financial instruments: Cash equivalents include highly liquid short-term investments with original maturities

of three months or less, readily convertible to known amounts of cash. The amounts reported as cash and
equivalents, liquid investments, receivables, other assets, accounts payable and accrued expenses and equipment
purchase contracts are considered to be reasonable approximations of their fair values. The fair value of the
Company’s long-term debt as of September 2, 1999, and September 3, 1998, approximated $1,636.8 million and
$790.4 million, respectively. The fair value estimates 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 value amounts. The
reported fair values do not take into consideration potential expenses that would be incurred in an actual settlement.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of

cash, liquid investments and trade accounts receivable. The Company invests cash through high-credit-quality
financial institutions and performs periodic evaluations of the relative credit standing of these financial institutions.
The Company, by policy, 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 computer, telecommunications and office automation industries. 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.

34/57

Inventories: Inventories are stated at the lower of average cost or market. Cost includes labor, material and

overhead costs, including product and process technology costs.

Property, plant and equipment: Property, plant and equipment are stated at cost. Depreciation is computed

using the straight-line method over the estimated useful lives of 5 to 30 years for buildings and 2 to 20 years for
equipment. When property or equipment is retired or otherwise disposed of, the net book value of the asset is
removed from the Company’s books and the net gain or loss is included in the determination of income.

The Company capitalizes interest on borrowings during the active construction period of major capital projects.
Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets.
For 1999, 1998 and 1997, the Company capitalized $2.2 million, $15.5 million and $6.0 million of interest,
respectively, in connection with various capital expansion projects.

The Company reviews the carrying value of property, plant and equipment for impairment whenever events and

circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash
flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying
value exceeds the fair value of assets.

Product and process technology: Costs related to the conceptual formulation and design of products and
processes are expensed as research and development. Costs incurred to establish patents and acquire product and
process technology are capitalized. Capitalized costs are amortized on the straight-line method over the shorter of
the estimated useful life of the technology, the patent term or the agreement, ranging up to 10 years. The Company
has license agreements that allow it to manufacture and sell semiconductor memory devices, PC hardware and
software.

Subsidiary stock sales: Gains and losses on issuance of stock by a subsidiary are recognized in the Company’s

results of operations.

Advertising: Advertising costs are charged to operations as incurred. Advertising costs expensed in 1999,

1998 and 1997 were $41.3 million, $70.8 million and $35.7 million, respectively.

Recently issued accounting standards: In March 1998, the AICPA issued Statement of Position (“SOP”) 98-1

“Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” SOP 98-1 requires
companies to capitalize certain costs of computer software developed or obtained for internal use. The Company,
which currently capitalizes costs of purchased internal-use computer software and expenses costs of internally
developed internal-use software as incurred, is adopting the standard in the first quarter of 2000 for developmental
costs incurred in that quarter and thereafter. The adoption is expected to result in an initial decrease in selling,
general and administrative expense due to the capitalization of certain business system software costs that are not
being capitalized under the Company’s current practice. Subsequent period expenses are expected to reflect a higher
level of depreciation expense resulting from the relatively higher carrying value of the Company’s capitalized
software accounted for under SOP 98-1.

In June 1998, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting

for Derivative Instruments and Hedging Activities.” SFAS No. 133 requires that all derivatives be recorded as
either assets or liabilities in the balance sheet and marked to market on an ongoing basis. SFAS No. 133 applies to
all derivatives including stand-alone instruments, such as forward currency exchange contracts and interest rate
swaps, or embedded derivatives, such as call options contained in convertible debt investments. Along with the
derivatives, the underlying hedged items are also to be marked to market on an ongoing basis. These market value
adjustments are to be included either in the statement of operations or as a component of comprehensive income,
depending on the nature of the transaction. Implementation of SFAS No. 133 is required for the Company by the
first quarter of 2001. Given the Company’s current business practice, the implementation of SFAS 133 is not
expected to have a significant impact on the Company’s future results of operations or financial position.

Foreign currency: The U.S. dollar is the Company’s functional currency for substantially all of its operations.

For international operations where the local currency is the functional currency, assets and liabilities are translated
into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at
the average exchange rates prevailing during the period.

35/57

Restatements and reclassifications: The Company has restated the consolidated financial statements for fiscal

years 1998 and 1997 as a result of the merger with Rendition, Inc. (“Rendition”) which was accounted for as a
business combination using the pooling-of-interests method. Certain other reclassifications have been made, none
of which affected the results of operations, to present the financial statements on a consistent basis.

Supplemental Balance Sheet Information 9/2/99 9/3/98

Liquid Investments

Available-for-sale securities:

Commercial paper ..................................................................................
U.S. Government agency........................................................................
Bankers’ acceptances .............................................................................
Certificates of deposit.............................................................................
Corporate notes ......................................................................................

Held-to-maturity securities:

Commercial paper ..................................................................................
State and local governments...................................................................
U.S. Government agency........................................................................

Total investments ...........................................................................................
Less cash equivalents .....................................................................................

636.0
279.7
13.0
220.7
35.0
1,184.4

115.6
80.8
109.8
306.2
1,490.6
(171.7)
$ 1,318.9

228.4
25.9
--
--
--
254.3

70.4
37.4
205.0
312.8
567.1
(476.3)
$ 90.8

Management determines the appropriate classification of its investments in marketable securities at the time of

purchase and reevaluates such determination at each balance sheet date. Securities classified as available-for-sale
are stated at current market value. Securities classified as held-to-maturity are stated at amortized cost. As of
September 2, 1999, the total amount of securities mature within one year.

Receivables

Trade receivables............................................................................................
Income taxes receivable .................................................................................
Allowance for returns and discounts ..............................................................
Allowance for doubtful accounts....................................................................
Other receivables............................................................................................

542.4
100.8
(38.2)
(9.8)
97.4
$ 692.6

294.4
191.9
(11.9)
(6.5)
21.6
$ 489.5

Inventories

Finished goods ...............................................................................................
Work in progress ............................................................................................
Raw materials and supplies ............................................................................
Allowance for obsolescence...........................................................................

136.3
173.6
71.5
(15.7)
$ 365.7

106.7
139.6
65.1
(19.8)
$ 291.6

Product and Process Technology

Product and process technology, at cost.........................................................
Less accumulated amortization ......................................................................

325.2
$
(112.6)
$ 212.6

161.7
$
(76.8)
$ 84.9

In September 1998, the Company and Texas Instruments Incorporated (“TI”) entered into a ten-year, royalty

free, life of patents, patent cross license, which accounts for the majority of the increase in the Company’s
capitalized product and process technology cost at the end of 1999 compared to the end of 1998. (See “Acquisition”
note.) Amortization of capitalized product and process technology costs was $37.6 million in 1999, $23.1 million in
1998 and $11.4 million in 1997.

36/57

Supplemental Balance Sheet Information (continued) 9/2/99 9/3/98

Property, Plant and Equipment

Land ...............................................................................................................
Buildings ........................................................................................................
Equipment ......................................................................................................
Construction in progress.................................................................................

Less accumulated depreciation and amortization ...........................................

42.2
1,172.4
4,074.4
726.0
6,015.0
(2,215.4)
$ 3,799.6

34.8
915.5
3,025.7
704.6
4,680.6
(1,645.3)
$ 3,035.3

As of September 2, 1999, property, plant and equipment included unamortized costs of $707.3 million for the
semiconductor operations facility in Lehi, Utah, of which $646.7 million has not been placed in service and is not
being depreciated. Timing of the completion of the remainder of the Lehi facilities is dependent upon market
conditions. Market conditions which the Company expects to evaluate include, but are not limited to, worldwide
market supply and demand of semiconductor products and the Company’s operations, cash flows and alternative
uses of capital. The Company continues to evaluate the carrying value of the facility and as of September 2, 1999, it
was determined to have no impairment.

Depreciation expense was $767.4 million, $569.7 million and $462.5 million for 1999, 1998 and 1997,

respectively.

Accounts Payable and Accrued Expenses

Accounts payable ...........................................................................................
Salaries, wages and benefits...........................................................................
Product and process technology payable........................................................
Taxes payable other than income ...................................................................
Interest payable ..............................................................................................
Other...............................................................................................................

453.1
95.4
24.0
33.4
33.9
65.6
$ 705.4

235.6
85.6
46.4
44.5
7.7
40.9
$ 460.7

Debt

Convertible subordinated notes payable, due October 2005, with an effective

yield to maturity of 8.4%, net of unamortized discount of $64.8 million.......
Convertible subordinated notes payable, due July 2004, interest rate of 7% .........
Subordinated notes payable, due October 2005, with an effective yield to maturity

of 10.7%, net of unamortized discount of $38.1 million ................................

Notes payable in periodic installments through July 2015, weighted average

interest rate of 7.37% and 7.38%, respectively ..............................................

Capitalized lease obligations payable in monthly installments through August

2004, weighted average interest rate of 7.52% and 7.61%, respectively........

Less current portion................................................................................................

675.2
500.0

--
500.0

171.9

259.0

315.2

33.1
1,639.2
(111.7)
$ 1,527.5

42.2
857.4
(98.6)
$ 758.8

The convertible subordinated notes due October 2005 (the “Convertible Notes”) with an effective yield-to-
maturity of 8.4% have a face value of $740 million, a stated interest rate of 6.5% and are convertible into shares of
MTI’s common stock at $60 per share. The Convertible Notes were subject to redemption as of October 2000 and
are redeemable from that date through October 2002 if the common stock price is at least $78 for a specified trading
period. The Convertible Notes have not been registered with the Securities and Exchange Commission, however,
the holder has registration rights. (See “Acquisition” note)

The 7% convertible subordinated notes due July 2004 are convertible into shares of MTI’s common stock at
$67.44 per share. The notes are redeemable through July 2001 if the common stock price is at least $87.67 for a
specified trading period.

37/57

Supplemental Balance Sheet Information (continued)

The subordinated notes due October 2005 with a yield to maturity of 10.7% have a face value of $210 million

and a stated interest rate of 6.5%.

MTI has a $400 million secured revolving credit agreement which expires May 2000. The interest rate on

borrowed funds is based on various pricing options at the time of borrowing. The agreement contains certain
restrictive covenants pertaining to the Company’s semiconductor operations, including a maximum debt-to-equity
covenant. As of September 2, 1999, MTI had no borrowings outstanding under the agreement.

MEI has a $100 million unsecured credit agreement expiring in June 2001. Under the credit agreement, MEI is

subject to certain financial and other covenants including certain financial ratios and limitations on the amount of
dividends paid by MEI. As of September 2, 1999, MEI had no borrowings outstanding.

Certain notes payable are collateralized by plant and equipment with a total cost of approximately $448.5
million and accumulated depreciation of approximately $270.4 million as of September 2, 1999. Equipment under
capital leases, and the accumulated depreciation thereon, were approximately $45.7 million and $23.8 million,
respectively, as of September 2, 1999, and $45.0 million and $15.4 million, respectively, as of September 3, 1998.

The Company leases certain facilities and equipment under operating leases. Total rental expense on all

operating leases was $21.8 million, $17.5 million and $8.4 million for 1999, 1998 and 1997, respectively. Minimum
future rental commitments under operating leases aggregate $38.3 million as of September 2, 1999, and are payable
as follows (in millions): 2000, $11.2; 2001, $8.5; 2002, $6.8; 2003, $5.8; and 2004 thereafter, $6.0.

Maturities of long-tem debt are as follows:

Fiscal year
2000................................................................................................................
2001................................................................................................................
2002................................................................................................................
2003................................................................................................................
2004................................................................................................................
2005 and thereafter.........................................................................................
Less discount and interest...............................................................................

Notes
payable
104.4
90.2
36.1
26.0
502.9
951.0
(104.5)
$ 1,606.1

Capital
leases
$11.8
17.5
4.9
1.2
1.2
1.1
(4.6)
$33.1

Stock Purchase Plans

MTI Stock Plans

As of September 2, 1999, MTI had an aggregate of 44.8 million shares of MTI’s common stock authorized for
issuance under its various stock option plans. Options are subject to terms and conditions determined by the Board
of Directors. Stock options granted after June 16, 1999, are exercisable in increments of 25% during each year of
employment beginning one year from the date of grant. Stock options granted prior to June 16, 1999, are
exercisable in increments of 20% during each year of employment beginning one year from the date of grant. All
stock options issued prior to January 19, 1998, expire six years from the date of grant and all subsequent options
granted expire 10 years from the date of grant.

38/57

Option activity under MTI’s stock option plans is summarized as follows:

September 2, 1999
Weighted
average
exercise
price

Number
of shares

Fiscal year ended
September 3, 1998
Weighted
average
exercise
price

Number
of shares

August 28, 1997

Weighted
average
exercise
price

Number
of shares

Outstanding at beginning of year ......
Options granted in conjunction with
mergers and acquisitions .............
Granted .............................................
Terminated or cancelled....................
Exercised .........................................
Outstanding at end of year ................
Exercisable at end of year .................
Shares available for future grants .....

22.1

$29.59

21.7

$28.85

14.5

$29.38

0.6
9.0
(1.1)
(5.9)
24.7
7.4
19.1

3.93
31.10
32.10
18.99
32.00
30.00
--

0.3
2.0
(0.6)
(1.3)
22.1
8.9
26.4

1.74
30.37
32.58
9.96
29.59
22.80
--

--
14.3
(4.9)
(2.2)
21.7
5.3
2.9

--
36.57
49.28
11.94
28.85
17.63
--

Options outstanding as of September 2, 1999, were at per share prices ranging from $0.55 to $69.75. Options

exercised were at per share prices ranging from $0.55 to $45.78 in 1999, $1.50 to $31.65 in 1998 and $1.72 to
$37.87 in 1997.

The following table summarizes information about MTI options outstanding as of September 2, 1999:

MTI Outstanding options

MTI Exercisable options

Range of exercise prices
$0.55 - $9.60
$9.63 - $19.98
$20.03 - $29.94
$30.25 - $69.75

Weighted
average
remaining
contractual
life (in years)
5.0
2.8
6.7
4.4

Weighted
average
exercise
price
$ 3.53
16.05
27.40
41.40

Number
of shares
0.7
1.3
12.3
10.4
24.7

Number
of shares
0.5
0.8
2.4
3.7
7.4

Weighted
average
exercise
price
$ 3.87
15.90
25.82
39.37

As of September 2, 1999, an aggregate of 320,645 shares were authorized for issuance under MTI’s stock plans.

Shares are issued under these plans either as compensation to non-employee members of MTI’s Board of Directors
or to employees upon the achievement of certain milestones. As of September 2, 1999, a total of 15,934 shares had
been issued under the stock plans.

MTI’s 1989 Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase shares of the
Company’s common stock through payroll deductions. The shares can be purchased for 85% of the lower of the
beginning or ending stock closing price of each offering period and are restricted from resale for a period of one
year from the date of purchase. Purchases are limited to 20% of an employee’s eligible compensation. A total of
9.3 million shares of MTI common stock are reserved for issuance under the ESPP, of which 6.8 million shares have
been issued as of September 2, 1999.

MEI Stock Plans

MEI’s 1995 Stock Option Plan provides for the granting of incentive and nonstatutory stock options. As of

September 2, 1999, there were 10 million shares of common stock reserved for issuance under the option plan.
Exercise prices of the incentive and nonstatutory stock options are 100% of the fair market value of MEI’s common
stock on the date of grant. Prior to April 28, 1999, exercise prices of the incentive and non-statutory stock options
were generally issued at 100% and 85%, respectively, of the fair market value of MEI’s common stock on the date
of grant. Stock options granted to employees and executive officers after April 28, 1999, typically have a term of 10
years and vest 25% percent each year for four years from the date of grant. Stock options granted to employees and
executive officers prior to April 28, 1999, typically have a term of six years and vest 20% each year for five years
from the date of grant.

39/57

On March 19, 1998, the MEI Board of Directors approved an option repricing program pursuant to which
essentially all MEI employees could exchange outstanding options under the option plan for new options having an
exercise price equal to the average closing price of MEI’s common stock for the five business days preceding April
3, 1998, and having generally the same terms and conditions, including vesting and expiration terms, as the options
exchanged. The exercise price of the options reissued under MEI’s option re-pricing program is $13.06 per share.

Option activity under MEI’s 1995 Stock Option Plan is summarized as follows:

September 2, 1999
Weighted
average
exercise
price

Number
of shares

Outstanding at beginning of year .....
Granted.............................................
Terminated or cancelled ...................
Exercised..........................................
Outstanding at end of year ...............
Exercisable at end of year ................
Shares available for future grants.....

5.3
3.7
(1.4)
(0.2)
7.4
1.4
2.4

$12.56
12.77
13.21
12.28
12.56
12.86
--

Fiscal year ended
September 3, 1998
Weighted
average
exercise
price

Number
of shares

3.6
5.8
(4.0)
(0.1)
5.3
0.7
4.8

$16.98
13.20
17.40
11.37
12.56
13.24
--

August 28, 1997

Weighted
average
exercise
price

$13.70
19.90
16.52
9.49
16.98
14.45
--

Number
of shares

1.9
1.9
(0.2)
--
3.6
0.5
1.4

The following table summarizes information about MEI options outstanding under the MEI 1995 Stock Option

Plan as of September 2, 1999:

MEI Outstanding options

MEI Exercisable options

Weighted
average
remaining
contractual
life (in years)
5.96
5.80
5.04
5.43

Weighted
average
exercise
price
$ 9.42
12.35
17.25
21.99

Number
of shares
1.0
5.5
0.7
0.2
7.4

Weighted
average
exercise
price
$ 9.11
12.47
17.60
22.42

Number
of shares
0.2
1.0
0.2
--
1.4

Range of exercise prices
below $10.00
$10.01 - $15.00
$15.01 - $20.00
above $20.00

MEI’s 1995 Employee Stock Purchase Plan (“MEI ESPP”) allows eligible employees to purchase shares of
MEI’s common stock pursuant to the same terms as MTI’s ESPP. A total of 2.5 million shares of MEI common
stock are reserved for issuance under the MEI ESPP, of which approximately 692,000 shares had been issued as of
September 2, 1999.

Pro forma Disclosure

The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards
No. 123, “Accounting for Stock Based Compensation,” issued in October 1995. Accordingly, compensation cost
has been recorded based on the intrinsic value of the option only. The Company recognized $8.3 million, $3.4
million and $8.4 million of compensation cost in 1999, 1998 and 1997, respectively, for stock-based employee
compensation awards. If the Company had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS

40/57

No. 123, net income (loss) and earnings (loss) per share would have been changed to the pro forma amounts
indicated in the table below:

(Dollars in millions
except per share amounts)

1999
As reported Pro forma

1998

1997

As reported Pro forma As Reported Pro forma

Net income (loss) ..........................
Diluted earnings (loss) per share...

$(68.9)
$(0.26)

$(144.2)
$ (0.55)

$ (247.1)
$ (1.15)

$ (314.7)
$ (1.46)

$315.0
$ 1.44

$276.0
$ 1.26

The above pro forma amounts, for purposes of SFAS No. 123, reflect the portion of the estimated fair value of

awards earned in 1999, 1998 and 1997. For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options’ vesting period (for stock options) and over the offering period for stock
purchases under the Employee Stock Purchase Plans. The effects on pro forma disclosures of applying SFAS No.
123 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS No.
123 is applicable only to options granted subsequent to August 31, 1995, the effect will not be fully reflected until
2000.

The Company used the Black-Scholes model to value stock options for pro forma presentation. The
assumptions used to estimate the value of the MTI options included in the pro forma amounts and the weighted
average estimated fair value and exercise price of MTI options granted are as follows:

Stock Option

Plan Shares
1997
1998

1999

Employee Stock
Purchase Plan Shares
1997
1998
1999

Average expected life (years)............................................
Expected volatility ............................................................
Risk-free interest rate (zero coupon U.S. Treasury note) ..
Weighted average fair value at grant

3.5
59%
5.0%

Exercise price equal to market price .......................... $14.92
Exercise price less than market price ......................... $17.81

Weighted average exercise price

Exercise price equal to market price .......................... $31.94
Exercise price less than market price ......................... $20.91

3.5
60%
5.6%

$14.70
$27.77

$30.45
$1.74

3.5
58%
6.2%

$15.17
$21.26

$38.40
$17.61

0.25
59%
4.4%

--
$14.42

--
$29.99

0.25
60%
5.1%

--
$9.68

0.25
58%
5.0%

--
$6.61

--
$23.03

--
$26.55

The assumptions used to estimate the value of the MEI options included in the pro forma amounts and the

weighted average estimated fair value of MEI options granted are as follows:

Stock Option

Plan Shares
1997
1998

1999

Employee Stock
Purchase Plan Shares
1997
1998
1999

3.5
70%
5.0%

Exercise price equal to market price ..........................
Exercise price less than market price .........................

$6.88
$8.46

3.3
70%
5.6%

$6.57
$9.25

3.5
70%
6.2%

$10.68
$11.41

0.5
70%
4.5%

--
$4.79

Weighted average exercise price

Exercise price equal to market price .......................... $12.65
Exercise price less than market price ......................... $12.46

$13.20
$13.63

$20.29
$18.07

--
$9.60

0.5
70%
5.1%

--
$3.78

--
$7.74

0.5
70%
5.0%

--
$5.39

--
$12.51

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options

which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input
of highly subjective assumptions, including the expected stock price volatility and option life. Because the
Company’s stock options granted to employees have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially affect the fair value estimate, in
management’s opinion, existing models do not necessarily provide a reliable measure of the fair value of its stock
options granted to employees. For purposes of this model no dividends have been assumed.

41/57

Employee Savings Plan

The Company has 401(k) profit-sharing plans (“RAM Plans”) under which employees may contribute from 2%
to 16% of their eligible pay to various savings alternatives in the RAM Plans. The Company’s contribution provides
for an annual match of the first $1,500 of eligible employee contributions, in addition to contributions based on the
Company’s financial performance. The Company’s RAM Plans expenses were $12.5 million, $11.3 million and
$18.9 million in 1999, 1998 and 1997, respectively.

Other Operating Expense, net

Other operating expense for 1999 includes a $15.0 million charge from the write down and disposal of flat

panel display assets (see “Asset Sale” note), a loss of $12.1 million from the write down and disposal of
semiconductor operations equipment, an $8.9 million charge resulting from the discontinuation of the Company’s
RFID efforts and $5.7 million in employee stock compensation expense related to the 1999 acquisition of
substantially all of the semiconductor memory operations of TI and the 1998 purchase of the minority interest in the
Company’s subsidiary, Micron Quantum Devices, Inc.

Other operating expense includes a loss of $13.9 million and $2.6 million from the write down and disposal of

semiconductor manufacturing equipment in 1998 and 1997, respectively, charges associated with PC systems of
$11.1 million resulting from employee termination benefits consolidation of domestic and international operations
and $5.3 million from the write off of software development costs in 1998.

Gains on Investments and Subsidiary Stock Transactions

On February 26, 1998, MEI completed the sale of 90% of its interest in MCMS, Inc. (“MCMS”), formerly

Micron Custom Manufacturing Services, Inc. and a wholly-owned subsidiary of MEI, resulting in a consolidated
pre-tax gain of $157.0 million (approximately $37.8 million or $0.18 per share after taxes and minority interests). In
exchange for the 90% interest in MCMS, MEI received $249.2 million in cash. The sale was structured as a
recapitalization of MCMS, whereby Cornerstone Equity Investors IV, L.P., other investors and certain members of
MCMS management, including Robert F. Subia, then a Director of MEI, acquired the 90% interest in MCMS.

In a public offering in February 1997, MTI sold 12.4 million shares of MEI common stock for net proceeds of

$200.0 million and MEI sold 3 million newly issued shares for net proceeds of $48.2 million, resulting in
consolidated pre-tax gains of $164.6 million and $25.3 million, respectively (for a total of approximately $93.7
million or $0.44 per share after taxes). The sales reduced MTI’s ownership of the outstanding MEI common stock
from approximately 79% to approximately 64%. The Company also recorded pre-tax gains totaling $22.1 million
for 1997 relating to sales of investments. The Company recognized a deferred tax liability on the resultant gain
from the sale of MEI common stock in the second quarter of 1997.

Income Taxes

The provision for income taxes consists of the following:

Current:

U.S. federal ..............................................................................
State .........................................................................................
Foreign.....................................................................................

Deferred:

Income tax provision (benefit) ...........................................................

9/2/99

9/3/98

8/28/97

(47.6)
4.4
10.0
(33.2)

$ (156.1)
0.1
1.7
(154.3)

19.7
(19.9)
(2.6)
(2.8)
$ (36.0)

69.3
(44.1)
--
25.2
$ (129.1)

152.1
21.1
1.5
174.7

79.5
1.6
--
81.1
$ 255.8

42/57

The tax benefit associated with the exercise of nonstatutory stock options and disqualifying dispositions by

employees of shares issued in the Company’s stock option and purchase plans reduced taxes payable by $54.9
million, $5.2 million and $14.5 million for 1999, 1998 and 1997, respectively. Such benefits are reflected as
additional capital.

A reconciliation between income tax computed using the federal statutory rate and the income tax provision

(benefit) follows:

U.S. federal income tax at statutory rate.............................................
State taxes, net of federal benefit........................................................
Change in valuation allowance...........................................................
Basis difference in domestic subsidiaries ...........................................
Foreign income at other than U.S. rates .............................................
Other...................................................................................................
Income tax provision (benefit) ...........................................................

9/2/99

(32.0)
(13.9)
10.5
1.6
(2.6)
0.4
$ (36.0)

8/28/97
$

9/3/98
$ (125.6)
(27.9)
4.1
11.6
--

206.7
12.6
--
24.8
--
8.7 11.7
$ 255.8
$ (129.1)

State taxes reflect investment tax credits of $15.7 million, $21.1 million and $15.3 million for 1999, 1998 and

1997, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the basis of assets and
liabilities for financial reporting and income tax purposes. The approximate tax effects of temporary differences
which give rise to the net deferred tax liability (benefit) are as follows:

Deferred tax asset:

Accrued product and process technology.....................................................
Inventory ......................................................................................................
Accrued compensation .................................................................................
Deferred income...........................................................................................
Net operating loss and credit carryforwards.................................................
Other ............................................................................................................
Gross deferred tax asset ...........................................................................
Less: Valuation allowance ......................................................................
Deferred tax asset.....................................................................................

Deferred tax liabilities:

Excess tax over book depreciation ...............................................................
Accrued product and process technology.....................................................
Investment in subsidiary ..............................................................................
Other ............................................................................................................
Deferred tax liability ................................................................................
Net deferred tax liability ..........................................................................

9/2/99

9/3/98

1.6
9.8
23.6
8.1
78.5
45.3
166.9
(14.6)
152.3

(230.9)
(18.8)
(57.4)
(34.4)
(341.5)
$ (189.2)

7.2
15.0
19.8
3.1
30.6
66.1
141.8
(4.1)
137.7

(240.7)
--
(56.7)
(40.9)
(338.3)
$ (200.6)

At September 2, 1999, the Company had aggregate U.S. tax loss carryforwards of $101.3 million and U.S. tax

credit carryforwards of $22.2 million. Of these amounts, $101.3 million of the tax loss carryforward expires in
various years through 2019, $15.0 million of the credit carryforward expires through 2019 and $7.2 million of the
credit carryforward has no expiration. The Company also has unused state tax net operating loss carryforwards of
$576.6 million for tax purposes which expire through 2014 and unused state tax credits of $59.0 million for tax and
financial reporting purposes which expire through 2006. The change in valuation allowance of $10.5 million in
1999 is due to the uncertainty of realizing certain tax credit carryforwards. In 1998, the Company recorded a $4.1
million valuation allowance for a deferred tax asset relating to MEI’s consolidation of its NetFRAME enterprise
server operations. Provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to
the extent that dividend payments from such companies are expected to result in additional tax liability. The
remaining undistributed earnings of $22.1 million have been indefinitely reinvested; therefore, no provision has
been made for taxes due upon remittance of these earnings. Determination of the amount of unrecognized deferred
tax liability on these unremitted earnings is not practicable.

43/57

Purchase of Minority Interests

In the first quarter of 1998, MTI purchased the 12% minority interest in its subsidiary, Micron Display

Technology, Inc., for $20.6 million in cash. The cost of the acquired interest was allocated primarily to intangible
assets related to field emission flat panel display technology, which is being amortized over a three-year period. In
May 1999, MTI sold certain of its flat panel display assets to PixTech, Inc., however, MTI retained the associated
technology rights. (See “Asset Sale” note)

In the second quarter of 1998, MTI purchased the 11% minority interest in its subsidiary, Micron Quantum
Devices, Inc., for $26.2 million in stock and stock options. The cost of the acquired interest was allocated primarily
to intangible assets related to flash semiconductor technology, which is being amortized over a three-year period.

In conjunction with the discontinuation of its RFID efforts in the fourth quarter of 1999, MTI purchased the

11% minority interest in its subsidiary, Micron Communications, Inc. (See “Other Operating Expense, net” note)

Earnings (Loss) Per Share

For the year ended
Net income (loss) available for common shareholders, Basic and

9/2/99

9/3/98

8/28/97

Diluted ................................................................................................

$ (68.9)

$ (247.1)

315.0

Weighted average common stock outstanding - Basic...........................
Net effect of dilutive stock options ........................................................

260.7
--

215.6
--

211.9
7.4

Weighted average common stock and common stock equivalents –

Diluted ................................................................................................

260.7

215.6

219.3

Basic earnings (loss) per share ...............................................................

$ (0.26)

$ (1.15)

$ 1.49

Diluted earnings (loss) per share............................................................

$ (0.26)

$ (1.15)

$ 1.44

The average shares listed below were not included in the computation of diluted earnings per share because to

do so would have been antidilutive for the periods presented:

For the year ended
Employee stock plans.............................................................................
8.4% convertible subordinated notes payable due 2005 ........................
7.0% convertible subordinated notes payable due 2004 ........................

9/2/99
23.8
11.6
7.4

9/3/98
21.0
--
7.4

8/28/97
10.7
--
1.4

Comprehensive Income (Loss)

The FASB issued SFAS No. 130, “Reporting Comprehensive Income,” in June 1997. This statement

establishes new standards for reporting and displaying comprehensive income in the financial statements and was
adopted by the Company as of the first quarter of 1999. SFAS No. 130 requires reclassification of prior periods
financial statements to reflect application of the provisions of this statement. In addition to net income,
comprehensive income includes charges or credits to equity that are not the result of transactions with shareholders.

The following table reflects the composition of accumulated other comprehensive income:

Foreign currency translation adjustment .............................................
Unrealized loss on investments...........................................................
Total accumulated other comprehensive income (loss) ......................

$
(0.1)
(2.0)
$ (2.1)

$
(0.1)
--
$ (0.1)

9/2/99

9/3/98

44/57

Acquisition

On September 30, 1998, MTI completed its acquisition (the “Acquisition”) of substantially all of the memory

operations of TI for a net purchase price of approximately $832.8 million. The Acquisition was consummated
through the issuance of debt and equity securities. In connection with the transaction, MTI issued 28.9 million
shares of MTI common stock, $740 million principal amount of Convertible Notes and $210 million principal
amount of subordinated notes. In addition to TI’s net memory assets, MTI received $681.1 million in cash. The
Acquisition was accounted for as a business combination using the purchase method of accounting. The purchase
price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. MTI and TI
also entered into a ten-year, royalty-free, life-of-patents, patent cross license that commenced on January 1, 1999.
MTI made royalty payments to TI under a prior cross license agreement for operations through December 31, 1998.

The following unaudited pro forma information presents the consolidated results of operations of the Company

as if the Acquisition had taken place at the beginning of each period presented:

For the year ended

9/2/99

9/3/98

(unaudited)

Net sales ................................................................................................................... $ 3,819.3
(86.1)
Net loss ....................................................................................................................
(0.33)
Basic loss per share ..................................................................................................
(0.33)
Diluted loss per share...............................................................................................

$ 3,743.7
(678.6)
(2.77)
(2.77)

These pro forma results of operations have been prepared for comparative purposes only and do not purport to

be indicative of the results of operations which actually would have resulted had the Acquisition occurred on the
dates indicated, or which may result in the future.

Merger

On September 11, 1998, the Company completed its merger with Rendition, Inc. (“Rendition”). MTI issued
approximately 3.6 million shares of MTI common stock in exchange for all of the outstanding stock of Rendition.
The merger qualified as a tax-free exchange and was accounted for as a business combination using the “pooling-of-
interests” method. Accordingly, the Company’s financial statements have been restated to include the results of
Rendition for all periods presented. The following table presents a reconciliation of net sales and net income (loss)
as previously reported by the Company for the years ended September 3, 1998, and August 27, 1997, to those
presented in the accompanying consolidated financial statements.

For the year ended 9/2/98 MTI Rendition Combined

Net sales ...................................................................

$ 3,011.9

(unaudited)
$

13.4

$ 3,025.3

Net loss .....................................................................

$ (233.7)

(13.4)

$ (247.1)

For the year ended 8/27/97 MTI Rendition Combined

Net sales ...................................................................

$ 3,515.5

(unaudited)
$

7.7

Net income (loss)......................................................

332.2

(17.2)

$ 3,523.2

315.0

Equity Investment

On October 19, 1998, Intel invested $500 million in the Company and as a result now holds approximately 15.8

million shares of MTI’s non-voting Class A Common Stock. The Class A Common Stock represented
approximately 6% of MTI’s outstanding common stock as of September 2, 1999. The Class A Common Stock will
automatically be converted into MTI’s common stock, subject to certain adjustments, upon a transfer to a holder
other than Intel or a 90% owned subsidiary of Intel. As of September 2, 1999, the Class A Common Stock was
convertible into common stock on a one-to-one basis. The Class A Common Stock issued to Intel has not been

45/57

registered under the Securities Act of 1933, as amended, and is therefore subject to certain restrictions on resale.
MTI and Intel entered into a securities rights and restrictions agreement which provides Intel with certain
registration rights and places certain restrictions on Intel’s voting rights and other activities with respect to the shares
of MTI Class A Common Stock or common stock. Intel also has the right to designate a director nominee,
acceptable to MTI, to MTI’s Board of Directors.

In consideration for Intel’s investment, MTI agreed to commit to the development of direct Rambus DRAM
(“RDRAM”) and to certain production and capital expenditure milestones and to make available to Intel a certain
percentage of its semiconductor memory output over a five-year period, subject to certain limitations. The
conversion ratio of the Class A Common Stock is subject to adjustment under certain formulae at the election of
Intel in the event MTI fails to meet the production or capital expenditure milestones. No adjustment will occur to
the conversion ratio under such formulae (i) unless the price of MTI’s common stock for a twenty day period ending
two days prior to such milestone dates is lower than $31.625 (the market price of MTI’s common stock at the time
of investment), or (ii) if MTI achieves the production and capital expenditure milestones. In addition, if an
adjustment occurs, in no event will MTI be obligated to issue more than: (a) a number of additional shares having a
value exceeding $150 million, or (b) 15,810,277 shares.

Joint Ventures

In connection with the acquisition of substantially all of TI’s memory operations in September 1998, MTI
acquired interests in two joint venture wafer fabrication facilities dedicated to the fabrication of DRAMs. MTI has
interests in TECH Semiconductor Singapore Pte. Ltd. (“TECH”) and in KMT Semiconductor Limited (“KMT”).
TECH, which operates in Singapore, is a joint venture between MTI, the Singapore Economic Development Board,
Canon Inc. and Hewlett-Packard Company. KMT, which operates in Japan, is a joint venture between MTI and
Kobe Steel, Ltd. TECH and KMT are collectively referred to herein as the “JVs.”

Subject to certain terms and conditions, MTI has agreed to purchase all of the JV production. MTI purchases
semiconductor memory products from the JVs at prices generally determined quarterly based on a discount from
MTI’s average selling prices. MTI is a party to various agreements with the JVs whereby MTI provides technology,
engineering support and training to assist the JVs in establishing and operating advanced wafer fabrication facilities
to produce MTI DRAM products. MTI also performs assembly and test services on product manufactured by the
JVs. The net cost of products purchased from the JVs, amounting to $186.2 million and $135.3 million for KMT
and TECH, respectively in 1999, reflects all transactions with the JVs.

MTI is amortizing the purchase price allocated to the JV supply arrangements on a straight-line basis over the

remaining contractual life of the shareholder agreements. Amortization expense resulting from the JV supply
arrangements, included in the cost of product purchased from the JVs, was $2.6 million for 1999. Receivables from
KMT and TECH were $19.1 million and $47.2 million and payables were $24.4 million and $32.0 million,
respectively, as of September 2, 1999.

Asset Sale

On May 19, 1999, MTI completed the sale of certain of its flat panel display assets to PixTech, Inc.
(“PixTech”). Pursuant to the terms of the transaction, in exchange for the transfer of certain assets (including
manufacturing equipment and $4.4 million in cash) and liabilities to PixTech, MTI received 7,133,562 shares of
PixTech common stock and warrants to purchase an additional 310,000 shares of PixTech common stock at an
exercise price of $2.25. MTI incurred a loss of $15.0 million during the second quarter of 1999 relating to the
disposition of its flat panel display assets.

Operating Segment and Geographic Information

The Company adopted SFAS 131, “Disclosures about Segments of an Enterprise and Related Information” in
1999. The Company’s reportable segments have been determined based on the nature of its operations and products
offered to customers. The Company’s two reportable segments are semiconductor operations and PC operations.
The semiconductor operations segment’s primary product is DRAM. The PC operations segment’s primary
products include desktop PC systems, notebooks and servers. The “All other” segment, primarily reflects activity of
the Company’s field emission display, RFID, construction and custom manufacturing businesses. These businesses

46/57

have been sold or discontinued. Consequently, the reported results and amounts for the all other segment primarily
represent historical activity of the discontinued operations plus certain transactions and residual assets associated
with their sale or cessation.

The accounting policies of the segments are the same as those described in the “Summary of Significant

Accounting Policies” note. Segment operating results are measured based on operating income (loss). Intersegment
sales are measured based on contract prices as internally reported. Intersegment sales primarily reflect sales of
memory products from the semiconductor operations segment to the PC operations segment and, to a lesser extent,
sales of computers from the PC operations segment to the semiconductor operations segment. Segment assets
consist of assets that are identified to reportable segments and reviewed by the chief operating decision makers.
Included in segment assets are cash, investments, accounts receivable, inventory and property, plant and equipment.

Net sales

Semiconductor operations

External ..........................................................................................................
Intersegment ...................................................................................................

PC operations

All other

1999

1998

1997

$ 2,524.7
45.0
2,569.7

1,234.1
5.8
1,239.9

5.2
--
5.2

$ 1,380.5
40.7
1,421.2

1,493.8
3.8
1,497.6

151.0
16.3
167.3

$ 1,680.7
91.7
1,772.4

1,525.0
4.3
1,529.3

317.5
70.3
387.8

Total segments....................................................................................................
Elimination of intersegment ...............................................................................
Total consolidated net sales ................................................................................

3,814.8
(50.8)
$ 3,764.0

3,086.1
(60.8)
$ 3,025.3

3,689.5
(166.3)
$ 3,523.2

Operating income (loss)

1999
$

42.8
(32.3)
(58.3)
(47.8)

1998
$ (370.6)
(108.8)
(36.9)
(516.3)

1997
$

311.7
76.2
(13.8)
374.1

Elimination of intersegment ...............................................................................
Total consolidated operating income (loss) ........................................................

0.8
$ (47.0)

(0.1)
$ (516.4)

--
$ 374.1

Segment assets

Semiconductor operations ..................................................................................
PC operations .....................................................................................................
All other ............................................................................................................
Total segment assets .......................................................................................
Elimination of intersegment ...............................................................................
Total segment assets .......................................................................................

Reconciliation to total assets:
Total segment assets ...........................................................................................
Prepaid expenses ................................................................................................
Deferred taxes.....................................................................................................
Product and process technology .........................................................................
Other assets (net of segment assets)....................................................................
Total consolidated assets ................................................................................

1999
$ 6,001.9
533.9
15.5
6,551.3
(74.8)
$ 6,476.5

$ 6,476.5
38.3
119.9
212.6
117.9
$ 6,965.2

1998
$ 3,928.3
537.1
57.2
4,522.6
(50.8)
$ 4,471.8

$ 4,471.8
8.5
61.7
84.9
76.6
$ 4,703.5

47/57

Capital expenditures for plant, property and equipment

1999
$

755.5
43.3
5.3
804.1

1998
$

670.2
13.8
22.3
706.3

1997
$

405.8
48.0
72.3
526.1

Elimination of intersegment ...............................................................................
Total consolidated capital expenditures..............................................................

(0.2)
$ 803.9

0.8
$ 707.1

(9.2)
$ 516.9

Depreciation and amortization expense

1999
$

816.0
16.1
12.9
845.0

1998
$

565.6
21.0
21.6
608.2

1997
$

449.6
12.1
14.3
476.0

(1.7)
$ 843.3

(1.6)
$ 606.6

0.3
$ 476.3

Investment in Equity Method Investees

At September 2, 1999, the Company had $10.7 million in investments accounted for by the equity method.
These investments were held by non-reportable segments included in the “All Other” segments category. The
Company recorded losses totaling $4.3 million on these investments in 1999. The Company held no equity
investments in 1998 or 1997.

Major Customers

No customer individually accounted for 10% or more of the Company’s total net sales in 1999, 1998 or 1997.

Geographic area net sales revenue
(Based on customer location)

United States ......................................................................................................
Europe ................................................................................................................
Asia Pacific.........................................................................................................
Japan ..................................................................................................................
Canada................................................................................................................
Other ..................................................................................................................
Totals ............................................................................................................

Geographic area property, plant and equipment (net)

United States ......................................................................................................
Singapore............................................................................................................
Italy.....................................................................................................................
Other ..................................................................................................................
Totals ............................................................................................................

1999
$ 2,685.8
464.1
420.4
81.8
32.5
79.4
$ 3,764.0

1999
$ 3,034.8
461.6
299.3
3.9
$ 3,799.6

1998
$ 2,425.9
275.3
180.3
42.9
47.4
53.5
$ 3,025.3

1998
$ 3,031.1
--
--
4.2
$ 3,035.3

1997
$ 2,814.9
293.4
242.7
51.6
65.1
55.5
$ 3,523.2

1997
$ 2,461.9
--
--
2.1
$ 2,464.0

48/57

Commitments and Contingencies

As of September 2, 1999, the Company had commitments of $719.4 million for equipment purchases and $40.4

million for the construction of buildings.

The Company has from time to time received, and may in the future receive, communications alleging that its
products or its processes may infringe on product or process technology rights held by others. The Company has
accrued a liability and charged operations for the estimated costs of settlement or adjudication of asserted and
unasserted claims for alleged infringement prior to the balance sheet date. Determination that the Company’s
manufacture of products has infringed on valid rights held by others could have a material adverse effect on the
Company’s financial position, results of operations or cash flows and could require changes in production processes
and products.

The Company is currently a party to various other legal actions arising out of the normal course of business,
none of which are expected to have a material effect on the Company’s financial position or results of operations.

49/57

Quarterly Financial and Market Information (Unaudited)
(Dollars in millions, except for per share data)

1999 Quarter
Net sales..........................................................................
Costs and expenses:

1st
793.6

2nd

$ 1,025.8

3rd
863.8

4th
$ 1,080.8

Cost of goods sold...................................................
Selling, general and administrative .........................
Research and development......................................
Other operating expense, net...................................
Total costs and expenses .................................

677.7
103.0
67.7
7.8
856.2

745.1
125.5
85.5
18.4
974.5

674.8
124.1
81.6
11.1
891.6

852.8
133.4
87.3
15.2
1,088.7

Operating income (loss) ..................................................
Loss on sale of investments and subsidiary

stock, net ....................................................................
Gain on issuance of subsidiary stock, net .......................
Interest expense, net........................................................
Income (loss) before income taxes..................................

Income tax benefit (provision) ........................................
Minority interests ............................................................
Net income (loss) ............................................................
Diluted earnings (loss) per share.....................................
Quarterly stock price:

(62.6)

51.3

(27.8)

(7.9)

(0.1)
1.1
(7.9)
(69.5)

27.6
(4.3)
$ (46.2)
(0.19)
$

--
0.4
(11.7)
40.0

(16.1)
(1.5)
$ 22.4
0.08
$

--
--
(14.4)
(42.2)

17.1
(2.6)
$ (27.7)
(0.10)
$

--
0.6
(12.5)
(19.8)

7.4
(5.0)
$ (17.4)
(0.07)
$

High ........................................................................
Low .........................................................................

$ 47.625
25.062

$ 79.500
46.875

$ 59.937
34.500

$ 75.250
38.063

1998 Quarter
Net sales..........................................................................
Costs and expenses:

1st
$ 957.3

2nd

3rd

$ 763.2

$ 612.7

4th
$ 692.1

747.1
126.0
67.2
4.6
944.9

740.5
138.6
72.0
24.2
975.3

606.0
111.4
70.7
3.4
791.5

651.3
100.1
76.5
2.1
830.0

Operating income (loss) ..................................................
Gain (loss) on sale of investments and subsidiary

stock, net ....................................................................
Gain on issuance of subsidiary stock, net .......................
Interest income (expense), net.........................................
Income (loss) before income taxes..................................

12.4

(212.1)

(178.8)

(137.9)

--
0.1
(1.3)
11.2

(4.5)
(0.2)
$ 6.5
0.03
$

157.1
0.5
1.8
(52.7)

10.8
(9.0)
$ (50.9)
(0.24)
$

--
0.2
0.5
(178.1)

70.8
(2.1)
$ (109.4)
(0.51)
$

(0.1)
0.5
(1.8)
(139.3)

52.0
(6.0)
$ (93.3)
(0.43)
$

High ........................................................................
Low .........................................................................

$ 45.312
23.125

$ 38.000
22.000

$ 34.938
23.813

$ 35.250
20.125

As of October 29, 1999, there were 4,955 shareholders of record of MTI’s common stock and one holder of

MTI’s Class A Common Stock. The Company did not declare or pay any dividends during 1999 or 1998.

Certain Fiscal 1998 amounts have been restated as a result of a pooling-of-interests merger.

50/57

Report of Independent Accountants

To the Board of Directors and
Shareholders of Micron Technology, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material
respects, the financial position of Micron Technology, Inc. and its subsidiaries at September 2, 1999, and September
3, 1998, and the results of their operations and their cash flows for each of the three years in the period ended
September 2, 1999, in conformity with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. These
financial statements and the financial statement schedule are the responsibility of the Company’s management; our
responsibility is to express an opinion on these financial statements and the financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP

Boise, Idaho
October 4, 1999

51/57

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

PART III

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

Certain information concerning the registrant’s executive officers is included under the caption, “Officers and
Directors of the Registrant,” following Part I, Item 1 of this report. Other information required by Items 10, 11, 12
and 13 will be contained in the registrant’s Proxy Statement which will be filed with the Securities and Exchange
Commission within 120 days after September 2, 1999, and is incorporated herein by reference.

52/57

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as part of this report:

PART IV

Consolidated financial statements and financial statement schedules - (see “Item 8. Financial Statements and

Supplementary Data - Notes to Consolidated Financial Statements - Contingencies.”)

Exhibit

Description

2.1

2.2

2.3

3.1

3.7

4.1

4.2

4.3

4.8

10.6

10.82

10.91

10.92

10.100

10.109

10.110

10.111

10.112

10.116

10.117

Acquisition Agreement between the Registrant and Texas Instruments Incorporated dated June
18, 1998 (1)

Second Amendment to Acquisition Agreement dated as of September 30, 1998, between the
Registrant and Texas Instruments Incorporated (2)

Agreement and Plan of Reorganization dated as of June 22, 1998, between the Registrant and
Rendition, Inc. (3)

Certificate of Incorporation of the Registrant, as amended

Bylaws of the Registrant, as amended (20)

Indenture dated as of June 15, 1997, between the Registrant and Norwest Bank Minnesota,
National Association (the “Trustee”), relating to the issuance of 7% Convertible Subordinated
Notes due July 1, 2004 (the “Notes”) (6)

Supplemental Trust Indenture dated as of June 15, 1997, between the Registrant and the Trustee,
relating to the Notes (including the form of Note) (6)

Rendition Affiliate Agreement dated as of June 22, 1998, among the Registrant, Rendition, Inc.
and each of the affiliates of Rendition (3)

Micron Quantum Devices Stock Bonus Plan (21)

Form of Micron Affiliate Agreement among the Registrant, Rendition, Inc. and each of the
affiliates of the Registrant (3)

Form of Indemnification Agreement between the Registrant and its officers and directors (7)

Board Resolution regarding stock and bonus plan vesting schedules in the event of change
in control of the Registrant (8)

Additional provisions related to Management Bonus Arrangements for Certain Executive
Officers (8)

Amended and Restated 1985 Incentive Stock Option Plan (9)

Form of Management bonus arrangements for Executive Officers of Micron Technology,
Inc. and Micron Semiconductor, Inc., for 1994 (10)

1994 Stock Option Plan (20)

Executive Bonus Plan (4)

Forms of Severance Agreement (12)

Registration Rights Agreement dated as of June 28, 1996 between the Registrant and
Canadian Imperial Bank of Commerce (13)

Registration Rights Agreement dated as of July 29, 1996 between the Registrant and
Canadian Imperial Bank of Commerce (13)

10.118(a) Irrevocable Proxy dated June 28, 1996 by Canadian Imperial Bank of Commerce in favor of the

Registrant (13)

10.118(b) Irrevocable Proxy dated July 24, 1998, by the Registrant in favor of the Canadian Imperial Bank

of Commerce (18)

53/57

Exhibit

Description

10.119(a) Reformed Irrevocable Proxy dated July 23, 1998, by J.R. Simplot Company in favor of the

Registrant (18)

10.119(b) Irrevocable Proxy dated July 24, 1998, by the Registrant in favor of the Canadian Imperial Bank

of Commerce (18)

10.120

10.125

10.126

10.127

10.128

10.129

Form of Agreement and Amendment to Severance Agreement between the Company and its
executive officers (14)

Second Supplemental Trust Indenture dated as of September 30, 1998, between the Registrant
and the Trustee, relating to the issuance of 6½% Convertible Subordinated Notes due October 2,
2003 (the “TI Notes”) (including the form of TI Note) (2)

Subordinated Promissory Note dated September 30, 1998, issued by the Registrant in the name
of Texas Instruments Incorporated in the amount of $210,000,000 (2)

Registration Rights Agreement dated as of July 20, 1998, between the Registrant, Canadian
Imperial Bank of Commerce and J.R. Simplot Company (5)

Nonstatutory Stock Option Plan (20)

1997 Nonstatutory Stock Option Plan (16)

10.130 Micron Quantum Devices, Inc. 1996 Stock Option Plan (16)

10.131

10.132

10.133

Sample Stock Option Assumption Letter for Micron Quantum Devices, Inc. 1996 Stock Option
Plan (16)

1998 Nonstatutory Stock Option Plan (17)

Rendition, Inc. 1994 Equity Incentive Plan (17)

10.134

Sample Stock Option Assumption Letter for Rendition, Inc. 1994 Equity Incentive Plan (17)

10.135

10.136

10.137

10.138

10.139

10.140

10.141

10.142

21.1

23.1

27.1

Second Amended and Restated Revolving Credit Agreement dated as of September 1, 1998,
among the Registrant and several financial institutions (18)

Securities Purchase Agreement dated as of October 15, 1998, between the Registrant and Intel
Corporation (Confidential Treatment has been requested for a portion of this document) (18)

Securities Rights and Restrictions Agreement dated as of October 19, 1998, between the
Registrant and Intel Corporation (18)

Stock Rights Agreement dated as of October 19, 1998, between the Registrant and Intel
Corporation (Confidential Treatment has been requested for a portion of this document) (18)

1989 Employee Stock Purchase Plan (20)

1998 Non-Employee Director Stock Incentive Plan (20)

Purchase Agreement dated September 30, 1998, between the Company and KTI Semiconductor
Limited (19)

Purchase Agreement dated October 1, 1998, between the Company and TECH Semiconductor
Singapore Pte. Ltd. (19)

Subsidiaries of the Registrant

Consent of Independent Accountants

Financial Data Schedule

(1)

(2)

(3)

Incorporated by Reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 28,
1998

Incorporated by Reference to Current Report on Form 8-K filed on October 14, 1998, as amended on
October 16, 1998

Incorporated by Reference to Registration Statement on Form S-4 as amended (Reg. No. 333-60129)

54/57

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

Incorporated by Reference to Annual Report on Form 10-K as amended for the fiscal year ended
August 31, 1995

Incorporated by Reference to Registration Statement on Form S-3 as amended (Reg. No. 333-57973)

Incorporated by Reference to Current Report on Form 8-K filed on July 3, 1997

Incorporated by Reference to Proxy Statement for the 1986 Annual Meeting of Shareholders

Incorporated by Reference to Annual Report on Form 10-K for the fiscal year ended August 31, 1989

Incorporated by Reference to Registration Statements on Forms S-8 (Reg. Nos. 33-38665, 33-38926
and 33-52653)

Incorporated by Reference to Annual Report on Form 10-K for the fiscal year ended September 2, 1993

Incorporated by Reference to Registration Statement on Form S-8 (Reg. Nos. 33-57887, 333-07283
and 333-50353)

Incorporated by Reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 29,
1996

Incorporated by Reference to Annual Report on Form 10-K for the fiscal year ended August 29, 1996

Incorporated by Reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 27,
1997

Incorporated by Reference to Registration Statement on Form S-8 (Reg. Nos. 333-17073 and 333-
50353)

Incorporated by Reference to Registration Statement on Form S-8 (Reg. No. 333-50353)

Incorporated by Reference to Registration Statement on Form S-8 (Reg. No. 333-65449)

Incorporated by Reference to Annual Report on Form 10-K for the fiscal year ended September 3,
1998

Incorporated by Reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 3,
1998

Incorporated by Reference to Quarterly Report on Form 10-Q for the fiscal quarter ended June 3, 1999

Incorporated by Reference to Registration Statement on Form S-8 (Reg. No. 333-82549)

(b) The registrant filed the following report(s) on Form 8-K during the fiscal quarter ended September 2, 1999:

Date

Item

July 7, 1999

Item 5, Other Events

Micron and micronpc.com are trademarks of MTI. Transport Trek2, Transport NX ,Mservices and HostPro are

trademarks of MEI. Millennia, ClientPro and NetFRAME are registered trademarks of MEI. Micron Power is a
service mark of MEI. All other product names appearing herein are for identification purposes only and may be
trademarks of their respective companies.

55/57

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boise, State of Idaho, on the 9th day of November, 1999.

MICRON TECHNOLOGY, INC.

By:

/S/ WILBUR G. STOVER, JR.

Wilbur G. Stover, Jr.,

Vice President of Finance, Chief Financial Officer
(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed

below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/S/ STEVEN R. APPLETON

(Steven R. Appleton)

Chairman of the Board,
Chief Executive Officer
and President

November 9, 1999

/S/ JAMES W. BAGLEY

Director

November 9, 1999

(James W. Bagley)

/S/ ROBERT A. LOTHROP
(Robert A. Lothrop)

Director

November 9, 1999

/S/ THOMAS T. NICHOLSON
(Thomas T. Nicholson)

Director

November 9, 1999

/S/ DON J. SIMPLOT
(Don J. Simplot)

/S/ GORDON C. SMITH
(Gordon C. Smith)

/S/ WILLIAM P. WEBER
(William P. Weber)

Director

November 9, 1999

Director

November 9, 1999

Director

November 9, 1999

56/57

Schedule II

MICRON TECHNOLOGY, INC.
Valuation and Qualification Accounts
(dollars in millions)

Balance at
Beginning of
Period

Charged
(Credited) to
Costs and
Expenses

Deduction/
Write-Off

Balance at End
of Period

Allowance for Doubtful Accounts
Year ended September 2, 1999
Year ended September 3, 1998
Year ended August 28, 1997

Allowance for Obsolete Inventory
Year ended September 2, 1999
Year ended September 3, 1998
Year ended August 28, 1997

Deferred Tax Asset Valuation Allowance

Year ended September 2, 1999
Year ended September 3, 1998
Year ended August 28, 1997

$ 6.5
9.0
9.0

$ 19.8
23.7
14.5

$ 4.1
-
-

$ 6.2
(2.2)
0.2

$ 0.9
12.4
15.9

$ 10.5
4.1
-

$ (2.9)
(0.3)
(0.2)

$ (5.0)
(16.3)
(6.7)

$ --
-
-

$ 9.8
6.5
9.0

$ 15.7
19.8
23.7

$ 14.6
4.1
-

57/57

MICRON TECHNOLOGY, INC.

SUBSIDIARIES OF THE REGISTRANT

EXHIBIT 21.1

Name

State (or jurisdiction) in
which Incorporated

Micron Electronics, Inc. ......................................................................................... Minnesota
MEI California, Inc. ....................................................................................... California
Micron Commercial Computer Systems, Inc. ................................................. Delaware
Micron Computer of Canada, Inc.................................................................... Canada
Micron Computer Services, Inc. ..................................................................... Delaware
Micron Electronics (H.K.) Limited ................................................................. Hong Kong
Micron Electronics Asia-Pacific Holdings, Inc............................................... B.V.I.
Micron Electronics Asia-Pacific Operations, Inc............................................ B.V.I.
Micron Electronics Asia-Pacific Trading, Ltd. ............................................... Hong Kong
Micron Electronics International, Inc.............................................................. Delaware
Micron Electronics Japan K.K. ...................................................................... Japan
Micron Government Computer Systems, Inc.................................................. Delaware
Micron Internet Services, Inc.......................................................................... Delaware
Micron Overseas Trading, Inc. ....................................................................... Barbados
Micron PC Web Services, Inc......................................................................... Delaware
Micron PC, Inc................................................................................................ Delaware
NetLimited, Inc. .............................................................................................. California
SpecTek Products, LLC .................................................................................. Delaware
Micron Europe Limited........................................................................................... United Kingdom
Micron International Sales, Inc. ............................................................................. Barbados
Micron Semiconductor Asia Pte. Ltd. .................................................................... Singapore
Micron Semiconductor Asia Pacific, Inc. .............................................................. Idaho
Micron Semiconductor (Deutschland) GmbH ........................................................ Germany
Micron Semiconductor Products, Inc. .................................................................... Idaho
Micron Technology Asia Pacific, Inc. ................................................................... Idaho
Micron Technology Italia S.r.l. .............................................................................. Italy
Micron Technology Japan, K.K. ............................................................................ Japan
Micron Technology Services, Inc. ......................................................................... Idaho
Micron Technology Texas, LLC............................................................................. Idaho

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 as amended (File
No. 333-18441) and Forms S-8 (File Nos. 33-3686, 33-16832, 33-27078, 33-38665, 33-38926, 33-65050, 33-52653,
33-57887, 333-07283, 333-17073, 333-50323, 333-65449, 333-71249, 333-82549) of Micron Technology, Inc. and
subsidiaries of our report dated October 4, 1999, relating to the financial statements and financial statement
schedule, which appear in this Form 10-K.

/s/PricewaterhouseCoopers LLP

Boise, Idaho
November 8, 1999