UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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 August 30, 2007
or
(cid:2)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-10658
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
8000 S. Federal Way, Boise, Idaho
(Address of principal executive offices)
75-1618004
(IRS Employer
Identification No.)
83716-9632
(Zip Code)
(208) 368-4000
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
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:1) No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes (cid:2) No (cid:1)
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:1) No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer (cid:1)
Accelerated Filer (cid:2)
Non-Accelerated Filer (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes (cid:2) No (cid:1)
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of such
stock on March 1, 2007, as reported by the New York Stock Exchange, was approximately $6.0 billion. Shares of common stock
held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have
been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of outstanding shares of the registrant’s common stock as of October 19, 2007, was 760,412,921.
Portions of the Proxy Statement for registrant’s 2007 Annual Meeting of Shareholders to be held on December 4, 2007, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Item 1. Business
PART I
The following discussion contains trend information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in “Overview”
regarding growth in production output for NAND Flash memory products; in “Products” regarding new product offerings in
2008 and continued growth in the NAND Flash and CMOS image sensor markets; and in “Manufacturing” regarding the
transition to smaller line-width process technologies, the conversion of wafer fabrication at the TECH joint venture to 300mm,
overall increases in 300mm wafer fabrication in 2008, and the ramp of IM Flash’s Singapore wafer fabrication facility in 2009.
The Company’s actual results could differ materially from the Company’s historical results and those discussed in the
forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those
identified in “Item 1A. Risk Factors.” All period references are to the Company’s fiscal periods unless otherwise indicated.
Corporate Information
Micron Technology, Inc., and its subsidiaries (hereinafter referred to collectively as the “Company”), a Delaware
corporation, was incorporated in 1978. The Company’s executive offices are located at 8000 South Federal Way, Boise, Idaho
83716-9632 and its telephone number is (208) 368-4000. Information about the Company is available on the internet at
www.micron.com. Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as any amendments to these reports, are available through the Company’s website as soon as
reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the
“SEC”). Materials filed by the Company with the SEC are also available at the SEC’s Public Reference Room at 100 F Street,
NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling 1-800-SEC-
0330. Also available on the Company’s website are its: Corporate Governance Guidelines, Governance Committee Charter,
Compensation Committee Charter, Audit Committee Charter and Code of Business Conduct and Ethics. Any amendments or
waivers of the Company’s Code of Business Conduct and Ethics will also be posted on the Company’s website at
www.micron.com within four business days of the amendment or waiver. Copies of these documents are available to
shareholders upon request. Information contained or referenced on the Company’s website is not incorporated by reference
and does not form a part of this Annual Report on Form 10-K. In January 2007, the Company’s Chief Executive Officer
certified to the New York Stock Exchange that he was not aware of any violation by the Company of the NYSE’s Corporate
Governance Listing Standards.
Overview
The Company is a global manufacturer and marketer of semiconductor devices, principally DRAM and NAND Flash
memory and CMOS image sensors. The Company’s products are offered in a wide variety of package and configuration
options, architectures and performance characteristics tailored to meet application and customer needs. Individual devices take
advantage of the Company’s advanced semiconductor processing technology and manufacturing expertise. The Company aims
to continually introduce new generations of products that offer lower costs per unit and improved performance characteristics.
The Company operates in two segments, Memory and Imaging. (See “Item 8. Financial Statements and Supplementary Data –
Notes to Consolidated Financial Statements – Segment Information.”)
Memory: The Memory segment’s primary products are DRAM and NAND Flash, which are key components used in a
broad array of electronic applications, including personal computers, workstations, network servers, mobile phones, Flash
memory cards, USB storage devices, MP3/4 players and other consumer electronics products. The Company sells primarily to
original equipment manufacturers, distributors and retailers located around the world.
In recent years, the Company has taken several steps towards establishing a significant presence in the NAND Flash
market. The Company has partnered with Intel Corporation (“Intel”) to form two NAND Flash manufacturing joint ventures
(collectively “IM Flash”) that are consolidated subsidiaries of the Company. In 2007, IM Flash ramped production at two
300mm wafer fabrication facilities which greatly increased the Company’s output of NAND Flash. The Company expects its
NAND Flash output will continue to increase significantly in 2008 at these facilities. IM Flash began construction of a third
300mm wafer fabrication facility in 2007, which is expected to ramp production in late 2009. In June 2006, the Company
acquired Lexar Media, Inc. (“Lexar”), a designer, developer, manufacturer and marketer of NAND Flash memory products,
which broadened the Company’s NAND Flash product offering, enhanced the Company’s retail presence and strengthened its
intellectual property portfolio.
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Imaging: The Imaging segment’s primary products are CMOS image sensors, which are key components used in a broad
array of electronic applications, including mobile phones, digital still cameras, webcams and other consumer, security and
automotive applications. The Company’s primary customers are camera module integrators located around the world. The
Company is exploring business model alternatives for its Imaging business including partnering arrangements. Under any of
the alternatives being considered, the Company expects that it will continue to manufacture CMOS image sensors.
Products
Memory: The Company’s Memory segment has two primary product types: DRAM and NAND Flash. Sales of Memory
products were 88%, 86% and 94% of the Company’s total net sales in 2007, 2006 and 2005, respectively.
Dynamic Random Access Memory (“DRAM”): DRAM products are high-density, low-cost-per-bit, random access
memory devices that provide high-speed data storage and retrieval. DRAM products were 65%, 76% and 87% of the
Company’s total net sales in 2007, 2006 and 2005, respectively. The Company offers DRAM products with a variety of
performance, pricing and other characteristics.
DDR and DDR2: DDR and DDR2 are standardized, high-density, high-volume, DRAM products that are
sold primarily for use as main system memory in computers and servers. DDR and DDR2 products offer high speed
and high bandwidth at a relatively low cost compared to other DRAM products. DDR and DDR2 products were the
highest volume parts in the DRAM market in 2007. DDR products were 15%, 26% and 44% of the Company’s total
net sales in 2007, 2006 and 2005, respectively. DDR2 products were 32%, 25% and 14% of the Company’s total net
sales in 2007, 2006 and 2005, respectively.
In response to changes in the DRAM market, the Company has broadened its DDR and DDR2 product
offerings in recent years. The Company offers DDR products in 128 megabit (“Mb”), 256 Mb, 512 Mb and 1 gigabit
(“Gb”) densities. The Company offers DDR2 products in 256 Mb, 512 Mb, 1 Gb and 2 Gb densities. The Company
expects that these densities will be necessary to meet future customer demands for a broad array of products. The
Company also offers its DDR and DDR2 products in multiple configurations, speeds and package types. The
Company has begun sampling next-generation DDR3 products.
Synchronous DRAM (“SDRAM”): In 2007, 2006 and 2005, SDRAM was primarily used in networking
devices, servers, consumer electronics, communications equipment and computer peripherals as well as memory
upgrades to legacy computers. Sales of SDRAM products were 11%, 16% and 20% of the Company’s total net sales
in 2007, 2006 and 2005, respectively. SDRAM sales have declined as personal computer manufacturers have
transitioned to DDR and DDR2 products. The decline has been partially offset by increased usage of SDRAM
products in other applications. The Company offers 64 Mb, 128 Mb, 256 Mb and 512 Mb SDRAM products.
Other Specialty Memory Products: The Company also offers other specialty memory products including
Mobile DRAM, Pseudo-static RAM (“PSRAM”) and Reduced Latency DRAM (“RLDRAM”). Mobile DRAM
products are specialty DRAM memory devices designed for applications that demand minimal power consumption,
such as personal digital assistants (PDAs), smart phones, GPS devices, digital still cameras and other handheld
electronic devices. The Company sells SDRAM and DDR mobile memory products in 64 Mb, 128 Mb, 256 Mb, 512
Mb and 1Gb densities. The Company’s mobile DRAM products feature its proprietary Endur-IC™ technology, which
the Company believes provides distinct advantages to its customers in terms of low power, high quality and high
reliability. PSRAM products, marketed by the Company under the proprietary brand name CellularRAM™, are
DRAM products with an SRAM-like interface. PSRAM combines the minimal power consumption of SRAM with a
much lower cost-per-bit to provide an economical alternative to SRAM. PSRAM products are used primarily in
cellular phone applications. RLDRAM products are low-latency DRAM memory devices with high clock rates
targeted at network applications.
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NAND Flash Memory (“NAND”): NAND products are electrically re-writeable, non-volatile semiconductor
memory devices that retain content when power is turned off. NAND sales were 23% and 6% of the Company’s total net sales
in 2007 and 2006, respectively. NAND is ideal for mass-storage devices due to its faster erase and write times, higher density,
and lower cost per bit than NOR Flash, which is the primary competing Flash architecture. The market for NAND products
has grown rapidly and the Company expects it to continue to grow due to demand for removable and embedded storage devices.
Removable storage devices such as USB and Flash memory cards are used with applications such as personal computers,
digital still cameras, MP3/4 players and mobile phones. Embedded NAND-based storage devices are utilized in MP3/4 players,
mobile phones, computers and other personal and consumer applications. The Company also expects new product lines such
as solid-state disk to experience significant demand growth in future periods.
NAND and DRAM share common manufacturing processes, enabling the Company to leverage its product and
process technologies and manufacturing infrastructure. The Company’s NAND designs feature a small cell structure that
allows for higher densities for demanding applications. The Company offers Single-Level Cell (“SLC”) products and Multi-
Level Cell (“MLC”) NAND products, which have double the bit density of SLC products. In 2007, the Company offered SLC
NAND products in 1 Gb, 2 Gb, and 4 Gb densities. In 2007, the Company offered 8 Gb MLC NAND products and began
sampling 16 Gb MLC NAND products. The Company expects to introduce 32 Gb MLC NAND products in 2008.
As a result of its acquisition of Lexar in the fourth quarter of 2006, the Company began selling high-performance
digital media products and other flash-based storage products through retail and original equipment manufacturing (OEM)
channels. The Company’s digital media products include a variety of Flash memory cards with a range of speeds, capacities
and value-added features. The Company’s digital media products also include its JumpDrive™ products, which are high-speed,
portable USB flash drives for consumer applications that serve a variety of uses, including floppy disk replacement and digital
media accessories such as card readers and image rescue software.
The Company offers Flash memory cards in all major media formats currently used by digital cameras and other
electronic host devices, including: CompactFlash, Memory Stick, Secure Digital Card and the xD Picture Card. Many of
CompactFlash, Memory Stick and Memory Stick PRO products sold by the Company incorporate its patented controller
technology. Other products, including Secure Digital Card Flash memory cards and some JumpDrive products, incorporate
third party controllers. The Company also resells Flash memory products that are purchased from suppliers. The Company
offers Flash memory cards in a variety of speeds and capacities. The Company sells products under its Lexar™ brand and also
manufactures products that are sold under other brand names. The Company has a multi-year agreement with Eastman Kodak
to sell digital media products under the Kodak brand name.
Imaging: Complementary Metal-Oxide Semiconductor (“CMOS”) image sensors are the primary product of the
Company’s Imaging segment. CMOS image sensors are semiconductor devices that capture and process images into pictures
or video for a variety of consumer and industrial applications. The Company’s CMOS image sensors are used in products such
as cellular phone cameras, digital still cameras, pill cameras for medical use, and in automotive and other emerging
applications. The Company offers image sensors in a range of pixel resolutions from its VGA (video graphics array) products
to its higher resolution 8-megapixel products. The Company manufactures a number of CMOS image sensors featuring a
leading-edge pixel size of 1.75 square microns that enable a smaller form factor product. Image sensors are sold either as
individual components or combined with integrated circuitry to create complete camera system-on-a-chip (“SOC”) solutions.
The Company’s CMOS image sensors incorporating its DigitalClarity™ technology offered many advantages over other
CMOS image sensors and charge-coupled device (“CCD”) sensors, which enabled the Company to maintain its leadership
position. The Company’s DigitalClarity™ technology features “active pixels” enabling better sensor performance that
produces higher-quality images at faster frame rates. The Company’s low-leakage DRAM processes are particularly well-
suited for the manufacture of CMOS image sensors. The Company’s CMOS image sensors consume substantially less power
than CCD devices, providing an advantage in battery-dependent portable device applications where most image sensors are
used. By combining all camera functions on a single chip, from the capture of photons to the output of digital bits, CMOS
image sensors reduce the part-count of a digital camera system, which in turn increases reliability, eases miniaturization, and
enables on-chip programming of frame size, windowing, exposure and other camera parameters. The Company’s CMOS
image sensors are also capable of producing high-quality images in low-light conditions. In 2007, the Company’s CMOS
image sensors’ active-pixel design architecture enabled the Company to achieve CMOS imager performance that was
comparable to high-end CCD sensors.
Sales of Imaging products were 12%, 14% and 6% of the Company’s total net sales in 2007, 2006 and 2005, respectively.
The overall market for image sensors is expected to increase over the next several years due to the growth forecasted for
applications such as phone cameras and digital still cameras and CMOS image sensors are expected to capture an increasing
percentage of the overall image sensor market.
3
Manufacturing
The Company’s manufacturing facilities are located in the United States, China, Italy, Japan, Puerto Rico and Singapore.
The Company’s manufacturing facilities generally operate 24 hours per day, 7 days per week. Semiconductor manufacturing is
extremely capital intensive, requiring large investments in sophisticated facilities and equipment. Most semiconductor
equipment must be replaced every three to five years with increasingly advanced equipment.
The Company’s process for manufacturing semiconductor products is complex, involving a number of precise steps,
including wafer fabrication, assembly and test. Efficient production of semiconductor products requires utilization of advanced
semiconductor manufacturing techniques and effective deployment of these techniques across multiple facilities. The primary
determinants of manufacturing cost are die size, number of mask layers, number of fabrication steps and number of good die
produced on each wafer. Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of
manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type
and cleanliness of the manufacturing environment. The Company is continuously enhancing production processes, reducing
die sizes and transitioning to higher density products. In 2007, the Company manufactured most of its DRAM products using
its 95 nanometer (“nm”) and 78nm line-width process technology. The Company expects to continue to transfer more of its
DRAM production to 78nm and 68nm line-width process technology in 2008. In 2007, the Company manufactured most of its
NAND Flash memory products using its 72nm line-width process technology and began transferring its NAND production to
50nm line-width process technology. The Company expects that in 2008 most of its NAND Flash memory products will be
manufactured using its 50nm line-width process technology.
Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting
contaminants. Despite stringent manufacturing controls, dust particles, equipment errors, minute impurities in materials,
defects in photomasks and circuit design marginalities or defects can lead to wafers being scrapped and individual circuits
being nonfunctional. Success of the Company’s manufacturing operations depends largely on minimizing defects to maximize
yield of high-quality circuits. In this regard, the Company employs rigorous quality controls throughout the manufacturing,
screening and testing processes. The Company is able to recover many nonstandard devices by testing and grading them to
their highest level of functionality.
After fabrication, silicon wafers are separated into individual die. The Company sells semiconductor products in both
packaged and unpackaged (i.e. “bare die”) forms. For packaged products, functional die are sorted, connected to external leads
and encapsulated in plastic packages. The Company assembles products in a variety of packages, including TSOP (thin small
outline package), TQFP (thin quad flat package) and FBGA (fine pitch ball grid array). Bare die products address customer
requirements for smaller form factors and higher memory densities and provide superior flexibility. Bare die products are used
in packaging technologies such as systems-in-a-package (SIPs) and multi-chip packages (MCPs), which reduce the board area
required.
The Company tests its products at various stages in the manufacturing process, performs high temperature burn-in on
finished products and conducts numerous quality control inspections throughout the entire production flow. In addition, the
Company uses its proprietary AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of
DRAM die during the burn-in process, capturing quality and reliability data and reducing testing time and cost.
The Company assembles a significant portion of its memory products into memory modules. Memory modules consist of
an array of memory components attached to printed circuit boards (“PCBs”) that insert directly into computer systems or other
electronic devices. The Company’s Lexar subsidiary contracts with an independent foundry and assembly and testing
organizations to manufacture flash media products such as memory cards and USB devices.
The Company is exploring alternatives to reduce its assembly, test and module assembly costs including relocation of
current operations to lower cost locations and outsourcing. These alternatives could affect the Company’s manufacturing
processes in future periods.
In 2007, the Company significantly increased its 300mm wafer production as IM Flash ramped production at two 300mm
wafer fabrication facilities and the Company’s TECH joint venture began to convert its DRAM production to 300mm wafers.
The Company expects that its 300mm wafer production in 2008 will continue to increase significantly at these facilities.
4
In recent years the Company has produced an increasingly broad portfolio of products, which enhances the Company’s
ability to allocate resources to its most profitable products but increases the complexity of the manufacturing process.
Although new product lines such as NAND Flash, CMOS image sensors and specialty memory can be manufactured using
processes that are very similar to the processes for the Company’s predominant DRAM products, frequent conversions to new
products and the allocation of manufacturing capacity to more complex, smaller-volume parts can affect the Company’s cost
efficiency.
NAND Flash Joint Ventures with Intel Corporation (“IM Flash”): The Company has formed two joint ventures with
Intel to manufacture NAND Flash memory products for the exclusive benefit of the partners: IM Flash Technologies, LLC and
IM Flash Singapore LLP (collectively, “IM Flash”). IM Flash manufactures NAND Flash memory products pursuant to
NAND Flash designs developed by the Company and Intel and licensed to the Company. The parties share the output of IM
Flash generally in proportion to their investment in IM Flash. The Company owned a 51% interest in IM Flash at August 30,
2007. IM Flash’s financial results are included in the consolidated financial statements of the Company. In 2007, IM Flash
began construction of a new 300mm wafer fabrication facility in Singapore, which is expected to ramp in late 2009. (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures –
NAND Flash Joint Ventures with Intel.”)
TECH Semiconductor Singapore Pte. Ltd. (“TECH”): TECH is a memory manufacturing joint venture in Singapore
among Micron Technology, Inc., Canon Inc. and Hewlett-Packard Company. The Company owned an approximate 73%
interest in TECH at August 30, 2007. TECH’s semiconductor manufacturing facilities use the Company’s product and process
technology. Subject to specific terms and conditions, the Company has agreed to purchase all of the products manufactured by
TECH. TECH supplied approximately 15% of the total megabits of memory produced by the Company in 2007 (reflecting
approximately 40% of total DRAM megabits). In 2007, TECH began converting its manufacturing production from 200mm to
300mm wafers. The conversion is expected to be completed in 2008. TECH’s financial results were included in the
consolidated financial statements of the Company beginning in the third quarter of 2006. (See “Item 8. Financial Statements
and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte.
Ltd.”)
MP Mask Technology Center, LLC (“MP Mask”): The Company produces photomasks for leading-edge and advanced
next generation semiconductors through MP Mask, a joint venture with Photronics, Inc. (“Photronics”). The Company and
Photronics have 50.01% and 49.99% interest, respectively, in MP Mask. The Company and Photronics also have supply
arrangements wherein the Company purchases a substantial majority of the reticles produced by MP Mask. The financial
results of MP Mask are included in the consolidated financial results of the Company.
Availability of Raw Materials
The Company’s production processes require raw materials that meet exacting standards, including several that are
customized for, or unique to, the Company. The Company generally has multiple sources of supply; however, only a limited
number of suppliers are capable of delivering certain raw materials that meet the Company’s standards. Various factors could
reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases, lead frames, molding compound
and other materials. In addition, any transportation problems could delay the Company’s receipt of raw materials. Although
raw materials shortages or transportation problems have not interrupted the Company’s operations in the past, shortages may
occur from time to time in the future. Also, lead times for the supply of raw materials have been extended in the past. If the
Company’s supply of raw materials is interrupted, or lead times are extended, results of operations could be adversely affected.
Marketing and Customers
The Company’s products are sold into computing, consumer, networking, telecommunications, and imaging markets.
Approximately 50% of the Company’s net sales for 2007 were to the computing market, including desktop PCs, servers,
notebooks and workstations. Sales to Hewlett-Packard Company were 10% of the Company’s net sales in 2007.
5
The Company’s products are offered under the Micron, Lexar, SpecTek and Crucial brand names, and private labels. The
Company markets its semiconductor products primarily through its own direct sales force and maintains sales offices in its
primary markets around the world. The Company maintains inventory at locations in close proximity to certain key customers
to facilitate rapid delivery of product shipments. The Company’s Lexar subsidiary sells NAND Flash memory products
through retail and OEM channels and its Crucial Technology division sells memory products through a web-based customer
direct sales channel. The Company’s products are also offered through independent sales representatives and distributors.
Independent sales representatives obtain orders subject to final acceptance by the Company and are compensated on a
commission basis. The Company makes shipments against these orders directly to the customer. Distributors carry the
Company’s products in inventory and typically sell a variety of other semiconductor products, including competitors’ products.
The Company offers products designed to meet the diverse needs of computing, server, automotive, networking, security,
commercial/industrial, consumer electronics, medical and mobile applications. Many of the Company’s customers require a
thorough review or qualification of semiconductor products, which may take several months. As the Company further
diversifies its product lines and reduces the die sizes of existing products, more products become subject to qualification which
may delay volume introduction of specific devices by the Company.
Backlog
Because of volatile industry conditions customers are reluctant to enter into long-term, fixed-price contracts. Accordingly,
new order volumes for the Company’s semiconductor products fluctuate significantly. Orders are typically accepted with
acknowledgment that the terms may be adjusted to reflect market conditions at the date of shipment. Customers can change
delivery schedules or cancel orders without significant penalty. For these reasons, the Company does not believe that its order
backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.
Product Warranty
Because the design and manufacturing process for semiconductor products is highly complex, it is possible that the
Company may produce products that do not comply with customer specifications, contain defects or are otherwise
incompatible with end uses. In accordance with industry practice, the Company generally provides a limited warranty that its
products are in compliance with Company specifications existing at the time of delivery. Under the Company’s general terms
and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or
replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under certain
circumstances the Company may provide more extensive limited warranty coverage and general legal principles may impose
more extensive liability than that provided under the Company’s general terms and conditions.
Competition
The Company faces intense competition in the semiconductor memory markets from a number of companies, including
Elpida Memory, Inc.; Hynix Semiconductor Inc.; Qimonda AG ADS; Samsung Electronics Co., Ltd; SanDisk Corporation;
Toshiba Corporation and emerging companies in Taiwan and China. Some of the Company’s competitors are large
corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which
the Company competes, invest in technology and capitalize on growth opportunities. The Company’s competitors seek to
increase silicon capacity, improve yields, reduce die size and minimize mask levels in their product designs. These factors
have significantly increased worldwide supply and put downward pressure on prices.
The Company faces competition in the image sensor market from a number of suppliers of CMOS image sensors including
MagnaChip Semiconductor Ltd.; OmniVision Technologies, Inc.; Samsung Electronics Co., Ltd; Sony Corporation;
STMicroelectronics NV; Toshiba Corporation and from a number of suppliers of CCD image sensors including Matsushita
Electric Industrial Co., Ltd.; Sharp Corporation and Sony Corporation. In recent periods, a number of new companies have
entered the CMOS image sensor market. Competitors include many large domestic and international companies that may have
greater presence in key markets, better access to certain customer bases, greater name recognition and more established
strategic and financial relationships than the Company.
6
Research and Development
To compete in the semiconductor memory industry, the Company must continue to develop technologically advanced
products and processes. The Company believes that expansion of its semiconductor product offerings is necessary to meet
expected market demand for specific memory and imaging solutions. The Company has several product design centers around
the world, the largest located at its corporate headquarters in Boise, Idaho. In addition, the Company develops leading edge
photolithography mask technology at its MP Mask joint venture facility in Boise.
Research and development (“R&D”) expenses vary primarily with the number of development wafers processed, the cost
of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times
necessary to manufacture its products, the Company typically begins to process wafers before completion of performance and
reliability testing. The Company deems development of a product complete once the product has been thoroughly reviewed
and tested for performance and reliability. R&D expenses can vary significantly depending on the timing of product
qualification. The Company and Intel share R&D process and design costs for NAND Flash equally. Product development
costs are recorded as R&D expense.
The Company’s process technology R&D efforts are focused primarily on development of successively smaller line-width
process technologies which are designed to facilitate the Company’s transition to next generation memory products and CMOS
image sensors. Additional process technology R&D efforts focus on advanced computing and mobile memory architectures
and new manufacturing materials. Product design and development efforts are concentrated on the Company’s 1 Gb and 2 Gb
DDR2 and DDR3 products as well as high density and mobile NAND Flash memory (including MLC technology), CMOS
image sensors and specialty memory products. The Company’s R&D expenses were $805 million, $656 million and $604
million in 2007, 2006 and 2005, respectively.
Geographic Information
Sales to customers outside the United States totaled $4.0 billion for 2007 and included $1.1 billion in sales to China, $666
million in sales to Europe, $477 million in sales to Japan and $1.5 billion in sales to the rest of the Asia Pacific region,
excluding China and Japan. International sales totaled $3.6 billion for 2006 and $3.2 billion for 2005. As of August 30, 2007,
the Company had net property, plant and equipment of $6.5 billion in the United States, $1.2 billion in Singapore, $268 million
in Italy, $226 million in Japan and $28 million in other countries. (See “Item 8. Financial Statements and Supplementary Data
– Notes to Consolidated Financial Statements – Geographic Information” and “Item 1A. Risk Factors.”)
Patents and Licenses
In recent years, the Company has been recognized as a leader in volume and quality of patents issued. As of August 30,
2007, the Company owned approximately 16,400 U.S. patents and 2,000 foreign patents. In addition, the Company has
numerous U.S. and foreign patent applications pending. The Company’s patents have terms expiring through 2026.
The Company has a number of patent and intellectual property license agreements. Some of these license agreements
require the Company to make one time or periodic payments. The Company may need to obtain additional patent licenses or
renew existing license agreements in the future. The Company is unable to predict whether these license agreements can be
obtained or renewed on acceptable terms.
In recent years, the Company has recovered some of its investment in technology through sales of intellectual property
rights to joint venture partners and other third parties. The Company is pursing further opportunities to recover its investment
in intellectual property through partnering arrangements.
7
Employees
As of August 30, 2007, the Company had approximately 23,500 employees, including approximately 13,700 in the United
States, 5,700 in Singapore, 2,000 in Italy, 1,500 in Japan and 300 in the United Kingdom. The Company’s employees include
2,500 employees in its TECH joint venture that are located in Singapore and 1,400 employees in its IM Flash joint ventures
that are primarily located in the United States. Approximately 400 of the Company’s employees in Italy are represented by
labor organizations that have entered into national and local labor contracts with the Company. The Company’s employment
levels can vary depending on market conditions and the level of the Company’s production, research and product and process
development. Many of the Company’s employees are highly skilled, and the Company’s continued success depends in part
upon its ability to attract and retain such employees. The loss of key Company personnel could have a material adverse effect
on the Company’s business, results of operations or financial condition.
Environmental Compliance
Government regulations impose various environmental controls on raw materials and discharges, emissions and solid
wastes from the Company’s manufacturing processes. In 2007, the Company’s wafer wholly-owned fabrication facilities
continued to conform to the requirements of ISO 14001 certification. To continue certification, the Company met annual
requirements in environmental policy, compliance, planning, management, structure and responsibility, training,
communication, document control, operational control, emergency preparedness and response, record keeping and
management review. While the Company has not experienced any materially adverse effects on its operations from
environmental regulations, changes in the regulations could necessitate additional capital expenditures, modification of
operations or other compliance actions.
Directors and Executive Officers of the Registrant
Officers of the Company are appointed annually by the Board of Directors. Directors of the Company are elected annually
by the shareholders of the Company. Any directors appointed by the Board of Directors to fill vacancies on the Board serve
until the next election by the shareholders. All officers and directors serve until their successors are duly chosen or elected and
qualified, except in the case of earlier death, resignation or removal.
As of August 30, 2007, the following executive officers and directors of the Company were subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
Name
Mark W. Adams
Steven R. Appleton
Kipp A. Bedard
D. Mark Durcan
Robert J. Gove
Jay L. Hawkins
Roderic W. Lewis
Patrick T. Otte
Michael W. Sadler
Brian J. Shields
Brian M. Shirley
Wilbur G. Stover, Jr.
Teruaki Aoki
James W. Bagley
Mercedes Johnson
Lawrence N. Mondry
Robert E. Switz
President and Chief Operating Officer
Age Position
43 Vice President of Digital Media Products
47 Chairman and Chief Executive Officer
48 Vice President of Investor Relations
46
54 Vice President of Imaging Group
47 Vice President of Operations
52 Vice President of Legal Affairs, General Counsel and Corporate Secretary
45 Vice President of Human Resources
50 Vice President of Worldwide Sales
46 Vice President of Worldwide Wafer Fabrication
38 Vice President of Memory
54 Vice President of Finance and Chief Financial Officer
66 Director
68 Director
53 Director
47 Director
61 Director
Mark W. Adams joined the Company in June 2006. From January 2006 until he joined the Company, Mr. Adams was the
Chief Operating Officer of Lexar Media, Inc. Mr. Adams served as the Vice President of Sales and Marketing for Creative
Labs, Inc. from December 2002 to January 2006. From March 2000 to September 2002, Mr. Adams was the Chief Executive
Officer of Coresma, Inc. Mr. Adams holds a BA in Economics from Boston College and an MBA from Harvard Business
School.
8
Steven R. Appleton joined the Company in February 1983. Mr. Appleton first became an officer of the Company in
August 1989 and has served in various officer positions with the Company since that time. From April 1991 until July 1992
and since May 1994, Mr. Appleton has served on the Company’s Board of Directors. From September 1994 to June 2007, Mr.
Appleton served as the Chief Executive Officer, President and Chairman of the Board of Directors of the Company. In June
2007, Mr. Appleton relinquished his position as President of the Company but retained his other positions. Mr. Appleton is a
member of the Board of Directors of National Semiconductor Corporation. Mr. Appleton holds a BA in Business Management
from Boise State University.
Kipp A. Bedard joined the Company in November 1983 and has served in various capacities with the Company and its
subsidiaries. Mr. Bedard first became an officer of the Company in April 1990 and has served in various officer positions
since that time. Since January 1994, Mr. Bedard has served as Vice President of Investor Relations for the Company. Mr.
Bedard holds a BBA in Accounting from Boise State University.
D. Mark Durcan joined the Company in June 1984 and has served in various technical positions with the Company and its
subsidiaries since that time. Mr. Durcan was appointed Chief Operating Officer in February 2006 and President in June 2007.
Mr. Durcan has been an officer of the Company since 1996. Mr. Durcan holds a BS and MChE in Chemical Engineering from
Rice University.
Robert J. Gove joined the Company in March 1999 as Senior Director of Engineering and has served in various positions
with the Company. In March 2002, he was appointed Vice President of Imaging. Prior to joining the Company, Dr. Gove
served as Vice President, Engineering, of Equator Technologies, Inc. Dr. Gove holds a BS in Electrical Engineering from the
University of Washington and an MS in Electrical Engineering and Ph.D. in Electrical Engineering from Southern Methodist
University.
Jay L. Hawkins joined the Company in March 1984 and has served in various manufacturing positions for the Company
and its subsidiaries. Mr. Hawkins served as Vice President, Manufacturing Administration from February 1996 through June
1997, at which time he became Vice President of Operations. Mr. Hawkins holds a BBA in Marketing from Boise State
University.
Roderic W. Lewis joined the Company in August 1991 and has served in various capacities with the Company and its
subsidiaries. Mr. Lewis has served as Vice President of Legal Affairs, General Counsel and Corporate Secretary since July
1996. Mr. Lewis holds a BA in Economics and Asian Studies from Brigham Young University and a JD from Columbia
University School of Law.
Patrick T. Otte has served as the Company's Vice President of Human Resources since March 2007. Mr. Otte joined
Micron in 1987 and has served in various positions of increasing responsibility, including Production Manager in several of
Micron’s fabrication facilities, Operations Manager for Micron Technology Italia S.r.l. and, Site Director for the Company's
facility in Manassas, Virginia. Mr. Otte holds a Bachelor of Science degree from St. Paul Bible College in Minneapolis,
Minnesota.
Michael W. Sadler joined the Company in September 1992 as a Regional Sales Manager and has held various sales and
marketing positions since that time. Mr. Sadler became an officer of the Company in July 1997 and has served as Vice
President of Worldwide Sales since November 2001. Mr. Sadler holds a BS in Information Systems and an MBA from the
University of Santa Clara.
Brian J. Shields joined the Company in November 1986 and has served in various operational positions with the
Company. Mr. Shields first became an officer of the Company in March 2003.
Brian M. Shirley joined the Company in August 1992 and has served in various technical positions with the Company.
Mr. Shirley became an officer of the Company in February 2006. Mr. Shirley holds a BS in Electrical Engineering from
Stanford University.
Wilbur G. Stover, Jr. joined the Company in June 1989 and has served in various financial positions with the Company
and its subsidiaries. Since September 1994, Mr. Stover has served as the Company’s Vice President of Finance and Chief
Financial Officer. Mr. Stover holds a BA in Business Administration from Washington State University. In July 2007, Mr.
Stover informed the Company that he will retire after the completion of the Company’s fiscal 2007.
9
Teruaki Aoki is Executive Managing Director of Sony Foundation for Education. Dr. Aoki has been associated with Sony
since 1970 and has held various executive positions, including Senior Executive Vice President and Executive Officer of Sony
Corporation as well as President and Chief Operating Officer of Sony Electronics, a U.S. subsidiary. Dr. Aoki holds a Ph.D. in
Material Sciences from Northwestern University as well as a BS in Applied Physics from the University of Tokyo. He was
elected as an IEEE Fellow in 2003 and serves as Advisory Board Member of Kellogg School of Management of Northwestern
University. Dr. Aoki also serves on the board of Citizen Holdings Co. Ltd.
James W. Bagley served as the Chairman and Chief Executive Officer of Lam Research Corporation (“Lam”), a supplier of
semiconductor manufacturing equipment, from August 1997 through June 2005. In June 2005 Mr. Bagley became the
Executive Chairman of Lam. Mr. Bagley is a member of the Board of Directors of Teradyne, Inc. He has served on the
Company’s Board of Directors since June 1997. Mr. Bagley holds a MS and BS in Electrical Engineering from Mississippi
State University.
Mercedes Johnson has served as the Senior Vice President and Chief Financial Officer of Avago Technologies Limited, a
semiconductor company, since December 2005. Prior to that, she served as the Senior Vice President, Finance, of Lam from
June 2004 to January 2005 and as Lam’s Chief Financial Officer from May 1997 to May 2004. Before joining Lam, Ms.
Johnson spent 10 years with Applied Materials, Inc., where she served in various senior financial management positions,
including vice president and worldwide operations controller. Ms. Johnson holds a degree in accounting from the University of
Buenos Aires and currently serves on the Board of Directors for Intersil Corporation. Ms. Johnson is the Chairman of the
Board’s Audit Committee.
Lawrence N. Mondry currently serves as the Chief Executive Officer and President of CSK Auto Corporation (“CSK”), a
specialty retailer of automotive aftermarket parts. Prior to his appointment at CSK, Mr. Mondry served as the Chief Executive
Officer of CompUSA Inc. from November 2003 to May 2006. Mr. Mondry joined CompUSA in 1990. Mr. Mondry currently
serves on the Board of Directors of CSK. Mr. Mondry is the Chairman of the Board’s Compensation Committee.
Robert E. Switz is currently President and CEO of ADC Telecommunications, Inc., a supplier of network infrastructure
products and services. Mr. Switz has been with ADC since 1994 and prior to his current position, served ADC as Executive
Vice President and Chief Financial Officer. Mr. Switz holds an MBA from the University of Bridgeport as well as a degree in
marketing/economics from Quinnipiac University. Mr. Switz also serves on the Board of Directors for ADC and Broadcom
Corporation. Mr. Switz is the Chairman of the Board’s Governance Committee.
There is no family relationship between any director or executive officer of the Company.
10
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause
actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the
Company.
We have experienced dramatic declines in average selling prices for our semiconductor memory products which have
adversely affected our business.
In 2007, average selling prices for DRAM products and NAND Flash products decreased 23% and 56%, respectively, as
compared to 2006. In recent years, we have also experienced annual decreases in per megabit average selling prices for our
memory products including: 34% in 2006, 24% in 2005, 17% in 2003, 53% in 2002 and 60% in 2001. At times, average
selling prices for our memory products have been below our costs. If average selling prices for our memory products decrease
faster than we can decrease per megabit costs, as they recently have, our business, results of operations or financial condition
could be materially adversely affected.
The semiconductor memory industry is highly competitive.
We face intense competition in the semiconductor memory market from a number of companies, including Elpida Memory,
Inc.; Hynix Semiconductor Inc.; Qimonda AG ADS; Samsung Electronics Co., Ltd.; SanDisk Corporation; Toshiba
Corporation and from emerging companies in Taiwan and China, who have significantly expanded the scale of their operations.
Some of our competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the
semiconductor markets in which we compete, invest in technology and capitalize on growth opportunities.
Our competitors seek to increase silicon capacity, improve yields, reduce die size and minimize mask levels in their
product designs. The transitions to smaller line-width process technologies and 300mm wafers in the industry have resulted in
significant increases in the worldwide supply of semiconductor memory and will likely lead to future increases. Increases in
worldwide supply of semiconductor memory also result from semiconductor memory fab capacity expansions, either by way of
new facilities, increased capacity utilization or reallocation of other semiconductor production to semiconductor memory
production. We and several of our competitors have significantly increased production in recent periods through construction
of new facilities or expansion of existing facilities. Increases in worldwide supply of semiconductor memory, if not
accompanied with commensurate increases in demand, would lead to further declines in average selling prices for our products
and would materially adversely affect our business, results of operations or financial condition.
We may be unable to reduce our per megabit manufacturing costs at the same rate as we have in the past.
Our gross margins are dependent upon continuing decreases in per unit manufacturing costs achieved through
improvements in our manufacturing processes, including reducing the die size of our existing products. In future periods, we
may be unable to reduce our per unit manufacturing costs at sufficient levels to increase gross margins due to strategic product
diversification decisions affecting product mix, the increasing complexity of manufacturing processes, changes in process
technologies or products which inherently may require relatively larger die sizes. Per unit manufacturing costs may also be
affected by the relatively smaller production quantities and shorter product lifecycles of Imaging and certain specialty memory
products.
Depressed pricing for semiconductor memory products may lead to future losses and inventory write-downs.
We recorded an inventory write-down of $20 million in the fourth quarter of 2007 as a result of the significant decreases in
average selling prices for our semiconductor memory products. If average selling prices are below our costs in future periods,
we expect to incur losses on product sales and our business, results of operations or financial condition could be materially
adversely affected. If the estimated market values of products held in finished goods and work in process inventories at a
quarter end date are below the manufacturing cost of these products, we recognize charges to cost of goods sold to write down
the carrying value of our inventories to market value. Future charges for inventory write-downs could be significantly larger
than the $20 million recorded in 2007.
11
Our plans to significantly increase our NAND Flash memory production and sales have numerous risks.
We plan to significantly increase our NAND Flash production and sales in future periods. As part of this plan, we have
formed several manufacturing joint ventures with Intel and made substantial investments in capital expenditures for equipment,
new facilities and research and development. Our plans also require significant investments in capital expenditures and
research and development. We currently expect our capital spending for 2008 to approximate $2.5 billion, with a majority of
the expenditures being made to support our NAND operations. These investments involve numerous risks. In addition, we are
required to devote a significant portion of our existing semiconductor manufacturing capacity to the production of NAND
Flash instead of the Company's other products. We are party to a contract with Apple Inc. to provide NAND Flash products for
an extended period of time at contractually determined prices. We currently have a relatively small share of the world-wide
market for NAND Flash.
Our NAND Flash strategy involves numerous risks, and may include the following:
•
•
•
•
•
increasing our exposure to changes in average selling prices for NAND Flash;
difficulties in establishing new production operations at multiple locations;
increasing capital expenditures to increase production capacity and modify existing processes to produce NAND
Flash;
raising funds or increasing debt to finance future investments;
diverting management’s attention from DRAM and CMOS image sensor operations;
• managing larger operations and facilities and employees in separate geographic areas; and
•
hiring and retaining key employees.
Our NAND Flash strategy may not be successful and could materially adversely affect our business, results of operations
or financial condition.
The future success of our Imaging business will be dependent on continued market acceptance of our products and the
development, introduction and marketing of new Imaging products.
We face competition in the image sensor market from a number of suppliers of CMOS image sensors including
MagnaChip Semiconductor Ltd.; OmniVision Technologies, Inc.; Samsung Electronics Co., Ltd; Sony Corporation;
STMicroelectronics NV; Toshiba Corporation and from a number of suppliers of CCD image sensors including Matsushita
Electric Industrial Co., Ltd.; Sharp Corporation and Sony Corporation. In recent periods, a number of new companies have
entered the CMOS image sensor market. Competitors include many large domestic and international companies that have
greater presence in key markets, better access to certain customer bases, greater name recognition and more established
strategic and financial relationships than the Company.
Our Imaging net sales and gross margins decreased in 2007 and we faced increased competition. There can be no
assurance that we will be able to grow or maintain our market share or gross margins for Imaging products in the future. The
success of our Imaging business will depend on a number of factors, including:
•
•
•
•
development of products that maintain a technological advantage over the products of our competitors;
accurate prediction of market requirements and evolving standards, including pixel resolution, output interface
standards, power requirements, optical lens size, input standards and other requirements;
timely completion and introduction of new Imaging products that satisfy customer requirements;
timely achievement of design wins with prospective customers, as manufacturers may be reluctant to change their
source of components due to the significant costs, time, effort and risk associated with qualifying a new supplier;
and
12
•
efficient, cost-effective manufacturing as we transition to new products and higher volumes.
The Company is exploring business model alternatives for its Imaging business including partnering arrangements. To the
extent we form a partnering arrangement; the resulting business model may not be successful and the Imaging operations
revenues and margins could be adversely affected. We may incur significant costs to convert Imaging operations to a new
business structure and operations could be disrupted. If our efforts to restructure the Imaging business are unsuccessful, our
business, results of operations or financial condition could be materially adversely affected.
We may be unable to generate sufficient cash flows to fund our operations and make adequate capital investments.
Our cash flows from operations depend primarily on the volume of semiconductor memory and CMOS image sensors sold,
average selling prices and per unit manufacturing costs. To develop new product and process technologies, support future
growth, achieve operating efficiencies and maintain product quality, we must make significant capital investments in
manufacturing technology, facilities and capital equipment, research and development, and product and process technology.
We expect capital spending for 2008 to approximate $2.5 billion. Cash and investments of IM Flash and TECH are generally
not available to finance our other operations. In addition to cash provided by operations, we have from time to time utilized
external sources of financing. Access to capital markets has historically been very important to us. Depending on market
conditions, we may issue registered or unregistered securities to raise capital to fund a portion of our operations. There can be
no assurance that we will be able to generate sufficient cash flows to fund our operations, make adequate capital investments or
access capital markets on acceptable terms, and an inability to do so could have a material adverse effect on our business and
results of operations.
We expect to make future acquisitions and alliances, which involve numerous risks.
Acquisitions and the formation of alliances such as joint ventures and other partnering arrangements, involve numerous
risks including the following:
•
•
•
•
difficulties in integrating the operations, technologies and products of acquired or newly formed entities,
increasing capital expenditures to upgrade and maintain facilities,
increasing debt to finance any acquisition or formation of a new business,
diverting management’s attention from normal daily operations,
• managing larger or more complex operations and facilities and employees in separate geographic areas, and
•
hiring and retaining key employees.
Acquisitions of, or alliances with, high-technology companies are inherently risky, and any future transactions may not be
successful and may materially adversely affect our business, results of operations or financial condition.
We may not realize the expected benefits of new initiatives to reduce costs and increase revenue across our operations.
We are pursuing a number of initiatives to reduce costs and increase revenue across our operations. These initiatives
include workforce reductions in certain areas as we realign our business. Additional initiatives include establishing certain
operations closer in location to our global customers, evaluating functions more efficiently performed through partnerships or
other outside relationships and reducing our overhead costs to meet or exceed industry benchmarks. We are also exploring
opportunities to leverage our technology and diversified product portfolio to increase revenue and shareholder value. In the
fourth quarter of 2007, we incurred a restructure charge of $19 million consisting primarily of employee severance and related
costs resulting from a reduction in our workforce. We anticipate that we will incur some level of restructure charges through
the end of 2008 as we continue to implement these initiatives. We may not realize the expected benefits of these new
initiatives. As a result of these initiatives, we expect to incur restructuring or other infrequent charges and we may experience
disruptions in our operations, loss of key personnel and difficulties in delivering products timely.
13
Our net operating loss and tax credit carryforwards may be limited.
We have significant net operating loss and tax credit carryforwards. We have provided significant valuation allowances
against the tax benefit of such losses as well as certain tax credit carryforwards. Utilization of these net operating losses and
credit carryforwards is dependent upon us achieving sustained profitability. As a consequence of prior business acquisitions,
utilization of the tax benefits for some of the tax carryforwards is subject to limitations imposed by Section 382 of the Internal
Revenue Code and some portion or all of these carryforwards may not be available to offset any future taxable income. The
determination of the limitations is complex and requires significant judgment and analysis of past transactions.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations or
financial condition.
Our financial statements are prepared in accordance with U.S. GAAP and are reported in U.S. dollars. Across our multi-
national operations, there are transactions and balances denominated in other currencies, primarily the euro, yen and Singapore
dollar. We estimate that, based on our assets and liabilities denominated in currencies other than U.S. dollar as of August 30,
2007, a 1% change in the exchange rate versus the U.S. dollar would result in foreign currency gains or losses of approximately
U.S. $3 million for the Singapore dollar, U.S. $2 million for the euro and U.S. $1 million for the yen. In the event that the U.S.
dollar weakens significantly compared to the Singapore dollar, euro or yen, our results of operations or financial condition will
be adversely affected.
New product development may be unsuccessful.
We are developing new products that complement our traditional memory products or leverage their underlying design or
process technology. We have made significant investments in product and process technologies and anticipate expending
significant resources for new semiconductor product development over the next several years. The process to develop NAND
Flash, Imaging and certain specialty memory products requires us to demonstrate advanced functionality and performance,
many times well in advance of a planned ramp of production, in order to secure design wins with our customers. There can be
no assurance that our product development efforts will be successful, that we will be able to cost-effectively manufacture these
new products, that we will be able to successfully market these products or that margins generated from sales of these products
will recover costs of development efforts.
An adverse determination that our products or manufacturing processes infringe the intellectual property rights of
others could materially adversely affect our business, results of operations or financial condition.
As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may
in the future assert, that our products or manufacturing processes infringe their intellectual property rights. In this regard, we
are engaged in litigation with Rambus, Inc. ("Rambus") relating to certain of Rambus' patents and certain of our claims and
defenses. On August 28, 2000, we filed a complaint (subsequently amended) against Rambus in the U.S. District Court for the
District of Delaware seeking monetary damages and declaratory and injunctive relief. Among other things, our amended
complaint alleges violation of federal antitrust laws, breach of contract, fraud, deceptive trade practices, and negligent
misrepresentation. The complaint also seeks a declaratory judgment (a) that certain Rambus patents are not infringed by us,
are invalid, and/or are unenforceable, (b) that we have an implied license to those patents, and (c) that Rambus is estopped
from enforcing those patents against us. On February 15, 2001, Rambus filed an answer and counterclaim in Delaware
denying that we are entitled to relief, alleging infringement of the eight Rambus patents named in our declaratory judgment
claim, and seeking monetary damages and injunctive relief. A number of other suits are pending in Europe alleging that certain
of our SDRAM and DDR SDRAM products infringe various of Rambus' country counterparts to its European patent 525 068,
including: on September 1, 2000, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court
of Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against us and Reptronic (a distributor of our
products) in the Court of First Instance of Paris, France; and on September 29, 2000, we filed suit against Rambus in the Civil
Court of Milan, Italy, alleging invalidity and non-infringement. In addition, on December 29, 2000, we filed suit against
Rambus in the Civil Court of Avezzano, Italy, alleging invalidity and non-infringement of the Italian counterpart to European
patent 1 004 956. Additionally, other suits are pending alleging that certain of our DDR SDRAM products infringe Rambus'
country counterparts to its European patent 1 022 642, including: on August 10, 2001, Rambus filed suit against us and Assitec
(an electronics retailer) in the Civil Court of Pavia, Italy; and on August 14, 2001, Rambus filed suit against Micron
Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany. In the European suits against us, Rambus
is seeking monetary damages and injunctive relief. Subsequent to the filing of the various European suits, the European Patent
Office declared Rambus' 525 068 and 1 004 956 European patents invalid and revoked the patents. On January 13, 2006,
Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California alleging infringement of
eighteen Rambus patents. We are also engaged in litigation with Mosaid Technologies, Inc. ("Mosaid"). On July 24, 2006, we
14
filed a declaratory judgment action against Mosaid in the U.S. District Court for the Northern District of California seeking,
among other things, a court determination that fourteen Mosaid patents are invalid, not enforceable, and/or not infringed. On
July 25, 2006, Mosaid filed a lawsuit against us and others in the U.S. District Court for the Eastern District of Texas alleging
infringement of nine Mosaid patents. On August 31, 2006, Mosaid filed an amended complaint adding two additional Mosaid
patents. On October 23, 2006, the California Court dismissed our declaratory judgment suit based on lack of jurisdiction. We
have appealed that decision to the U.S. Court of Appeals for the Federal Circuit.
Among other things, the above lawsuits pertain to certain of our SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM,
and image sensor products, which account for a significant portion of our net sales.
A court determination that our products or manufacturing processes infringe the intellectual property rights of others could
result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. We
are unable to predict the outcome of assertions of infringement made against us. Any of the foregoing could have a material
adverse effect on our business, results of operations or financial condition.
We have a number of patent and intellectual property license agreements. Some of these license agreements require us to
make one time or periodic payments. We may need to obtain additional patent licenses or renew existing license agreements in
the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
Allegations of anticompetitive conduct.
On June 17, 2002, we received a grand jury subpoena from the U.S. District Court for the Northern District of California
seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the "DOJ") into possible
antitrust violations in the "Dynamic Random Access Memory" or "DRAM" industry. We are cooperating fully and actively
with the DOJ in its investigation of the DRAM industry. Our cooperation is pursuant to the terms of the DOJ's Corporate
Leniency Policy, which provides that in exchange for our full, continuing and complete cooperation in the pending
investigation, we will not be subject to prosecution, fines or other penalties from the DOJ.
Subsequent to the commencement of the DOJ investigation, a number of purported class action lawsuits have been filed
against us and other DRAM suppliers. Four cases have been filed in the U.S. District Court for the Northern District of
California asserting claims on behalf of a purported class of individuals and entities that indirectly purchased DRAM and/or
products containing DRAM from various DRAM suppliers during the time period from April 1, 1999 through at least June 30,
2002. The complaints allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition
laws and seek treble monetary damages, restitution, costs, interest and attorneys' fees. In addition, at least sixty-four cases have
been filed in various state and federal courts (five of which have been dismissed) asserting claims on behalf of a purported
class of indirect purchasers of DRAM. Cases have been filed in the following states: Arkansas, Arizona, California, Florida,
Hawaii, Iowa, Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi, Montana, North Carolina, North Dakota,
Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee,
Utah, Vermont, Virginia, Wisconsin, and West Virginia, and also in the District of Columbia and Puerto Rico. The complaints
purport to be on behalf of individuals and entities that indirectly purchased DRAM and/or products containing DRAM in the
respective jurisdictions during various time periods ranging from April 1999 through at least June 2002. The complaints allege
violations of various jurisdictions' antitrust, consumer protection and/or unfair competition laws relating to the sale and pricing
of DRAM products and seek treble monetary damages, restitution, costs, interest and attorneys' fees. A number of these cases
have been removed to federal court and transferred to the U.S. District Court for the Northern District of California (San
Francisco) for consolidated proceedings. On June 1, 2007, the Court granted in part and denied in part our motion to dismiss
the consolidated complaint. Plaintiffs subsequently have filed an amended complaint.
Additionally, three cases have been filed in the following Canadian courts: Superior Court, District of Montreal, Province
of Quebec; Ontario Superior Court of Justice, Ontario; and Supreme Court of British Columbia, Vancouver Registry, British
Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.
15
In addition, various states, through their Attorneys General, have filed suit against us and other DRAM manufacturers. On
July 14, 2006, and on September 8, 2006 in an amended complaint, the following states filed suit in the U.S. District Court for
the Northern District of California: Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois,
Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New
Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and the Commonwealth of the
Northern Mariana Islands. The amended complaint alleges, among other things, violations of the Sherman Act, Cartwright Act,
and certain other states' consumer protection and antitrust laws and seeks damages, and injunctive and other relief.
Additionally, on July 13, 2006, the State of New York filed a similar suit in the U.S. District Court for the Southern District of
New York. That case was subsequently transferred to the U.S. District Court for the Northern District of California for pre-
trial purposes. Three states, Ohio, New Hampshire, and Texas, subsequently have withdrawn from the complaint.
In February and March 2007, All American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers in the U.S. District Court for the Northern
District of California after opting-out of a direct purchaser class action suit that was settled. The complaints allege, among
other things, violations of federal and state antitrust and competition laws in the DRAM industry, and seek damages, injunctive
relief, and other remedies.
On October 11, 2006, we received a grand jury subpoena from the U.S. District Court for the Northern District of
California seeking information regarding an investigation by the DOJ into possible antitrust violations in the "Static Random
Access Memory" or "SRAM" industry. We believe that we are not a target of the investigation and we are cooperating with
the DOJ in its investigation of the SRAM industry.
Subsequent to the issuance of subpoenas to the SRAM industry, a number of purported class action lawsuits have been
filed against us and other SRAM suppliers. Six cases have been filed in the U.S. District Court for the Northern District of
California asserting claims on behalf of a purported class of individuals and entities that purchased SRAM directly from
various SRAM suppliers during the period from January 1, 1998 through December 31, 2005. Additionally, at least seventy-
four cases have been filed in various U.S. District Courts asserting claims on behalf of a purported class of individuals and
entities that indirectly purchased SRAM and/or products containing SRAM from various SRAM suppliers during the time
period from January 1, 1998 through December 31, 2005. The complaints allege price fixing in violation of federal antitrust
laws and state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys'
fees.
In September 2007, a number of memory suppliers confirmed that they had received grand jury subpoenas from the U.S.
District Court for the Northern District of California seeking information regarding an investigation by the DOJ into possible
antitrust violations in the "Flash" industry. We have not received a subpoena and believe that we are not a target of the
investigation.
At least thirty-four purported class action lawsuits have been filed against the Company and other suppliers of Flash
memory products in the U.S. District Court for the Northern District of California and other federal district courts. These cases
assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly or indirectly from
various Flash memory suppliers during the period from January 1, 1999 through the date the various cases were filed. The
complaints generally allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition
laws and seek monetary damages, restitution, costs, interest, and attorneys' fees.
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against
us and other DRAM suppliers. The complaint alleges various causes of action under California state law including conspiracy
to restrict output and fix prices on Rambus DRAM ("RDRAM"), and unfair competition. The complaint seeks treble damages,
punitive damages, attorneys' fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the
complaints.
We are unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged violations
of antitrust laws could result in significant liability and could have a material adverse effect on our business, results of
operations or financial condition.
16
Allegations of violations of securities laws.
On February 24, 2006, a putative class action complaint was filed against us and certain of our officers in the U.S. District
Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in the same
Court. The cases purport to be brought on behalf of a class of purchasers of our stock during the period February 24, 2001 to
February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among other things, claimed
misstatements or omissions regarding alleged illegal price-fixing conduct. The complaint seeks unspecified damages, interest,
attorneys' fees, costs, and expenses.
In addition, on March 23, 2006 a shareholder derivative action was filed in the Fourth District Court for the State of Idaho
(Ada County), allegedly on behalf of and for our benefit, against certain of our current and former officers and directors. We
were also named as a nominal defendant. An amended complaint was filed on August 23, 2006. The complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S. District Court for the District of Idaho and alleges
breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and insider
trading. The complaint seeks unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief,
attorneys' fees, costs, and expenses. The complaint is derivative in nature and does not seek monetary damages from us.
However, we may be required, throughout the pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On May 29, 2007, the Court granted our motion to dismiss the complaint but provided plaintiffs leave to file
an amended complaint. On September 6, 2007, plaintiffs filed an amended complaint.
In March 2006, following our announcement of a definitive agreement to acquire Lexar Media, Inc. ("Lexar") in a stock-
for-stock merger, four purported class action complaints were filed in the Superior Court for the State of California (Alameda
County) on behalf of shareholders of Lexar against Lexar and its directors. Two of the complaints also name us as a defendant.
The complaints allege that the defendants breached, or aided and abetted the breach of, fiduciary duties owed to Lexar
shareholders by, among other things, engaging in self-dealing, failing to engage in efforts to obtain the highest price reasonably
available, and failing to properly value Lexar in connection with a merger transaction between Lexar and us. The plaintiffs
seek, among other things, injunctive relief preventing, or an order of rescission reversing, the merger, compensatory damages,
interest, attorneys' fees, and costs. On May 19, 2006, the plaintiffs filed a motion for preliminary injunction seeking to block
the merger. On May 31, 2006, the Court denied the motion. An amended consolidated complaint was filed on October 10,
2006. On June 14, 2007, the Court granted Lexar's and our motions to dismiss the amended complaint but allowed plaintiffs
leave to file a further amended complaint. On July 16, 2007, plaintiffs filed an amended complaint.
We are unable to predict the outcome of these cases. A court determination in any of the class actions against us could
result in significant liability and could have a material adverse effect on our business, results of operations or financial
condition.
We face risks associated with our international sales and operations that could materially adversely affect our business,
results of operations or financial condition.
Sales to customers outside the United States approximated 70% of our consolidated net sales for 2007. In addition, we
have manufacturing operations in China, Italy, Japan, Puerto Rico and Singapore. Our international sales and operations are
subject to a variety of risks, including:
•
•
•
•
•
•
•
currency exchange rate fluctuations,
export and import duties, changes to import and export regulations, and restrictions on the transfer of funds,
political and economic instability,
problems with the transportation or delivery of our products,
issues arising from cultural or language differences and labor unrest,
longer payment cycles and greater difficulty in collecting accounts receivable, and
compliance with trade and other laws in a variety of jurisdictions.
17
These factors may materially adversely affect our business, results of operations or financial condition.
If our manufacturing process is disrupted, our business, results of operations or financial condition could be materially
adversely affected.
We manufacture products using highly complex processes that require technologically advanced equipment and
continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a
shift in product mix can reduce yields or disrupt production and may increase our per megabit manufacturing costs.
Additionally, our control over operations at our IM Flash, TECH and MP Mask joint ventures may be limited by our
agreements with our partners. From time to time, we have experienced minor disruptions in our manufacturing process as a
result of power outages or equipment failures. If production at a fabrication facility is disrupted for any reason, manufacturing
yields may be adversely affected or we may be unable to meet our customers' requirements and they may purchase products
from other suppliers. This could result in a significant increase in manufacturing costs or loss of revenues or damage to
customer relationships, which could materially adversely affect our business, results of operations or financial condition.
Disruptions in our supply of raw materials could materially adversely affect our business, results of operations or
financial condition.
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our
raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our
standards. Various factors could reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases,
lead frames and molding compound.
Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay our receipt
of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials is
disrupted or our lead times extended, our business, results of operations or financial condition could be materially adversely
affected.
Disruptions in our supply of raw materials could materially adversely affect our business, results of operations or
financial condition.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are
otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our
business, results of operations or financial condition.
Because the design and production process for semiconductor memory is highly complex, it is possible that we may
produce products that do not comply with customer specifications, contain defects or are otherwise incompatible with end uses.
If, despite design review, quality control and product qualification procedures, problems with nonconforming, defective or
incompatible products occur after we have shipped such products, we could be adversely affected in several ways, including
the following:
• we may replace product or otherwise compensate customers for costs incurred or damages caused by defective or
incompatible product, and
• we may encounter adverse publicity, which could cause a decrease in sales of our products.
Economic and political conditions may harm our business.
Global economic conditions and the effects of military or terrorist actions may cause significant disruptions to worldwide
commerce. If these disruptions result in delays or cancellations of customer orders, a decrease in corporate spending on
information technology or our inability to effectively market, manufacture or ship our products. Global economic conditions
may also affect consumer demand for devices that incorporate our products such as mobile phones, personal computers, Flash
memory cards and USB devices. As a result, our business, results of operations or financial condition could be materially
adversely affected.
Item 1B. Unresolved Staff Comments
None.
18
Item 2. Properties
The Company’s corporate headquarters are located in Boise, Idaho. The following is a summary of the Company’s
principal facilities:
Location
Principal Operations
Boise, Idaho
Lehi, Utah
Manassas, Virginia
Singapore
Nishiwaki City, Japan
Avezzano, Italy
Nampa, Idaho
Aguadilla, Puerto Rico
Xi’an, China
Wafer fabrication, test and assembly, research and development
Wafer fabrication
Wafer fabrication, research and development
Wafer fabrication facility and a test, assembly and module assembly facility
Wafer fabrication
Wafer fabrication
Test
Module assembly, test
Test
The Company also owns and leases a number of other facilities in locations throughout the world that are used for design,
research and development, and sales and marketing activities.
The Company’s facility in Lehi is owned and operated by its IM Flash joint venture with Intel (See “Item 8. Financial
Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – IM NAND Flash Joint
Ventures with Intel.”) The Company’s wafer fabrication facility in Singapore is owned by its TECH joint venture (See “Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH
Semiconductor Singapore Pte. Ltd.”)
The Company believes that its existing facilities are suitable and adequate for its present purposes and that the productive
capacity in such facilities is substantially being utilized or the Company has plans to utilize it. The Company does not identify
or allocate assets by operating segment. For additional information on net property, plant and equipment by country, (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic
Information.”)
Item 3. Legal Proceedings
On August 28, 2000, the Company filed a complaint against Rambus, Inc. (“Rambus”) in the U.S. District Court for the
District of Delaware seeking monetary damages and declaratory and injunctive relief. Among other things, the Company’s
complaint (as amended) alleges violation of federal antitrust laws, breach of contract, fraud, deceptive trade practices, and
negligent misrepresentation. The complaint also seeks a declaratory judgment (a) that certain Rambus patents are not infringed
by the Company, are invalid, and/or are unenforceable, (b) that the Company has an implied license to those patents, and (c)
that Rambus is estopped from enforcing those patents against the Company. On February 15, 2001, Rambus filed an answer
and counterclaim in Delaware denying that the Company is entitled to relief, alleging infringement of the eight Rambus patents
named in the Company’s declaratory judgment claim, and seeking monetary damages and injunctive relief. A number of other
suits are currently pending in Europe alleging that certain of the Company’s SDRAM and DDR SDRAM products infringe
various of Rambus’ country counterparts to its European patent 525 068, including: on September 1, 2000, Rambus filed suit
against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany; on September 22, 2000,
Rambus filed a complaint against the Company and Reptronic (a distributor of the Company’s products) in the Court of First
Instance of Paris, France; on September 29, 2000, the Company filed suit against Rambus in the Civil Court of Milan, Italy,
alleging invalidity and non-infringement. In addition, on December 29, 2000, the Company filed suit against Rambus in the
Civil Court of Avezzano, Italy, alleging invalidity and non-infringement of the Italian counterpart to European patent 1 004
956. Additionally, other suits are pending alleging that certain of our DDR SDRAM products infringe Rambus’ country
counterparts to its European patent 1 022 642, including: on August 10, 2001, Rambus filed suit against the Company and
Assitec (an electronics retailer) in the Civil Court of Pavia, Italy; and on August 14, 2001, Rambus filed suit against Micron
Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany. In the European suits against the
Company, Rambus is seeking monetary damages and injunctive relief. Subsequent to the filing of the various European suits,
the European Patent Office declared Rambus’ 525 068 and 1 004 956 European patents invalid and revoked the patents. On
January 13, 2006, Rambus filed a lawsuit against the Company in the U.S. District Court for the Northern District of California
alleging infringement of eighteen Rambus patents.
19
On July 24, 2006, the Company filed a declaratory judgment action against Mosaid Technologies, Inc. (“Mosaid”) in the
U.S. District Court for the Northern District of California seeking, among other things, a court determination that fourteen
Mosaid patents are invalid, not enforceable, and/or not infringed. On July 25, 2006, Mosaid filed a lawsuit against the
Company and others in the U.S. District Court for the Eastern District of Texas alleging infringement of nine Mosaid patents.
On August 31, 2006, Mosaid filed an amended complaint adding two additional Mosaid patents. On October 23, 2006, the
California Court dismissed the Company’s declaratory judgment suit based on lack of jurisdiction. The Company has appealed
that decision to the U.S. Court of Appeals for the Federal Circuit.
Among other things, the above lawsuits pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM,
RLDRAM, and image sensor products, which account for a significant portion of the Company’s net sales.
The Company is unable to predict the outcome of these suits. A court determination that the Company’s products or
manufacturing processes infringe the product or process intellectual property rights of others could result in significant liability
and/or require the Company to make material changes to its products and/or manufacturing processes. Any of the foregoing
results could have a material adverse effect on the Company’s business, results of operations or financial condition.
On June 17, 2002, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of
California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”)
into possible antitrust violations in the “Dynamic Random Access Memory” or “DRAM” industry. The Company is
cooperating fully and actively with the DOJ in its investigation. The Company’s cooperation is pursuant to the terms of the
DOJ’s Corporate Leniency Policy, which provides that in exchange for our full, continuing and complete cooperation in the
pending investigation, the Company will not be subject to prosecution, fines or other penalties from the DOJ.
Subsequent to the commencement of the DOJ investigation, a number of purported class action lawsuits have been filed
against the Company and other DRAM suppliers. Four cases have been filed in the U.S. District Court for the Northern
District of California asserting claims on behalf of a purported class of individuals and entities that indirectly purchased
DRAM and/or products containing DRAM from various DRAM suppliers during the time period from April 1, 1999 through at
least June 30, 2002. The complaints allege price fixing in violation of federal antitrust laws and various state antitrust and
unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’ fees. In addition, at least
sixty-four cases have been filed in various state courts asserting claims on behalf of a purported class of indirect purchasers of
DRAM. Cases have been filed in the following states: Arkansas, Arizona, California, Florida, Hawaii, Iowa, Kansas,
Massachusetts, Maine, Michigan, Minnesota, Mississippi, Montana, North Carolina, North Dakota, Nebraska, New Hampshire,
New Jersey, New Mexico, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Utah, Vermont, Virginia,
Wisconsin, and West Virginia, and also in the District of Columbia and Puerto Rico. The complaints purport to be on behalf of
a class of individuals and entities that indirectly purchased DRAM and/or products containing DRAM in the respective
jurisdictions during various time periods ranging from April 1999 through at least June 2002. The complaints allege violations
of the various jurisdictions’ antitrust, consumer protection and/or unfair competition laws relating to the sale and pricing of
DRAM products and seek treble monetary damages, restitution, costs, interest and attorneys’ fees. A number of these cases
have been removed to federal court and transferred to the U.S. District Court for the Northern District of California (San
Francisco) for consolidated proceedings. On June 1, 2007, the Court granted in part and denied in part the Company’s motion
to dismiss the consolidated complaint. Plaintiffs subsequently have filed an amended complaint.
Additionally, three cases have been filed in the following Canadian courts: Superior Court, District of Montreal, Province
of Quebec; Ontario Superior Court of Justice, Ontario; and Supreme Court of British Columbia, Vancouver Registry, British
Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.
In addition, various states, through their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an amended complaint, the following states filed suit in the U.S.
District Court for the Northern District of California: Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida,
Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and the
Commonwealth of the Northern Mariana Islands. The amended complaint alleges, among other things, violations of the
Sherman Act, Cartwright Act, and certain other states’ consumer protection and antitrust laws and seeks damages, and
injunctive and other relief. Additionally, on July 13, 2006, the State of New York filed a similar suit in the U.S. District Court
for the Southern District of New York. That case was subsequently transferred to the U.S. District Court for the Northern
District of California for pre-trial purposes. Three states, Ohio, New Hampshire, and Texas, subsequently have withdrawn
from the complaint.
20
On February 28, 2007, February 28, 2007 and March 8, 2007, cases were filed against the Company and other
manufacturers of DRAM in the U.S. District Court for the Northern District of California by All American Semiconductor,
Inc., Jaco Electronics, Inc. and DRAM Claims Liquidation Trust, respectively, that opted-out of a direct purchaser class action
suit that was settled. The complaints allege, among other things, violations of federal and state antitrust and competition laws
in the DRAM industry, and seek damages, injunctive relief, and other remedies.
On October 11, 2006, the Company received a grand jury subpoena from the U.S. District Court for the Northern District
of California seeking information regarding an investigation by the DOJ into possible antitrust violations in the “Static Random
Access Memory” or “SRAM” industry. The Company believes that it is not a target of the investigation and is cooperating
with the DOJ in its investigation of the SRAM industry.
Subsequent to the issuance of subpoenas to the SRAM industry, a number of purported class action lawsuits have been
filed against the Company and other SRAM suppliers. Six cases have been filed in the U.S. District Court for the Northern
District of California asserting claims on behalf of a purported class of individuals and entities that purchased SRAM directly
from various SRAM suppliers during the period from January 1, 1998 through December 31, 2005. Additionally, at least
seventy-four cases have been filed in various U.S. District Courts asserting claims on behalf of a purported class of individuals
and entities that indirectly purchased SRAM and/or products containing SRAM from various SRAM suppliers during the time
period from January 1, 1998 through December 31, 2005. The complaints allege price fixing in violation of federal antitrust
laws and state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’
fees.
In September 2007, a number of memory suppliers confirmed that they had received grand jury subpoenas from the U.S.
District Court for the Northern District of California seeking information regarding an investigation by the DOJ into possible
antitrust violations in the "Flash" industry. The Company has not received a subpoena and believes that is not a target of the
investigation.
At least thirty-four purported class action lawsuits have been filed against the Company and other suppliers of Flash
memory products in the U.S. District Court for the Northern District of California and other federal district courts. These cases
assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly or indirectly from
various Flash memory suppliers during the period from January 1, 1999 through the date the various cases were filed. The
complaints generally allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition
laws and seek monetary damages, restitution, costs, interest, and attorneys’ fees.
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against
the Company and other DRAM suppliers. The complaint alleges various causes of action under California state law including
a conspiracy to restrict output and fix prices on Rambus DRAM (“RDRAM”) and unfair competition. The complaint seeks
treble damages, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct
alleged in the complaints.
The Company is unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged
violations of antitrust laws could result in significant liability and could have a material adverse effect on the Company’s
business, results of operations or financial condition.
On February 24, 2006, a putative class action complaint was filed against the Company and certain of its officers in the
U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in
the same Court. The cases purport to be brought on behalf of a class of purchasers of the Company’s stock during the period
February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action
complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among
other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct or the Company’s operations
and financial results. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses.
21
In addition, on March 23, 2006 a shareholder derivative action was filed in the Fourth District Court for the State of Idaho
(Ada County), allegedly on behalf of and for the benefit of the Company, against certain of the Company’s current and former
officers and directors. The Company also was named as a nominal defendant. An amended complaint was filed on August 23,
2006. The complaint is based on the same allegations of fact as in the securities class actions filed in the U.S. District Court
for the District of Idaho and alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate
assets, unjust enrichment, and insider trading. The complaint seeks unspecified damages, restitution, disgorgement of profits,
equitable and injunctive relief, attorneys’ fees, costs, and expenses. The complaint is derivative in nature and does not seek
monetary damages from the Company. However, the Company may be required, throughout the pendency of the action, to
advance payment of legal fees and costs incurred by the defendants. On May 29, 2007, the Court granted the Company's
motion to dismiss the complaint but provided plaintiffs leave to file an amended complaint. On June 29, 2007, plaintiffs filed
an amended complaint.
The Company is unable to predict the outcome of these cases. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse effect on the Company’s business, results of
operations or financial condition.
In March 2006, following the Company’s announcement of a definitive agreement to acquire Lexar Media, Inc. (“Lexar”)
in a stock-for-stock merger, four purported class action complaints were filed in the Superior Court for the State of California
(Alameda County) on behalf of shareholders of Lexar against Lexar and its directors. Two of the complaints also name the
Company as a defendant. The complaints allege that the defendants breached, or aided and abetted the breach of, fiduciary
duties owed to Lexar shareholders by, among other things, engaging in self-dealing, failing to engage in efforts to obtain the
highest price reasonably available, and failing to properly value Lexar in connection with a merger transaction between Lexar
and the Company. The plaintiffs seek, among other things, injunctive relief preventing, or an order of rescission reversing, the
merger, compensatory damages, interest, attorneys’ fees, and costs. On May 19, 2006, the plaintiffs filed a motion for
preliminary injunction seeking to block the merger. On May 31, 2006, the Court denied the motion. An amended consolidated
complaint was filed on October 10, 2006. On June 14, 2007, the Court granted Lexar's and the Company's motions to dismiss
the amended complaint but allowed plaintiffs leave to file a further amended complaint. The Company is unable to predict the
outcome of these suits. A court determination against the Company could result in significant liability and could have a
material adverse effect on the Company’s business, results of operations or financial condition. (See “Acquisitions – Item 8.
Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Lexar Media, Inc.”)
(See “Item 1A. Risk Factors.”)
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 2007.
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Stock
The Company’s common stock is listed on the New York Stock Exchange and is traded under the symbol “MU.” The
following table represents the high and low closing sales prices for the Company’s common stock for each quarter of 2007 and
2006, as reported by Bloomberg L.P.
2007:
4th quarter
3rd quarter
2nd quarter
1st quarter
2006:
4th quarter
3rd quarter
2nd quarter
1st quarter
High
Low
$ 13.98
12.36
14.93
18.57
$ 17.52
17.40
16.99
14.67
$ 10.60
10.95
11.86
13.57
$ 14.15
14.43
13.13
11.67
Holders of Record
As of October 19, 2007, there were 3,378 shareholders of record of the Company’s common stock.
Dividends
The Company has not declared or paid cash dividends since 1996 and does not intend to pay cash dividends on its common
stock for the foreseeable future.
Equity Compensation Plan Information
The information required by this item is incorporated by reference to the information set forth in Item 12 of this Annual
Report on Form 10-K.
Issuer Purchases of Equity Securities
During the fourth quarter of 2007, the Company acquired, as payment of withholding taxes in connection with the vesting
of restricted stock awards, an aggregate of 44,797 shares of its common stock as follow:
Period
(a) Total number of
shares purchased
(b) Average price
paid per share
(c) Total number of
shares (or units)
purchased as part
of publicly
announced plans or
programs
(d) Maximum
number (or
approximate dollar
value) of shares (or
units) that may yet
be purchased
under the plans or
programs
June 1 – July 5
July 6 – August 2
August 3 – August 30
Total
5,362
--
39,435
44,797
$12.45
--
$11.31
$11.45
N/A
N/A
N/A
N/A
N/A
N/A
The Company acquired 44,797 shares of its common stock in the fourth quarter of 2007, retired 9,357 in the fourth quarter
of 2007 and retired the remaining 35,440 shares in the first quarter of 2008.
23
Performance Graph
The following graph illustrates a five-year comparison of cumulative total returns for the Company’s Common Stock, the
S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX) from August 31, 2002, through August 31, 2007.
Note: Management cautions that the stock price performance information shown in the graph below is provided as of
fiscal year-end and may not be indicative of current stock price levels or future stock price performance.
The Company operates on a 52/53 week fiscal year which ends on the Thursday closest to August 31. Accordingly, the
last day of the Company’s fiscal year varies. For consistent presentation and comparison to the industry indices shown herein,
the Company has calculated its stock performance graph assuming an August 31 year-end. The performance graph assumes
$100 invested on August 31, 2002, in Common Stock of Micron Technology, Inc., the S&P 500 Composite Index, and the
Philadelphia Semiconductor Index (SOX). Any dividends paid during the period presented are assumed to be reinvested. The
performance was plotted using the following data:
Performance Graph Data
2002
2003
2004
2005
2006
2007
Micron Technology, Inc.
S&P 500 Composite Index
Philadelphia Semiconductor Index (SOX)
$ 100
100
100
$
83
112
132
$
67
125
130
$
69
141
152
$ 100
153
151
$
66
176
187
24
Item 6. Selected Financial Data
2007
2006
(in millions except per share amounts)
2005
2004
2003
Net sales
Gross margin
Operating income (loss)
Net income (loss)
Diluted earnings (loss) per share
$ 5,688
1,078
(280)
(320)
(0.42)
$ 5,272
1,200
350
408
0.57
$ 4,880
1,146
217
188
0.29
$ 4,404
1,314
250
157
0.24
$ 3,091
(21)
(1,186)
(1,273)
(2.11)
Cash and short-term investments
Total current assets
Property, plant and equipment, net
Total assets
Total current liabilities
Long-term debt
Redeemable common stock
Total shareholders’ equity
2,616
5,234
8,279
14,818
2,026
1,987
--
7,752
3,079
5,101
5,888
12,221
1,661
405
--
8,114
1,290
2,926
4,684
8,006
979
1,020
--
5,847
1,231
2,639
4,713
7,760
972
1,028
--
5,615
922
2,037
4,510
7,158
993
997
67
4,971
In the third quarter of 2006, the Company entered into an agreement with the Singapore Economic Development Board
(“EDB”), a partner in its TECH Semiconductor joint venture, and on March 30, 2007, the Company acquired all of the shares of
TECH common stock held by EDB, which increased the Company’s ownership interest in TECH from 43% to 73%. (See
“Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH
Semiconductor Singapore Pte. Ltd.”)
In the fourth quarter of 2006, the Company acquired Lexar Media, Inc., a designer, developer, manufacturer and marketer
of Flash memory products, in a stock-for-stock merger. (See “Item 8. Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements – Acquisitions – Lexar Media, Inc.”)
(See “Item 1A. Risk Factors” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements.”)
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains trend information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in “Overview”
regarding production growth for NAND Flash memory products, contributions to IM Flash and anticipated restructure
initiatives; in “Net Sales” regarding increases in NAND Flash memory production and revenue; in “Selling, General and
Administrative” regarding SG&A expenses for the first quarter of 2008; in “Research and Development” regarding R&D
expenses for the first quarter of 2008; in “Stock-Based Compensation” regarding increases in future stock-based
compensation costs; in “Restructure” regarding future charges; in “Recently Issued Accounting Standards” regarding the
adoption of new accounting standards; and in “Liquidity and Capital Resources” regarding capital spending in 2008; and
future capital contributions to IM Flash. The Company’s actual results could differ materially from the Company’s historical
results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially
include, but are not limited to, those identified in “Item 1A. Risk Factors.” This discussion should be read in conjunction with
the Consolidated Financial Statements and accompanying notes for the year ended August 30, 2007. All period references are
to the Company’s fiscal periods unless otherwise indicated. All tabular dollar amounts are in millions. All production data
reflects production of the Company and its consolidated joint ventures.
Overview
The Company is a global manufacturer of semiconductor devices, principally semiconductor memory products (including
DRAM and NAND Flash) and CMOS image sensors. The Company operates in two segments: Memory and Imaging. Its
products are used in a broad range of electronic applications including personal computers, workstations, network servers,
mobile phones and other consumer applications including Flash memory cards, USB storage devices, digital still cameras,
MP3/4 players and in automotive applications. The Company markets its products through its internal sales force, independent
sales representatives and distributors primarily to original equipment manufacturers and retailers located around the world.
The Company’s success is largely dependent on the market acceptance of a diversified portfolio of semiconductor memory
products, efficient utilization of the Company’s manufacturing infrastructure, successful ongoing development of advanced
process technologies and generation of sufficient return on research and development investments.
The Company is focused on improving its competitiveness by increasing manufacturing scale, improving its cost
competitiveness and expanding its product portfolio within the semiconductor memory market. The Company has increased its
manufacturing scale in 2007 by ramping NAND Flash production at two 300mm wafer fabrication facilities and beginning the
conversion of another facility to 300mm DRAM wafer fabrication. The Company continues to explore other options to
increase its manufacturing scale. To reduce costs, the Company is implementing restructure initiatives aimed at reducing
manufacturing and overhead costs through outsourcing, relocation of operations and workforce reductions. In recent years the
Company has strategically entered into the NAND Flash memory and specialty DRAM markets and has experienced
significant revenue growth from these products. The Company is able to leverage its existing product and process technology
and semiconductor memory manufacturing expertise in these markets.
To improve its focus on the semiconductor memory market, the Company is exploring business model alternatives for its
Imaging business including partnering arrangements. Under any of the alternatives being considered, the Company expects
that it will continue to manufacture CMOS image sensors.
The Company has partnered with Intel to form two NAND Flash manufacturing joint ventures: IM Flash Technologies,
LLC and IM Flash Singapore LLP (collectively “IM Flash”). IM Flash operations include two 300mm wafer fabrication
facilities that are expected to greatly increase the Company’s production of NAND Flash in 2008. IM Flash Singapore LLP
began construction of a new 300mm wafer fabrication facility in Singapore in 2007. The Company expects to contribute
approximately $1.7 billion in cash to IM Flash over the next three years, with similar contributions to be made by Intel.
Completion of the facility in Singapore is subject to the mutual agreement of the joint venture partners. As of August 30, 2007,
the Company owned 51% and Intel owned 49% of IM Flash. The parties share output of IM Flash generally in proportion to
their ownership in IM Flash.
26
The Company makes significant ongoing investments to implement its proprietary product and process technology in its
facilities in the United States, Europe and Asia to manufacture semiconductor products with increasing functionality and
performance at lower costs. The Company continues to introduce new generations of products that offer improved
performance characteristics, such as higher data transfer rates, reduced package size, lower power consumption and increased
memory density and megapixel count. The Company generally reduces the manufacturing cost of each generation of product
through advancements in product and process technology such as its leading-edge line width process technology and
innovative array architecture.
In order to maximize returns from investments in research and development (“R&D”), the Company develops process
technology that effectively reduces production costs and leverages the Company’s capital expenditures. To be successfully
incorporated in customers’ end products, the Company must offer qualified semiconductor solutions at a time when customers
are developing their design specifications for their end products. In addition, DRAM and NAND Flash products necessarily
incorporate highly advanced design and process technologies. The Company must make significant investments in R&D to
expand its product offering and develop its leading-edge product and process technologies. To leverage its R&D investments,
the Company has formed strategic joint ventures under which the costs of developing NAND Flash memory product and
process technologies are shared with its joint venture partner. In addition, from time to time, the Company has also sold and/or
licensed technology to third parties. The Company is pursuing further opportunities to recover its investment in intellectual
property through partnering and other arrangements.
Restructure: The Company is pursuing a number of initiatives to reduce costs and increase revenue across its operations.
These initiatives include workforce reductions in certain areas of the Company as the Company’s business is realigned.
Additional initiatives include establishing certain operations closer in location to the Company’s global customers, evaluating
functions more efficiently performed through partnerships or other outside relationships and reducing the Company’s overhead
costs to meet or exceed industry benchmarks. The Company is also exploring opportunities to leverage the Company’s
technology and diversified product portfolio to increase revenue and shareholder value. It is anticipated that these initiatives
will be implemented over several quarters.
In the fourth quarter of 2007, the Company incurred a restructure charge of $19 million in connection with the
implementation of these cost reduction initiatives. The fourth quarter charge was comprised primarily of employee severance
and related costs resulting from a reduction in the Company’s workforce. The Company anticipates that it will incur some
level of restructure charges through the end of 2008 as it continues to implement these initiatives, but is currently unable to
estimate the aggregate amount of such charges.
Results of Operations
Net sales:
Memory
Imaging
Gross margin
Memory
Imaging
2007
2006
(in millions and as a percent of net sales)
2005
$5,001
687
$5,688
88 %
12 %
100 %
$4,523
749
$5,272
86 %
14 %
100 %
$4,577
303
$4,880
94 %
6 %
100 %
$ 845
233
$1,078
17 %
34 %
19 %
$ 878
322
$1,200
19 %
43 %
23 %
$1,020
126
$1,146
22 %
42 %
23 %
Selling, general and administrative
Research and development
Restructure
Other operating (income) expense, net
Net income
$ 610
805
19
(76)
(320)
11 %
14 %
0 %
(1)%
(6)%
$ 460
656
--
(266)
408
9 %
12 %
--
(5)%
8 %
$ 348
604
(1)
(22)
188
7 %
12 %
(0)%
(0)%
4 %
The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31.
27
Net Sales
Total net sales for 2007 increased 8% as compared to 2006 primarily due to an 11% increase in Memory sales partially
offset by an 8% decline in Imaging sales. Memory sales for 2007 reflect a 204% increase in megabits sold partially offset by a
64% decline in per megabit average selling prices from 2006. Memory sales were 88% of total net sales in 2007 compared to
86% in 2006 and 94% in 2005. Imaging sales for 2007 decreased 8% from 2006 reflecting industry softness in mobile handset
sales and pricing pressure. Total net sales for 2006 increased 8% as compared to 2005 primarily reflecting a 147% increase in
Imaging sales as Memory sales declined 1%.
Memory: Memory sales for 2007 increased 11% from 2006 primarily due to a 287% increase in sales of NAND Flash
products offset by an 11% decrease in sales of DRAM products.
Sales of NAND Flash products for 2007 increased from 2006 primarily due to significant increases in megabits
manufactured and the Company’s acquisition of Lexar Media, Inc. (which occurred in the fourth quarter of 2006), partially
offset by a 56% decline in average selling prices per megabit. Megabit production of NAND Flash products increased over
800% for 2007 as compared to 2006, primarily due to the ramp of NAND Flash products at the Company’s 300mm fabrication
facilities and transitions to higher density, advanced geometry devices. Sales of NAND Flash products represented 23% of the
Company’s total net sales for 2007 as compared to 6% for 2006. The Company expects that sales of NAND Flash products
will continue to increase in 2008 as it continues to ramp production capacity at its 300mm wafer fabrication facilities.
Sales of DRAM products for 2007 decreased from 2006 primarily due to a 23% decline in average selling prices (which
includes the effects of a $50 million charge to revenue in the first quarter of 2007 as a result of a settlement agreement with a
class of direct purchasers of certain DRAM products), which was partially mitigated by a 16% increase in megabits sold.
Megabit production of DRAM products increased 23% for 2007, primarily due to transitions to higher density, advanced
geometry devices. Sales of DDR and DDR2 DRAM products were 47% of the Company’s total net sales in 2007 as compared
to 51% for 2006 and 59% for 2005.
Memory sales for 2006 declined 1% from 2005 as a 287% increase in sales of NAND Flash products was offset by a 5%
decrease in sales of DRAM products. Sales of NAND Flash products for 2006 increased from 2005 primarily due to a
significant increase in megabits sold partially offset by an approximate 35% decline in average selling prices. Sales of NAND
Flash products increased significantly for 2006 as compared to 2005, primarily due to significant increases in manufacturing
resources allocated to their production. The decrease in sales of DRAM products in 2006 from 2005 was the result of a 22%
decline in average selling prices mitigated by a 22% increase in megabits sold. Megabit production of DRAM products
increased 14% for 2006 as compared to 2005, primarily due to production efficiencies including improvements in product and
process technologies partially offset by a reduction in wafer starts.
Imaging: Imaging sales for 2007 decreased 8% from 2006 primarily due to declines in average selling prices as a result of
industry softness in mobile handset sales and pricing pressure. Declines in average selling prices were partially mitigated by
increased sales of higher resolution products. Imaging sales were 12% of the Company’s total net sales in 2007 as compared to
14% for 2006 and 6% for 2005. Imaging sales for 2006 increased by 147% from 2005 as unit sales tripled, partially offset by a
19% decrease in average selling price per unit. The decrease in average selling price per unit was due primarily to a significant
increase of lower priced VGA products sold in 2006 as compared to 2005. The growth in Imaging unit sales for 2006 reflected
strong demand for the Company’s products and increased production.
Gross Margin
The Company’s overall gross margin percentage for 2007 declined to 19% from 23% for 2006 due to a decrease in both
the gross margin percentages for Memory and Imaging products. The Company’s overall gross margin percentage of 23% for
2006 was unchanged from 2005 as a decrease in the gross margin percentage for Memory in 2006 to 19% from 22% for 2005
was offset by a slight increase in the gross margin percentage for Imaging products and a shift in product mix to higher margin
Imaging products.
Memory: The Company’s gross margin percentage for Memory products of 17% for 2007 declined from 19% for 2006
primarily due to the shift in product mix to NAND Flash products, which had a significantly lower gross margin than DRAM
products in 2007. This decline in gross margin percentage was mitigated by improvements in the gross margin for 2007 on
sales of both DRAM and NAND Flash products as compared to 2006.
28
The gross margin for DRAM products for 2007 improved from 2006, primarily due to a 27% reduction in costs per
megabit, partially offset by a decline in average selling prices of 23%. The Company achieved cost reductions for DRAM
products through transitions to production of devices utilizing the Company’s advanced 78nm process technologies.
The Company’s gross margin on NAND Flash products for 2007 improved slightly from 2006 primarily due to a 57%
reduction in costs per megabit, partially offset by a 56% decline in average selling prices. Cost reductions in 2007 reflect
lower manufacturing costs, lower costs of NAND Flash products purchased for sale under the Company’s Lexar brand and
shifts in product mix. The Company achieved manufacturing cost reductions for NAND Flash products primarily through
increased production of higher-density, advanced-geometry devices at the Company’s 300mm fabrication facilities. Sales of
NAND Flash products include sales from IM Flash to Intel at long-term negotiated prices approximating cost. IM Flash sales
to Intel were $255 million and $111 million in 2007 and 2006, respectively.
The Company’s gross margin for memory in 2007 was adversely impacted by an inventory write-down of $20 million in
the fourth quarter as a result of the significant decreases in average selling prices for our semiconductor memory products. The
Company may record additional write-downs in future periods if estimated average selling prices of products held in finished
goods and work in process inventories at a quarter end date are below the manufacturing cost of these products.
The Company’s gross margin percentage for Memory products declined to 19% for 2006 from 22% for 2005 primarily due
to declining margins for NAND Flash products as a result of the 33% decrease in the average selling price per megabit and
costs associated with the ramp in production at two facilities. The gross margin percentage for DRAM products in 2006 was
approximately the same as for 2005 as a 22% decrease in the average selling price per megabit was offset by cost reductions.
The Company achieved cost reductions for DRAM products in 2006 through improved product yields and an increase in
production utilizing the Company’s 110nm and 95nm process technologies. The cost per megabit for products manufactured
on 300mm wafers decreased significantly in 2006 compared to 2005 as the Company continued to increase 300mm wafer
production.
In 2007, the Company’s TECH Semiconductor Singapore Pte. Ltd. (“TECH”) joint venture supplied approximately 15%
of the total megabits of memory produced by the Company (reflecting approximately 40% of total DRAM megabits). TECH
primarily produced DDR and DDR2 products in 2007 and 2006. Since the beginning of the third quarter of 2006, TECH’s
results have been included in the Company’s consolidated results. Through the second quarter of 2006, the Company’s results
reflected memory products purchased from TECH at prices generally based on a discount from average selling prices realized
by the Company for the preceding quarter. In the first six months of 2006, the Company realized higher gross margin
percentages on sales of TECH products than on sales of similar products manufactured by the Company’s wholly-owned
operations. Since TECH utilizes the Company’s product designs and process technology and has a similar manufacturing cost
structure, the gross margin on sales of TECH products since the third quarter of 2006 approximated those on sales of similar
products manufactured by the Company’s wholly-owned operations. In 2005, the Company’s gross margin percentages on
sales of TECH products were approximately the same as on sales of similar products manufactured by the Company’s wholly-
owned operations. (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements
– Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)
Imaging: The Company’s gross margin for Imaging declined to 34% for 2007 from 43% for of 2006 primarily due to
declines in average selling prices that were mitigated by cost reductions and shifts in product mix to higher resolution products.
The Company’s gross margin percentage for Imaging products for 2006 increased to 43% from 42% for 2005, primarily due to
reductions in costs partially offset by decreases in average selling prices.
29
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses for 2007 increased 33% from 2006 primarily due to higher
personnel costs and higher legal costs including a $31 million charge to SG&A as a result of the settlement of certain antitrust
class action (direct purchaser) lawsuits. Personnel costs in 2007 increased from 2006 primarily due to increased headcount
resulting from the acquisition of Lexar in the fourth quarter of 2006, the formation of IM Flash in the second quarter of 2006
and subsequent ramp of its operations, and the consolidation of TECH in the third quarter of 2006. SG&A expenses for 2006
increased 32% from 2005 primarily due to higher compensation costs and increased costs associated with outstanding legal
matters. Payroll costs in 2006 increased from 2005 primarily due to increased headcount resulting in part from the acquisition
of Lexar, the ramp of IM Flash and the consolidation of TECH. The Company expects SG&A expenses to approximate $125
million to $135 million for the first quarter of 2008. Future SG&A expense is expected to vary, potentially significantly,
depending on the number of legal matters that are resolved relatively early in their life-cycle and the number of matters that
progress to trial. The Company is involved in a number of significant cases which are scheduled for trial in 2008. Additionally,
the timing and final resolution of legal matters may cause SG&A expense to vary significantly. For the Company’s Memory
segment, SG&A expenses as a percentage of sales were 11% in 2007, 8% in 2006 and 7% in 2005. For the Imaging segment,
SG&A expenses as a percentage of sales were 11% in 2007, 12% in 2006 and 11% in 2005.
Research and Development
Research and development (“R&D”) expenses vary primarily with the number of development wafers processed, the cost
of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times
necessary to manufacture its products, the Company typically begins to process wafers before completion of performance and
reliability testing. The Company deems development of a product complete once the product has been thoroughly reviewed
and tested for performance and reliability. R&D expenses can vary significantly depending on the timing of product
qualification as costs incurred in production prior to qualification are charged to R&D.
R&D expenses for 2007 increased 23% from 2006 principally due to NAND pre-production wafer processing mitigated by
reimbursements received from Intel under a NAND Flash R&D cost-sharing arrangement. R&D expenses were reduced by
$240 million in 2007 and $86 million in 2006 for amounts reimbursable from Intel under the NAND Flash R&D cost-sharing
arrangement. R&D expenses for 2006 increased 9% from 2005, principally due to increases in development wafers processed,
higher compensation costs and increases in R&D equipment depreciation partially mitigated by reimbursements under the
NAND Flash R&D cost sharing arrangement. The Company expects that its R&D expenses, net of amounts reimbursable from
Intel, will approximate $165 million to $175 million for the first quarter of 2008. For the Memory segment, R&D expenses as
a percentage of sales were 13% for 2007, 13% for 2006 and 12% for 2005. For the Imaging segment, R&D expenses as a
percentage of sales were 23% for 2007, 11% for 2006 and 23% for 2005.
The Company’s process technology R&D efforts are focused primarily on development of successively smaller line-width
process technologies which are designed to facilitate the Company’s transition to next-generation memory products and CMOS
image sensors. Additional process technology R&D efforts focus on advanced computing and mobile memory architectures
and new manufacturing materials. Product design and development efforts are concentrated on the Company’s 1 Gb and 2 Gb
DDR2 and DDR3 products as well as high density and mobile NAND Flash memory (including multi-level cell technology),
CMOS image sensors and specialty memory products.
Restructure
The Company is pursuing a number of initiatives to reduce costs and increase revenue across its operations. These
initiatives include workforce reductions in certain areas of the Company as the Company’s business is realigned. Additional
initiatives include establishing certain operations closer in location to the Company’s global customers, evaluating functions
more efficiently performed through partnerships or other outside relationships and reducing the Company’s overhead costs to
meet or exceed industry benchmarks. The Company is also exploring opportunities to leverage the Company’s technology and
diversified product portfolio to increase revenue and shareholder value. It is anticipated that these initiatives will be
implemented over several quarters.
In the fourth quarter of 2007, the Company incurred a restructure charge of $19 million in connection with the
implementation of these cost reduction initiatives. The fourth quarter charge was comprised primarily of employee severance
and related costs resulting from a reduction in the Company’s workforce. The Company anticipates that it will incur some
level of restructure charges through the end of 2008 as it continues to implement these initiatives, but is currently unable to
estimate the aggregate amount of such charges. As of August 30, 2007, $5 million of the restructure costs remained unpaid and
were included in accounts payable and accrued expenses.
30
Other Operating (Income) Expense, Net
Other operating income for 2007 includes $43 million from gains on disposals of semiconductor equipment, a gain of $30
million from the sale of certain intellectual property rights and $7 million in grants received in connection with the Company’s
operations in China. Other operating expense for 2007 includes losses of $14 million from changes in currency exchange rates.
Other operating income for 2006 includes $230 million of net proceeds for the sale of the Company’s existing NAND Flash
memory designs and certain related technology to Intel net of amounts paid by the Company for a perpetual, paid-up license to
use and modify such designs. Other operating income for 2006 also includes $23 million in additional amounts expected to be
reimbursed resulting from the extension of an economic development agreement, which allows the Company to recover
amounts relating to certain investments in the IM Flash’s Utah facility. Other operating income for 2005 includes gains net of
losses on disposals of semiconductor equipment of $13 million and $12 million in receipts from the U.S. Government in
connection with anti-dumping tariffs.
Income Taxes
Income taxes for 2007 and 2006 primarily reflect taxes on the Company’s non-U.S. operations and U.S. alternative
minimum tax. The Company has a valuation allowance for its net deferred tax asset associated with its U.S. operations. The
benefit in 2007 and provision in 2006 for taxes on U.S. operations was substantially offset by changes in the valuation
allowance. As of August 30, 2007, the Company had aggregate U.S. tax net operating loss carryforwards of $2.2 billion and
unused U.S. tax credit carryforwards of $202 million. The Company also had unused state tax net operating loss carryforwards
of $1.5 billion and unused state tax credits of $169 million as of August 30, 2007. Substantially all of the net operating loss
carryforwards expire in 2022 to 2027 and substantially all of the tax credit carryforwards expire in 2013 to 2027.
Noncontrolling Interests in Net (Income) Loss
Noncontrolling interests for 2007 and 2006 primarily reflects the share of income or losses of the Company’s TECH joint
venture attributable to the noncontrolling interests in TECH. On March 30, 2007, the Company acquired all of the shares of
TECH common stock held by the Singapore Economic Development Board, which had the effect of reducing the
noncontrolling interests in TECH as of that date from 57% to 27%. (See “Item 8. Financial Statements and Supplementary
Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)
Stock-Based Compensation
Through 2005, the Company accounted for its stock plans using the intrinsic value method. Effective the beginning of
2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,”
which requires the Company to use a fair-value based method to account for stock-based compensation. Total compensation
cost for the Company’s equity plans in 2007 and 2006 was $44 million and $26 million, respectively, of which $3 million and
$1 million were capitalized and remained in inventory at the end of 2007 and 2006, respectively. As of August 30, 2007, there
was $113 million of total unrecognized compensation cost related to equity plans, which is expected to be recognized through
the fourth quarter of 2011. In 2005, the Company accelerated the vesting of substantially all of its unvested stock options then
outstanding under the Company’s stock plans to reduce compensation costs recognized subsequent to the adoption in 2006 of
SFAS No. 123(R), “Share-Based Payment.” Because the Company’s stock-based compensation costs were reduced by the
effect of the acceleration of vesting in 2005, the Company expects that stock-based compensation costs will continue to grow
in future periods.
Liquidity and Capital Resources
The Company’s liquidity is highly dependent on average selling prices for its products and the timing of capital
expenditures, both of which can vary significantly from period to period. As of August 30, 2007, the Company had cash and
equivalents and short-term investments totaling $2.6 billion compared to $3.1 billion as of August 31, 2006. The balance as of
August 30, 2007, included an aggregate of $610 million held at, and anticipated to be used in the near term by, IM Flash and
TECH.
Operating Activities: The Company generated $937 million of cash from operating activities in 2007, which principally
reflects the Company’s $320 million of net loss adjusted by $1.7 billion for non-cash depreciation and amortization expense.
Net cash provided by operating activities was net of the effects of an increase of $591 million in inventories primarily due to
increases in production, growth in output that exceeded growth in demand for the Company’s Memory products and, with
respect to Imaging, industry softness in the mobile handset market.
31
Investing Activities: Net cash used by investing activities was $2.4 billion in 2007, which included cash expenditures for
property, plant and equipment of $3.6 billion partially offset by the net effect of purchases, sales and maturities of investment
securities of $1.2 billion. A significant portion of the capital expenditures relate to the ramp of IM Flash facilities and 300mm
conversion of manufacturing operations at TECH. The Company believes that to develop new product and process
technologies, support future growth, achieve operating efficiencies and maintain product quality, it must continue to invest in
manufacturing technologies, facilities and capital equipment and research and development. The Company expects 2008
capital spending to approximate $2.5 billion, primarily for expenditures on 300mm fabrication facilities. The Company
expects that approximately $750 million of the capital expenditure requirement will come from joint venture partners through
new investment and payment for product purchases. As of August 30, 2007, the Company had commitments of approximately
$1.2 billion for the acquisition of property, plant and equipment, nearly all of which are expected to be paid within one year.
On December 11, 2006, the Company acquired the CMOS image sensor business of Avago Technologies Limited. The
Company made payments of $55 million in 2007 in connection with this acquisition and is obligated to make additional
contingent payments up to $15 million if certain milestones are met through 2008.
On March 30, 2007, the Company acquired all of the shares of TECH common stock held by the Singapore Economic
Development Board for approximately $290 million payable over nine months, increasing the Company’s ownership interest in
TECH from 43% to 73%. As of August 30, 2007, $216 million of this amount remained in notes payable.
Financing Activities: Net cash provided by financing activities was $2.2 billion in 2007. In May 2007, the Company
issued $1.3 billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Senior Notes”). The issuance costs associated
with the Senior Notes totaled $26 million. In connection with the offering of the Senior Notes, the Company also entered into
capped call transactions (“Capped Calls”) with the intent to reduce the potential dilution upon conversion of the Senior Notes.
Micron paid approximately $151 million from the net proceeds from the issuance and sale of the Senior Notes to purchase the
Capped Calls. (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Supplemental Balance Sheet Information – Debt” and “Supplemental Balance Sheet Information – Capped Call Transactions.”)
In 2007, the Company received $1.2 billion in capital contributions from joint venture partners and $454 million in
proceeds from equipment financing arrangements, payable in periodic installments through July 2011. The Company made an
aggregate of $680 million in scheduled debt payments and payments on equipment purchase contracts in 2007.
The Company’s TECH joint venture has a credit facility that enabled it to borrow up to $360 million as of August 30, 2007.
The amount available under the credit facility decreased to $320 million as of September 27, 2007, and will decline by
approximately $40 million every calendar quarter thereafter until the facility expires in September 2009. As of August 30,
2007, TECH had not borrowed any amounts against the credit facility.
Access to capital markets has historically been important to the Company. Depending on market conditions, the Company
may issue registered or unregistered securities to raise capital to fund a portion of its operations.
Joint Ventures: As of August 30, 2007, IM Flash had $407 million of cash and marketable investment securities. IM
Flash’s cash and marketable investment securities are not anticipated to be made available to finance the Company’s other
operations. Subject to certain conditions, the Company expects to make additional contributions to IM Flash of approximately
$1.7 billion over the next three years, with similar contributions to be made by Intel. The Company anticipates additional
investments as appropriate to support the growth of IM Flash’s operations.
As of August 30, 2007, TECH had $203 million of cash and marketable investment securities. TECH’s cash and
marketable investment securities are not anticipated to be made available to finance the Company’s other operations.
(See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint
Ventures.”)
32
Contractual Obligations: The following table summarizes the Company’s significant contractual obligations at August 30,
2007, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods.
Total
Less than
1 year
1-3 years
(in millions)
3-5 years
More than
5 years
Notes payable (including interest)
Capital lease obligations
Operating leases
Purchase obligations
Other long-term liabilities
Total
$ 1,940
794
117
1,659
421
$ 4,931
$ 318
185
31
1,334
--
$ 1,868
$ 220
284
29
279
287
$ 1,099
$
53
240
22
13
37
$ 365
$ 1,349
85
35
33
97
$ 1,599
The obligations disclosed above do not include contractual obligations recorded on the Company’s balance sheet as current
liabilities except for the current portion of long-term debt. The expected timing of payment amounts of the obligations
discussed above is estimated based on current information. Timing and actual amounts paid may differ depending on the
timing of receipt of goods or services, market prices or changes to agreed-upon amounts for some obligations.
Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that
meet any of the following criteria: (1) they are noncancelable, (2) the Company would incur a penalty if the agreement was
cancelled, or (3) the Company must make specified minimum payments even if it does not take delivery of the contracted
products or services (“take-or-pay”). If the obligation to purchase goods or services is noncancelable, the entire value of the
contract was included in the above table. If the obligation is cancelable, but the Company would incur a penalty if cancelled,
the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in take-or-pay
contracts are also included in the above table as they represent the portion of each contract that is a firm commitment.
Off-Balance Sheet Arrangements
In May 2007, in connection with the offering of the Senior Notes, the Company paid approximately $151 million for the
Capped Calls. The Capped Calls cover an aggregate of approximately 91.3 million shares of common stock. The Capped
Calls are in three equal tranches with cap prices of $17.25, $20.13 and $23.00 per share, respectively, each with an initial strike
price of approximately $14.23 per share, subject to certain adjustments. The Capped Calls expire on various dates between
November 2011 and December 2012. (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information – Capped Call Transactions.”)
As of August 30, 2007, the Company had stock warrants outstanding that may be considered off-balance sheet
arrangements. In 2001, the Company received $480 million from the issuance of warrants to purchase 29.1 million shares of
the Company’s common stock. The warrants entitle the holders to exercise their warrants and purchase shares of the
Company’s common stock for $56.00 per share (the “Exercise Price”) at any time through May 15, 2008 (the “Expiration
Date”). Warrants exercised prior to the Expiration Date will be settled on a “net share” basis, wherein investors receive
common stock equal to the difference between $56.00 and the average closing sale price for the common shares over the 30
trading days immediately preceding the Exercise Date. At expiration, the Company may elect to settle the warrants on a net
share basis or for cash, provided certain conditions are satisfied. As of August 30, 2007, there had been no exercises of
warrants and all warrants issued remained outstanding.
Recently Issued Accounting Standards
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” Under SFAS No. 159, the
Company may elect to measure many financial instruments and certain other items at fair value on an instrument by instrument
basis, subject to certain restrictions. The Company is required to adopt SFAS No. 159 effective at the beginning of 2009. The
impact of the adoption of SFAS No. 159 will depend on the extent to which the Company elects to measure eligible items at
fair value.
33
In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” In SAB No. 108, the SEC staff
established an approach that requires quantification of financial statement misstatements based on the effects of the
misstatements on each of a company’s financial statements and the related financial statement disclosures. SAB No. 108
permits companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the
cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the
opening balance of retained earnings. The Company adopted SAB No. 108 as of August 30, 2007. The adoption of SAB No.
108 did not impact the Company’s results of operations or financial condition.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer
to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as
an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan
as of the date of its year-end statement of financial position, with limited exceptions. The Company adopted SFAS No. 158 as
of August 30, 2007. The adoption of SFAS No. 158 did not have a material impact the Company’s results of operations or
financial condition.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value
measurements. The Company is required to adopt FAS No. 157 effective at the beginning of 2009. The Company is
evaluating the impact this statement will have on its consolidated financial statements.
In June 2006, the FASB issued Interpretation Number 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109.” The interpretation contains a two step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate each tax position for
recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax
benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company is
required to adopt FIN 48 effective at the beginning of 2008. The Company does not expect any material adjustments upon
adoption.
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS No.
155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation. As of August 30, 2007, the Company did not have any hybrid financial instruments subject to the
fair value election under SFAS No. 155. The Company is required to adopt SFAS No. 155 effective at the beginning of 2008.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 changes the
requirements for the accounting for and reporting of a change in accounting principle. The Company adopted SFAS No. 154 at
the beginning of 2007. The adoption of SFAS No. 154 did not impact the Company’s results of operations or financial
condition.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.
Estimates and judgments are based on historical experience, forecasted future events and various other assumptions that the
Company believes to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions
or conditions. The Company evaluates its estimates and judgments on an ongoing basis. Management believes the accounting
policies below are critical in the portrayal of the Company’s financial condition and results of operations and require
management’s most difficult, subjective or complex judgments.
34
Acquisitions and consolidations: Determination and the allocation thereof of the purchase price of acquired operations
significantly influences the period in which costs are recognized. Accounting for acquisitions and consolidations requires the
Company to estimate the fair value of the individual assets and liabilities acquired as well as various forms of consideration
given. The Company typically obtains independent third party valuation studies to assist in determining fair values, including
assistance in determining future cash flows, appropriate discount rates and comparable market values. The estimation of the
fair values of consideration given and assets and liabilities acquired involves a number of judgments, assumptions and
estimates that could materially affect the amount and timing of costs recognized.
Contingencies: The Company is subject to the possibility of losses from various contingencies. Considerable judgment is
necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable
that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The
Company accrues a liability and charges operations for the estimated costs of adjudication or settlement of asserted and
unasserted claims existing as of the balance sheet date.
Goodwill and intangible assets: The Company tests goodwill for impairment annually and whenever events or
circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the
business climate or a decision to sell or dispose of a reporting unit. Determining whether impairment has occurred requires
valuation of the respective reporting unit. If the analysis indicates goodwill is impaired, measuring the impairment requires a
fair value estimate of each identified tangible and intangible asset. The Company tests other identified intangible assets with
definite useful lives and subject to amortization when events and circumstances indicate the carrying value may not be
recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset.
The Company tests intangible assets with indefinite lives annually for impairment using a fair value method such as discounted
cash flows. Estimating fair values involves significant assumptions, especially regarding future sales prices, sales volumes,
costs and discount rates.
Income taxes: The Company is required to estimate its provision for income taxes and amounts ultimately payable or
recoverable in numerous tax jurisdictions around the world. Estimates involve interpretations of regulations and are inherently
complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of
any fiscal year. The Company is also required to evaluate the realizability of its deferred tax assets on an ongoing basis in
accordance with U.S. GAAP, which requires the assessment of the Company’s performance and other relevant factors when
determining the need for a valuation allowance with respect to these deferred tax assets. Realization of deferred tax assets is
dependent on the Company’s ability to generate future taxable income. The Company is required to adopt FIN 48 effective at
the beginning of 2008.
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and
overhead costs, including product and process technology costs. Determining market value of inventories involves numerous
judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in
work in process inventories. To project average selling prices and sales volumes, the Company reviews recent sales volumes,
existing customer orders, current contract prices, industry analysis of supply and demand, seasonal factors, general economic
trends and other information. When these analyses reflect estimated market values below the Company’s manufacturing costs,
the Company records a charge to cost of goods sold in advance of when the inventory is actually sold. Differences in
forecasted average selling prices used in calculating lower of cost or market adjustments can result in significant changes in the
estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5%
variance in the estimated selling prices would have changed the estimated fair value of the Company’s semiconductor memory
inventory by approximately $85 million at August 30, 2007. Due to the volatile nature of the semiconductor memory industry,
actual selling prices and volumes often vary significantly from projected prices and volumes and, as a result, the timing of
when product costs are charged to operations can vary significantly.
U.S. GAAP provides for products to be grouped into categories in order to compare costs to market values. The amount of
any inventory write-down can vary significantly depending on the determination of inventory categories. The Company’s
inventories have been categorized as Memory products or Imaging products. The major characteristics the Company considers
in determining inventory categories are product type and markets.
Product and process technology: Costs incurred to acquire product and process technology or to patent technology
developed by the Company are capitalized and amortized on a straight-line basis over periods currently ranging up to 10 years.
The Company capitalizes a portion of costs incurred based on its analysis of historical and projected patents issued as a percent
of patents filed. Capitalized product and process technology costs are amortized over the shorter of (i) the estimated useful life
of the technology, (ii) the patent term or (iii) the term of the technology agreement.
35
Research and development: Costs related to the conceptual formulation and design of products and processes are
expensed as research and development when incurred. Determining when product development is complete requires judgment
by the Company. The Company deems development of a product complete once the product has been thoroughly reviewed
and tested for performance and reliability.
Stock-based compensation: Under the provisions of SFAS No. 123(R), stock-based compensation cost is estimated at the
grant date based on the fair-value of the award and is recognized as expense ratably over the requisite service period of the
award. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date
requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. The
Company develops its estimates based on historical data and market information which can change significantly over time. A
small change in the estimates used can result in a relatively large change in the estimated valuation.
The Company uses the Black-Scholes option valuation model to value employee stock awards. The Company estimates
stock price volatility based on an average of its historical volatility and the implied volatility derived from traded options on the
Company’s stock. Estimated option life and forfeiture rate assumptions are derived from historical data. For stock based
compensation awards with graded vesting that were granted after 2005, the Company recognizes compensation expense using
the straight-line amortization method.
36
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As of August 30, 2007, $2,335 million of the Company’s $2,410 million in total debt was at fixed interest rates. As a result,
the fair value of the debt fluctuates based on changes in market interest rates. The estimated fair market value of the
Company’s debt was $2,411 million as of August 30, 2007. The Company estimates that as of August 30, 2007, a 1% change
in market interest rates would change the fair value of the fixed-rate debt by approximately $100 million.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with the information related to changes in the exchange rates
of foreign currency in “Item 1A. Risk Factors.” Changes in foreign currency exchange rates could materially adversely affect
the Company’s results of operations or financial condition.
The functional currency for substantially all of the Company’s operations is the U.S. dollar. The Company held aggregate
cash and other assets in foreign currencies valued at U.S. $448 million as of August 30, 2007, and U.S. $425 million as of
August 31, 2006 (including cash and equivalents denominated in yen valued at U.S. $180 million as of August 30, 2007 and
U.S. $222 million as of August 31, 2006; cash and equivalents denominated in Singapore dollars valued at U.S. $58 million as
of August 30, 2007 and U.S. $42 million as of August 31, 2006; and deferred income tax assets denominated in yen valued at
U.S. $76 million as of August 30, 2007, and U.S. $64 million as of August 31, 2006). The Company also held aggregate
foreign currency liabilities valued at U.S. $979 million as of August 30, 2007, and U.S. $615 million as of August 31, 2006
(including debt denominated in Singapore dollars valued at U.S. $258 million as of August 30, 2007, and U.S. $38 million as of
August 31, 2006; debt denominated in yen valued at U.S. $165 million as of August 30, 2007, and U.S. $228 million as of
August 31, 2006; accounts payable and accrued expenses denominated in yen valued at U.S. $168 million as of August 30,
2007, and U.S. $124 million as of August 31, 2006; accounts payable and accrued expenses denominated in euros valued at U.S.
$137 million as of August 30, 2007, and U.S. $68 million as of August 31, 2006; and accounts payable and accrued expenses
denominated in Singapore dollars valued at U.S. $116 million as of August 30, 2007, and U.S. $48 million as of August 31,
2006). Foreign currency receivables and payables as of August 30, 2007, were comprised primarily of yen, euros and
Singapore dollars. The Company estimates that, based on its assets and liabilities denominated in currencies other than U.S.
dollar as of August 30, 2007, a 1% change in the exchange rate versus the U.S. dollar would result in foreign currency gains or
losses of approximately U.S. $3 million for the Singapore dollar, U.S. $2 million for the euro and U.S. $1 million for the yen.
37
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Consolidated Financial Statements as of August 30, 2007, and August 31, 2006, and for the fiscal years
ended August 30, 2007, August 31, 2006, and September 1, 2005:
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts
Page
39
40
41
42
43
64
70
38
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
For the year ended
Net sales
Cost of goods sold
Gross margin
Selling, general and administrative
Research and development
Restructure
Other operating (income) expense, net
Operating income (loss)
Interest income
Interest expense
Other non-operating income (expense), net
Income (loss) before taxes and noncontrolling
interests in net income
Income tax (provision)
Noncontrolling interests in net income
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Number of shares used in per share calculations:
Basic
Diluted
August 30,
2007
August 31,
2006
September 1,
2005
$ 5,688
4,610
1,078
$ 5,272
4,072
1,200
$ 4,880
3,734
1,146
610
805
19
(76)
(280)
143
(40)
9
(168)
460
656
--
(266)
350
101
(25)
7
433
348
604
(1)
(22)
217
32
(47)
(3)
199
(30)
(122)
$ (320)
(18)
(7)
$ 408
(11)
--
$ 188
$ (0.42)
(0.42)
$ 0.59
0.57
$ 0.29
0.29
769.1
769.1
691.7
725.1
647.7
702.0
See accompanying notes to consolidated financial statements.
39
MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
August 30,
2007
August 31,
2006
$ 2,192
424
994
1,532
67
25
5,234
401
8,279
65
515
324
$14,818
$ 1,385
84
134
423
2,026
1,987
25
421
4,459
$ 1,431
1,648
956
963
77
26
5,101
388
5,888
49
502
293
$12,221
$ 1,319
53
123
166
1,661
405
28
445
2,539
As of
Assets
Cash and equivalents
Short-term investments
Receivables
Inventories
Prepaid expenses
Deferred income taxes
Total current assets
Intangible assets, net
Property, plant and equipment, net
Deferred income taxes
Goodwill
Other assets
Total assets
Liabilities and shareholders’ equity
Accounts payable and accrued expenses
Deferred income
Equipment purchase contracts
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Noncontrolling interests in subsidiaries
2,607
1,568
Common stock, $0.10 par value, authorized 3 billion shares, issued and
outstanding 757.9 million and 749.4 million shares, respectively
Additional capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
76
6,519
1,164
(7)
7,752
$14,818
75
6,555
1,486
(2)
8,114
$12,221
See accompanying notes to consolidated financial statements.
40
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
Common Stock
Number
of Shares
Amount
Additional
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Balance at September 2, 2004
611.5
$
61
$ 4,664
$
890
$
--
$ 5,615
Net income
Stock issued under stock plans
Balance at September 1, 2005
4.7
616.2
1
62
$
43
$ 4,707
$ 1,078
$
--
188
188
44
$ 5,847
Comprehensive income:
Net income
Other comprehensive income (loss):
Net change in unrealized gain (loss)
on investments, net of tax
Total comprehensive income
Stock issued under stock plans
Stock-based compensation expense
Conversion of notes to stock, net of
unamortized issuance costs
Stock and stock options issued in
connection with the acquisition of Lexar
Premium recognized on convertible debt
assumed in Lexar acquisition
Settlement of capped calls
Stock issued in connection with Intel stock
rights
Balance at August 31, 2006
Net loss
Stock issued under stock plans
Stock-based compensation expense
Repurchase and retirement of common
stock
Adjustment to initially apply SFAS No.
158, net of tax benefit of $3
Purchase of capped calls
Balance at August 30, 2007
408
(2)
1
5
5
2
75
1
11.9
53.7
50.7
16.9
749.4
$
8.7
(0.2)
114
26
618
878
43
171
(2)
$ 6,555
$ 1,486
$
(2)
73
44
(2)
(320)
(2)
408
(2)
406
115
26
623
883
43
171
--
$ 8,114
(320)
74
44
(4)
757.9
$
76
(151)
$ 6,519
$ 1,164
$
(5)
(7)
(5)
(151)
$ 7,752
See accompanying notes to consolidated financial statements.
41
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
For the year ended
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization
Noncash restructure charges (benefits)
Provision to write-down inventories to estimated fair market values
Gain from write-down or disposition of equipment
Gain from sale of product and process technology
Stock-based compensation
Change in operating assets and liabilities:
(Increase) decrease in receivables
Increase in inventories
Increase (decrease) in accounts payable and accrued expenses
Increase (decrease) in customer prepayments
Deferred income taxes
Other
Net cash provided by operating activities
Cash flows from investing activities
Expenditures for property, plant and equipment
Purchases of available-for-sale securities
Acquisition of noncontrolling interest in TECH
Proceeds from maturities of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from sales of property, plant and equipment
Proceeds from sale of product and process technology
Consolidation of TECH
Cash acquired from acquisition of Lexar
Other
Net cash used for investing activities
Cash flows from financing activities
Proceeds from issuance of debt
Cash received from noncontrolling interests
Proceeds from equipment sale-leaseback transactions
Proceeds from issuance of common stock
Payments on equipment purchase contracts
Repayments of debt
Cash received (paid) for capped call transactions
Other
Net cash provided by (used for) financing activities
Net increase in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year
Supplemental disclosures
Income taxes paid, net
Interest paid, net of amounts capitalized
Noncash investing and financing activities:
Equipment acquisitions on contracts payable and capital leases
Stock and stock options issued in acquisition of Lexar
Conversion of notes to stock, net of unamortized issuance cost
August 30,
2007
August 31,
2006
September 1,
2005
$
(320)
$
408
$
188
1,718
5
20
(43)
(30)
44
5
(591)
(1)
(4)
(11)
145
937
(3,603)
(1,466)
(73)
2,156
540
94
30
--
--
(69)
(2,391)
1,300
1,249
454
69
(487)
(193)
(151)
(26)
2,215
1,281
--
--
(2)
--
26
(62)
(12)
130
249
(24)
25
2,019
(1,365)
(3,080)
--
2,189
33
55
--
319
97
(4)
(1,756)
--
984
--
113
(209)
(415)
171
--
644
761
1,431
$ 2,192
907
524
$ 1,431
$
(41)
(22)
$
1,010
--
--
(52)
(28)
326
883
623
$
$
1,265
(2)
--
(13)
--
2
(22)
(193)
11
(2)
(10)
13
1,237
(1,065)
(1,849)
--
1,826
10
47
--
--
--
(53)
(1,084)
221
--
161
41
(236)
(300)
--
(2)
(115)
38
486
524
(21)
(58)
372
--
--
See accompanying notes to consolidated financial statements.
42
MICRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
Significant Accounting Policies
Basis of presentation: Micron Technology, Inc. and its subsidiaries (hereinafter referred to collectively as the
“Company”) manufacture and market DRAM, NAND Flash memory, CMOS image sensors and other semiconductor
components. The Company’s reportable segments are Memory and Imaging. The Memory segment’s primary products are
DRAM and NAND Flash and the Imaging segment’s primary product is CMOS image sensors. The accompanying
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. The Company’s
fiscal 2007, 2006 and 2005 each contained 52 weeks. All period references are to the Company’s fiscal periods unless
otherwise indicated.
Use of estimates: The preparation of financial statements and related disclosures in conformity with accounting principles
generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on historical experience,
forecasted future events and various other assumptions that the Company believes to be reasonable under the circumstances.
Estimates and judgments may differ under different assumptions or conditions. The Company evaluates its estimates and
judgments on an ongoing basis. Actual results could differ from estimates.
Certain concentrations: Approximately 50% of the Company’s net sales for 2007 were to the computing market,
including desktop PCs, servers, notebooks and workstations. Sales to Hewlett-Packard Company (“HP”) were 10% of the
Company’s net sales in 2007 and were included in the Memory segment. Sales of DRAM, NAND Flash and CMOS image
sensor products constituted 65%, 23% and 12%, respectively, of the Company’s net sales for 2007. Certain components used
by the Company in manufacturing semiconductor products are available from a limited number of suppliers.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash,
investment securities and trade receivables. The Company invests through high-credit-quality financial institutions and, by
policy, generally limits the concentration of credit exposure by restricting investments with any single obligor. A
concentration of credit risk may exist with respect to trade receivables as a substantial portion of the Company’s customers are
affiliated with the computing industry. The Company performs ongoing credit evaluations of customers worldwide and
generally does not require collateral from its customers. Historically, the Company has not experienced significant losses on
receivables.
Product warranty: The Company generally provides a limited warranty that its products are in compliance with
Company specifications existing at the time of delivery. Under the Company’s general terms and conditions of sale, liability
for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or
return of, or a credit with respect to, amounts paid for such items. Under certain circumstances, the Company may provide
more extensive limited warranty coverage and general legal principles may impose upon the Company more extensive liability
than that provided under the Company’s general terms and conditions. The Company’s warranty obligations are not material.
Revenue recognition: The Company recognizes product or license revenue when persuasive evidence of a sales
arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. Because
of frequent changes in market prices for the Company’s products, sales made under agreements allowing pricing protection or
rights of return (other than for product warranty) are deferred until customers have sold the product.
Research and development: Costs related to the conceptual formulation and design of products and processes are
expensed as research and development as incurred. Determining when product development is complete requires judgment by
the Company. The Company deems development of a product complete once the product has been thoroughly reviewed and
tested for performance and reliability. Subsequent to product qualification, product costs are valued in inventory. Product
design and other research and development costs for NAND Flash are shared equally among the Company and Intel
Corporation (“Intel”). These charges to Intel are reflected as a reduction of research and development expense. (See “Joint
Ventures – NAND Flash Joint Ventures with Intel.”)
43
Stock-based compensation: Effective the beginning of 2006, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), “Share-Based Payment,” and elected to adopt the modified prospective application method.
Accordingly, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is
recognized as expense over the requisite service period. For stock awards granted after the beginning of 2006, expenses are
amortized under the straight-line attribution method. (See “Equity Plans.”)
Functional currency: The U.S. dollar is the Company’s functional currency for substantially all of its operations.
Earnings per share: Basic earnings per share is computed based on the weighted-average number of common shares and
stock rights outstanding. Diluted earnings per share is computed based on the weighted-average number of common shares
and stock rights outstanding plus the dilutive effects of stock options, warrants and convertible notes. Potential common shares
that would increase earnings per share amounts or decrease loss per share amounts are antidilutive and are, therefore, excluded
from diluted earnings per share calculations.
Financial instruments: Cash equivalents include highly liquid short-term investments with original maturities to the
Company of three months or less, readily convertible to known amounts of cash. Investments with original maturities greater
than three months and remaining maturities less than one year are classified as short-term investments. Investments with
remaining maturities greater than one year are classified as other noncurrent assets. Securities classified as available-for-sale
are stated at market value. The carrying value of investment securities sold is determined using the specific identification
method.
Amounts reported as cash and equivalents, short-term investments, receivables, other assets, accounts payable and accrued
expenses and equipment purchase contracts approximate their fair values. The estimated fair value of the Company’s debt was
$2,411 million and $627 million as of August 30, 2007, and August 31, 2006, respectively. The estimated fair values presented
herein were based on market interest rates and other market information available to management as of each balance sheet date
presented. The use of different market assumptions and/or estimation methodologies could have a material effect on the
estimated fair values. The estimated fair values do not take into consideration expenses that could be incurred in an actual
settlement.
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and
overhead costs, including product and process technology costs. Determining fair market values of inventories involves
numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete
products in work in process inventories. As a result of these analyses, when fair market values are below the Company’s costs,
the Company records a charge to cost of goods sold in advance of when the inventory is actually sold. The Company’s
inventories have been categorized as Memory products or Imaging products for purposes of determining average cost and fair
market value. The major characteristics the Company considers in determining categories are product type and markets.
Product and process technology: Costs incurred to acquire product and process technology or to patent technology
developed by the Company are capitalized and amortized on a straight-line basis over periods currently ranging up to 10 years.
The Company capitalizes a portion of costs incurred based on its analysis of historical and projected patents issued as a percent
of patents filed. Capitalized product and process technology costs are amortized over the shorter of (i) the estimated useful life
of the technology, (ii) the patent term or (iii) the term of the technology agreement. Fully-amortized assets are removed from
product and process technology and accumulated amortization.
Property, plant and equipment: Property, plant and equipment are stated at cost and depreciated using the straight-line
method over estimated useful lives of 5 to 30 years for buildings, 2 to 20 years for equipment and 2 to 5 years for software.
Assets held for sale are carried at the lower of cost or estimated fair value and are included in other noncurrent assets. When
property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company’s
accounts and any net gain or loss is included in the Company’s results of operations.
The Company capitalizes interest on borrowings during the active construction period of major capital projects.
Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. The
Company capitalized interest costs of $18 million, $10 million and $2 million in 2007, 2006 and 2005, respectively, in
connection with various capital projects.
44
Recently issued accounting standards: In February 2007, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115.” Under SFAS No. 159, the Company may elect to measure many financial instruments and certain other
items at fair value on an instrument by instrument basis, subject to certain restrictions. The Company is required to adopt
SFAS No. 159 effective at the beginning of 2009. The impact of the adoption of SFAS No. 159 will depend on the extent to
which the Company elects to measure eligible items at fair value.
In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” In SAB No. 108, the SEC staff
established an approach that requires quantification of financial statement misstatements based on the effects of the
misstatements on each of a company’s financial statements and the related financial statement disclosures. SAB No. 108
permits companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the
cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the
opening balance of retained earnings. The Company adopted SAB No. 108 as of August 30, 2007. The adoption of SAB No.
108 did not impact the Company’s results of operations or financial condition.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer
to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as
an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan
as of the date of its year-end statement of financial position, with limited exceptions. The Company adopted SFAS No. 158 as
of August 30, 2007. The adoption of SFAS No. 158 did not have a material impact the Company’s results of operations or
financial condition.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value
measurements. The Company is required to adopt FAS No. 157 effective at the beginning of 2009. The Company is
evaluating the impact this statement will have on its consolidated financial statements.
In June 2006, the FASB issued Interpretation Number 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109.” The interpretation contains a two step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate each tax position for
recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax
benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company is
required to adopt FIN 48 effective at the beginning of 2008. The Company does not expect any material adjustments upon
adoption.
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS No.
155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation. As of August 30, 2007, the Company did not have any hybrid financial instruments subject to the
fair value election under SFAS No. 155. The Company is required to adopt SFAS No. 155 effective at the beginning of 2008.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 changes the
requirements for the accounting for and reporting of a change in accounting principle. The Company adopted SFAS No. 154 at
the beginning of 2007. The adoption of SFAS No. 154 did not impact the Company’s results of operations or financial
condition.
45
Supplemental Balance Sheet Information
Investment Securities
Available-for-sale securities:
Commercial paper
U.S. government and agencies
Certificates of deposit
Corporate notes and bonds
Repurchase agreements
Other
Less cash equivalents
Less noncurrent investments
Short-term investments
2007
2006
$ 687
642
532
12
--
27
1,900
(1,449)
(27)
$ 424
$ 1,272
668
486
232
67
21
2,746
(1,077)
(21)
$ 1,648
Gross unrealized gains and losses as of the end of the periods shown above were de minimis, as were gross realized gains
and losses in 2007, 2006 and 2005.
Receivables
Trade receivables
Taxes other than income
Other
Allowance for doubtful accounts
2007
2006
$ 739
44
215
(4)
$ 994
$ 811
18
131
(4)
$ 956
As of August 30, 2007, and August 31, 2006, other receivables included $108 million and $51 million, respectively, due
from Intel primarily for amounts related to NAND Flash product design and process development activities. Other receivables
as of August 30, 2007, and August 31, 2006, also included $83 million and $51 million, respectively, due from settlement of
litigation. Other noncurrent assets as of August 30, 2007, and August 31, 2006, include receivables due from settlement of
litigation of $110 million and $181 million, respectively.
Inventories
Finished goods
Work in process
Raw materials and supplies
Allowance for obsolescence
2007
2006
$ 547
784
271
(70)
$ 1,532
$ 273
530
195
(35)
$ 963
The Company’s results of operations for 2007 include a charge of $20 million to write down the carrying value of work in
process and finished goods inventories of memory products to their estimated fair market values.
Goodwill and Intangible Assets
Intangible assets:
Product and process technology
Customer relationships
Other
2007
2006
Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
$ 544
127
29
$ 700
$ (271)
(19)
(9)
$ (299)
$ 460
127
27
$ 614
$ (219)
(4)
(3)
$ (226)
46
During 2007, the Company capitalized $86 million for product and process technology with a weighted-average useful life
of 9 years and $2 million of other intangible assets with a weighted-average useful life of 4 years. During 2006, the Company
capitalized $76 million for product and process technology, $127 million for customer related intangible assets and $21 million
for trademark and trade name intangible assets with weighted-average useful lives of 10 years, 8 years and 5 years,
respectively. (See “Acquisitions.”)
Amortization expense for intangible assets was $75 million, $52 million and $51 million in 2007, 2006 and 2005,
respectively. Annual amortization expense for intangible assets held as of August 30, 2007, is estimated to be $78 million for
2008, $67 million for 2009, $57 million for 2010, $52 million for 2011 and $43 million for 2012.
As of August 30, 2007, the Company had goodwill of $463 million for its Memory segment and $52 million for its
Imaging segment. As of August 31, 2006, the Company had goodwill of $490 million for its Memory segment and $12 million
for its Imaging segment. All changes in goodwill are due to acquisitions and changes in the preliminary purchase price
allocation. (See “Acquisitions.”) The Company performs its annual test of impairment for goodwill in the fourth quarter of its
fiscal year.
Property, Plant and Equipment
Land
Buildings (includes $131 and $59, respectively, for capital leases)
Equipment (includes $744 and $409, respectively, for capital leases)
Construction in progress
Software
Accumulated depreciation (includes $258 and $229, respectively, for capital leases)
2007
2006
$ 107
3,636
12,379
209
267
16,598
(8,319)
$ 8,279
$ 107
2,763
9,528
484
251
13,133
(7,245)
$ 5,888
Depreciation expense was $1,664 million, $1,258 million and $1,211 million for 2007, 2006 and 2005, respectively.
Accounts Payable and Accrued Expenses
Accounts payable
Salaries, wages and benefits
Customer advances
Taxes other than income
Income taxes
Other
2007
2006
$ 856
247
85
18
15
164
$ 1,385
$ 854
220
6
23
20
196
$ 1,319
As of August 30, 2007, customer advances includes $83 million for the Company’s obligation to provide certain NAND
Flash memory products to Apple Computer, Inc. (“Apple”) until December 31, 2010, pursuant to a prepaid NAND Flash
supply agreement. As of August 30, 2007, an additional $167 million was included in other noncurrent liabilities pursuant to
this supply agreement.
Debt
Convertible senior notes payable, interest rate of 1.875%, due June 2014
Capital lease obligations payable in monthly installments through August 2021,
2007
2006
$ 1,300
$
--
weighted-average imputed interest rates of 6.6%
666
264
Notes payable in periodic installments through July 2015, weighted average
interest rate of 4.5% and 1.5%, respectively
Convertible subordinated notes payable, interest rate of 5.6%, due April 2010
Less current portion
374
70
2,410
(423)
$ 1,987
237
70
571
(166)
$ 405
As of August 30, 2007, notes payable and capital lease obligations above included an aggregate of $258 million,
denominated in Singapore dollars, at a weighted average interest rate of 6.6% and $165 million, denominated in Japanese yen,
at a weighted-average interest rate of 1.5%.
47
In May 2007, the Company issued $1.3 billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Senior Notes”).
The issuance costs associated with the Senior Notes totaled $26 million and the net proceeds to the Company from the offering
of the Senior Notes were $1,274 million. The initial conversion rate for the Senior Notes is 70.2679 shares of common stock
per $1,000 principal amount of Senior Notes, equivalent to an initial conversion price of approximately $14.23 per share of
common stock. Holders may convert the Senior Notes prior to the close of business on the business day immediately
preceding the maturity date for the Senior Notes only under the following circumstances: (1) during any calendar quarter
beginning after August 30, 2007, (and only during such calendar quarter) if the closing price of the Company's common stock
for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding
calendar quarter is more than 130% of the then applicable conversion price per share of the Senior Notes; (2) if the Senior
Notes have been called for redemption; (3) if specified distributions to holders of the Company's common stock are made, or
specified corporate events occur, as specified in the indenture for the Senior Notes; (4) during the five business days after any
five consecutive trading day period in which the trading price per $1,000 principal amount of Senior Notes for each day of that
period was less than 98% of the product of the closing price of the Company’s common stock and the then applicable
conversion rate of the Senior Notes; or (5) at any time on or after March 1, 2014. Upon conversion, the Company will have the
right to deliver, in lieu of shares of its common stock, cash or a combination of cash and shares of common stock. If a holder
elects to convert its Senior Notes in connection with a make-whole change in control, as defined in the indenture, the Company
will, in certain circumstances, pay a make-whole premium by increasing the conversion rate for the Senior Notes converted in
connection with such make-whole change in control. On or after June 6, 2011, the Company may redeem for cash all or part of
the Senior Notes if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect
for at least 20 trading days during any 30 consecutive trading day period ending within five trading days prior to the date on
which the Company provides notice of redemption. The redemption price is 100% of the principal amount of the Senior Notes
to be redeemed, plus accrued and unpaid interest. Upon a change in control or a termination of trading, as defined in the
indenture, the holders may require the Company to repurchase for cash all or a portion of their Senior Notes at a repurchase
price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any.
In 2007, the Company received $454 million in proceeds from sale-leaseback transactions. In connection with these
transactions, the Company recorded capital lease obligations aggregating $441 million with a weighted-average imputed
interest rate of 6.7%, payable in periodic installments through July 2011.
As of August 30, 2007, notes payable included $216 million payable to the Singapore Economic Development Board
(“EDB”) recorded in connection with the Company’s acquisition of EDB’s interest in the TECH Semiconductor Singapore Pte.
Ltd. joint venture in the third quarter of 2007. These notes have a stated interest rate of 6.8%, are payable to EDB in three
installments through December 2007 and are collateralized by the acquired shares in the TECH joint venture. (See “Joint
Ventures – TECH Semiconductor Singapore Pte. Ltd.”)
The Company’s TECH subsidiary has a credit facility that, as of August 30, 2007, enables it to borrow up to $360 million
at Singapore Interbank Offered Rate (“SIBOR”) plus 2.5% subject to customary covenants. The amount available under the
credit facility decreased to $320 million as of September 27, 2007 and will decline by approximately $40 million every
calendar quarter thereafter until the facility expires in September 2009. Amounts borrowed under the facility would be due in
quarterly installments through September 2009. As of August 30, 2007, TECH had not borrowed any amounts against the
credit facility.
In connection with the Company’s acquisition of Lexar in the fourth quarter of 2006, the Company assumed Lexar’s $70
million 5.625% convertible notes due April 1, 2010 (the “Lexar Notes”). The Lexar Notes are convertible into the Company’s
common stock any time at the option of the holders of the Notes at a price equal to approximately $11.28 per share and are
subject to customary covenants. The Lexar Notes are redeemable for cash at the Company’s option beginning on April 1,
2008, at a price equal to the principal amount plus accrued interest plus the net present value of the remaining scheduled
interest payments through April 1, 2010. The Company may only redeem the Lexar Notes if its common stock has exceeded
175% of the conversion price for at least 20 trading days in the 30 consecutive trading days prior to delivery of a notice of
redemption.
Certain notes payable are collateralized by property, plant and equipment with a carrying value of $72 million as of August
30, 2007.
48
As of August 30, 2007, maturities of notes payable and future minimum lease payments under capital lease obligations
were as follows:
2008
2009
2010
2011
2012
2013 and thereafter
Interest
Notes
Payable
$ 278
46
115
4
--
1,301
--
$ 1,744
Capital
Lease
Obligations
$ 185
172
112
225
15
85
(128)
$ 666
Commitments
As of August 30, 2007, the Company had commitments of approximately $1.2 billion for the acquisition of property, plant
and equipment. The Company has an agreement to construct a facility to produce photomasks and sell such facility to its MP
Mask partner for a negotiated amount. The Company expects to complete the facility in November 2007 and does not expect
to incur a material loss upon completion. The Company leases certain facilities and equipment under operating leases. Total
rental expense was $62 million, $30 million and $23 million for 2007, 2006 and 2005, respectively. Minimum future rental
commitments under operating leases aggregated $117 million as of August 30, 2007, and are payable as follows: $31 million
in 2008; $16 million in 2009; $13 million in 2010; $12 million in 2011, $10 million in 2012 and $35 million in 2013 and
thereafter.
Contingencies
As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may
in the future assert, that the Company’s products or manufacturing processes infringe their intellectual property rights. In this
regard, the Company is engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of Rambus’ patents and certain
of the Company’s claims and defenses. Lawsuits between Rambus and the Company are pending in the U.S. District Court for
the District of Delaware, U.S. District Court for the Northern District of California, Germany, France, and Italy. The Company
also is engaged in patent litigation with Mosaid Technologies, Inc. (“Mosaid”) in both the U.S. District Court for the Northern
District of California and the U.S. District Court for the Eastern District of Texas. Among other things, the above lawsuits
pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM, and image sensor products, which
account for a significant portion of net sales. In the first quarter of 2008, the Company entered into a settlement agreement
with the Massachusetts Institute of Technology (“MIT”) that did not have a material impact on the Company’s results of
operations or financial condition.
The Company is unable to predict the outcome of assertions of infringement made against the Company. A court
determination that the Company’s products or manufacturing processes infringe the intellectual property rights of others could
result in significant liability and/or require the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing could have a material adverse effect on the Company’s business, results of operations or
financial condition.
On June 17, 2002, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of
California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”)
into possible antitrust violations in the “Dynamic Random Access Memory” or “DRAM” industry. The Company is
cooperating fully and actively with the DOJ in its investigation. The Company’s cooperation is pursuant to the terms of the
DOJ’s Corporate Leniency Policy, which provides that in exchange for the Company’s full, continuing and complete
cooperation in the pending investigation, the Company will not be subject to prosecution, fines or other penalties from the
DOJ.
49
Subsequent to the commencement of the DOJ DRAM investigation, at least sixty-eight purported class action lawsuits
have been filed against the Company and other DRAM suppliers in various federal and state courts in the United States and in
Puerto Rico on behalf of indirect purchasers alleging price-fixing in violation of federal and state antitrust laws, violations of
state unfair competition law, and/or unjust enrichment relating to the sale and pricing of DRAM products during the period
from April 1999 through at least June 2002. The complaints seek treble damages sustained by purported class members, in
addition to restitution, costs, and attorneys’ fees. On June 1, 2007, the Court granted in part and denied in part the Company’s
motion to dismiss the consolidated complaint. Plaintiffs subsequently have filed an amended complaint.
In addition, various states, through their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an amended complaint, the following states filed suit in the U.S.
District Court for the Northern District of California: Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida,
Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,
Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and the
Commonwealth of the Northern Mariana Islands. The amended complaint alleges, among other things, violations of the
Sherman Act, Cartwright Act, and certain other states’ consumer protection and antitrust laws and seeks damages, and
injunctive and other relief. Additionally, on July 13, 2006, the State of New York filed a similar suit in the U.S. District Court
for the Southern District of New York. That case was subsequently transferred to the U.S. District Court for the Northern
District of California for pre-trial purposes. Three states, Ohio, New Hampshire, and Texas, subsequently have withdrawn
from the complaint.
Three purported class action lawsuits also have been filed in Canada, on behalf of direct and indirect purchasers, alleging
violations of the Canadian Competition Act. The substantive allegations in these cases are similar to those asserted in the cases
filed in the United States.
On January 9, 2007, the Company entered into a settlement agreement with a class of direct purchasers (“Direct Purchaser
Settlement”) that had alleged price-fixing in violation of federal and state antitrust laws, violations of state unfair competition
law, and/or unjust enrichment relating to the sale and pricing of DRAM products. Under terms of the Direct Purchaser
Settlement, the Company was dismissed with prejudice from the direct purchaser consolidated class-action suit. As a result of
the Direct Purchaser Settlement, the Company recorded a $50 million charge to revenue (for the amount attributable to then-
current customers) and a $31 million net charge to selling, general and administrative expenses for 2007.
In February and March 2007, All American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers in the U.S. District Court for the Northern
District of California after opting-out of the direct purchaser class action suit that was settled. The complaints allege, among
other things, violations of federal and state antitrust and competition laws in the DRAM industry, and seek damages, injunctive
relief, and other remedies.
On October 11, 2006, the Company received a grand jury subpoena from the U.S. District Court for the Northern District
of California seeking information regarding an investigation by the DOJ into possible antitrust violations in the “Static Random
Access Memory” or “SRAM” industry. The Company believes that it is not a target of the investigation and is cooperating
with the DOJ in its investigation of the SRAM industry.
Subsequent to the commencement of the DOJ SRAM investigation, at least eighty purported class action lawsuits have
been filed against the Company and other SRAM suppliers in various federal courts on behalf of direct and indirect purchasers
alleging price-fixing in violation of federal and state antitrust laws, violations of state unfair competition law, and/or unjust
enrichment relating to the sale and pricing of SRAM products during the period from January 1998 through December 2005.
The complaints seek treble monetary damages sustained by purported class members, in addition to restitution, costs, and
attorneys’ fees.
In September 2007, a number of memory suppliers confirmed that they had received grand jury subpoenas from the U.S.
District Court for the Northern District of California seeking information regarding an investigation by the DOJ into possible
antitrust violations in the "Flash" industry. The Company has not received a subpoena and believes that is not a target of the
investigation.
50
At least thirty-four purported class action lawsuits were filed against the Company and other suppliers of Flash memory
products in various federal and state courts on behalf of direct and indirect purchasers alleging price-fixing in violation of federal
and state antitrust laws, violations of state unfair competition law, and/or unjust enrichment relating to the sale and pricing of
Flash memory products during the period from January 1, 1999 through the date the various cases were filed. The complaints seek
treble monetary damages sustained by purported class members, in addition to restitution, costs, and attorneys’ fees.
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against
the Company and other DRAM suppliers. The complaint alleges various causes of action under California state law including
conspiracy to restrict output and fix prices on Rambus DRAM (“RDRAM”) and unfair competition. The complaint seeks
treble damages, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct
alleged in the complaint.
The Company is unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged
violations of antitrust laws could result in significant liability and could have a material adverse effect on the Company’s
business, results of operations or financial condition.
On February 24, 2006, a putative class action complaint was filed against the Company and certain of its officers in the
U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in
the same Court. The cases purport to be brought on behalf of a class of purchasers of the Company’s stock during the period
February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action
complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among
other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys’ fees, costs, and expenses.
In addition, on March 23, 2006, a shareholder derivative action was filed in the Fourth District Court for the State of Idaho
(Ada County), allegedly on behalf of and for the benefit of the Company, against certain of the Company’s current and former
officers and directors. The Company also was named as a nominal defendant. An amended complaint was filed on August 23,
2006. The complaint is based on the same allegations of fact as in the securities class actions filed in the U.S. District Court
for the District of Idaho and alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate
assets, unjust enrichment, and insider trading. The complaint seeks unspecified damages, restitution, disgorgement of profits,
equitable and injunctive relief, attorneys’ fees, costs, and expenses. The complaint is derivative in nature and does not seek
monetary damages from the Company. However, the Company may be required, throughout the pendency of the action, to
advance payment of legal fees and costs incurred by the defendants. On May 29, 2007, the Court granted the Company's
motion to dismiss the complaint but provided plaintiffs leave to file an amended complaint. On September 6, 2007, plaintiffs
filed an amended complaint.
The Company is unable to predict the outcome of these cases. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse effect on the Company’s business, results of
operations or financial condition.
In March 2006, following the Company’s announcement of a definitive agreement to acquire Lexar Media, Inc. (“Lexar”)
in a stock-for-stock merger, four purported class action complaints were filed in the Superior Court for the State of California
(Alameda County) on behalf of shareholders of Lexar against Lexar and its directors. Two of the complaints also name the
Company as a defendant. The complaints allege that the defendants breached, or aided and abetted the breach of, fiduciary
duties owed to Lexar shareholders by, among other things, engaging in self-dealing, failing to engage in efforts to obtain the
highest price reasonably available, and failing to properly value Lexar in connection with a merger transaction between Lexar
and the Company. The plaintiffs seek, among other things, injunctive relief preventing, or an order of rescission reversing, the
merger, compensatory damages, interest, attorneys’ fees, and costs. On May 19, 2006, the plaintiffs filed a motion for
preliminary injunction seeking to block the merger. On May 31, 2006, the Court denied the motion. An amended consolidated
complaint was filed on October 10, 2006. On June 14, 2007, the Court granted Lexar's and the Company's motions to dismiss
the amended complaint but allowed plaintiffs leave to file a further amended complaint. The Company is unable to predict the
outcome of these suits. A court determination against the Company could result in significant liability and could have a
material adverse effect on the Company’s business, results of operations or financial condition. (See “Acquisitions – Lexar
Media, Inc.”)
51
The Company has accrued a liability and charged operations for the estimated costs of adjudication or settlement of
various asserted and unasserted claims existing as of the balance sheet date. The Company is currently a party to other legal
actions arising out of the normal course of business, none of which is expected to have a material adverse effect on the
Company’s business, results of operations or financial condition.
In the normal course of business, the Company is a party to a variety of agreements pursuant to which it may be obligated
to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types
of agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in
each particular agreement. Historically, payments made by the Company under these types of agreements have not had a
material effect on the Company’s business, results of operations or financial condition.
Capped Call Transactions
In connection with the offering of the Senior Notes in May 2007, the Company entered into three capped call transactions
(the “Capped Calls”). The Capped Calls each have an initial strike price of approximately $14.23 per share, subject to certain
adjustments, which matches the initial conversion price of the Senior Notes. The Capped Calls are in three equal tranches,
have cap prices of $17.25, $20.13 and $23.00 per share, and cover, subject to anti-dilution adjustments similar to those
contained in the Senior Notes, an approximate combined total of 91.3 million shares of common stock. The Capped Calls may
reduce the potential dilution upon conversion of the Senior Notes. Settlement of the Capped Calls in cash on their respective
expiration dates would result in the Company receiving an amount ranging from zero if the market price per share of the
Company’s common stock is at or below $14.23 to a maximum of $538 million. The Company paid approximately $151
million to purchase the Capped Calls. The Capped Calls expire on various dates between November 2011 and December 2012.
The Capped Calls are considered capital transactions and the related cost was recorded as a charge to additional capital.
Shareholders’ Equity
Stock Rights: As of August 30, 2007, Intel held stock rights exchangeable into approximately 16.9 million shares of the
Company’s common stock. The shares issuable pursuant to the stock rights are included in weighted-average common shares
outstanding in the computations of earnings per share.
Stock Warrants: In 2001, the Company received $480 million from the issuance of warrants to purchase 29.1 million
shares of the Company’s common stock. The warrants entitle the holders to exercise their warrants and purchase shares of
common stock for $56.00 per share at any time through May 15, 2008 (the “Expiration Date”). Warrants exercised prior to the
Expiration Date will be settled on a “net share” basis, wherein investors receive common stock equal to the difference between
$56.00 and the average closing sale price for the common shares over the 30 trading days immediately preceding the exercise
date. At expiration, the Company may elect to settle the warrants on a net share basis or for cash, provided certain conditions
are satisfied. As of August 30, 2007, no warrants have been exercised.
Accumulated Other Comprehensive Loss: Accumulated other comprehensive loss, net of tax, consists of the following as
of the end of the periods shown below:
Unrealized loss on investments
Adjustment to initially apply SFAS No. 158, net of tax
Accumulated other comprehensive loss
Equity Plans
2007
2006
$
$
(2)
(5)
(7)
$
$
(2)
--
(2)
As of August 30, 2007, the Company had an aggregate of 181.8 million shares of its common stock reserved for issuance
for stock options and restricted stock awards, of which 124.8 million shares were subject to outstanding awards and 57.0
million shares were available for future grants. Awards are subject to terms and conditions as determined by the Company’s
Board of Directors.
52
Stock Options: Stock options granted by the Company are generally exercisable in increments of 25% during each year of
employment beginning one year from the date of grant. Stock options issued prior to January 19, 1998, and after September 22,
2004, generally expire six years from the date of grant. All other options expire ten years from the grant date.
In connection with the Company’s acquisition of Lexar in 2006, the Company assumed Lexar options, which were
converted into options to purchase 6.6 million shares of the Company’s common stock, which vest over four years and expire
ten years from the grant date. (See “Acquisitions – Lexar Media, Inc.”)
Option activity for 2007 is summarized as follows:
Outstanding at August 31, 2006
Granted
Exercised
Cancelled or expired
Outstanding at August 30, 2007
Weighted-
average
exercise price
per share
$ 20.02
12.80
9.55
20.17
20.00
Number of
shares
123.9
8.2
(5.5)
(7.1)
119.5
Exercisable at August 30, 2007
Expected to vest after August 30, 2007
102.9
15.6
$ 21.12
13.06
Weighted-
average
remaining
contractual
life
(in years)
Aggregate
intrinsic
value
4.02
3.87
4.97
$ 7
$ 7
--
The following table summarizes information about options outstanding as of August 30, 2007:
Outstanding options
Exercisable options
Weighted-
average
remaining
contractual
life (in years)
Weighted-
average
exercise
price
per share
4.43
4.40
2.86
2.38
3.11
4.02
$ 12.51
18.87
29.97
36.93
66.35
20.00
Number
of shares
60.5
29.6
18.8
6.6
4.0
119.5
Weighted-
average
exercise
price
per share
$ 12.43
19.22
29.97
36.93
66.35
21.12
Number
of shares
46.1
27.3
18.8
6.6
4.1
102.9
Range of exercise prices
$0.51 - $14.02
14.03 - 22.83
23.25 - 34.06
34.09 - 40.06
40.57 - 96.56
The weighted-average grant-date fair value per share was $4.87, $5.92 and $5.10 for options granted during 2007, 2006
and 2005, respectively. The total intrinsic value was $32 million and $46 million for options exercised during 2007 and 2006.
The total intrinsic value for options exercised during 2005 was de minimis.
53
Changes in the Company’s nonvested options for 2007 are summarized as follows:
Nonvested at August 31, 2006
Granted
Vested
Cancelled
Nonvested at August 30, 2007
Weighted-
average grant
date fair
value
per share
Number of
shares
14.3
8.2
(4.1)
(1.8)
16.6
$ 6.15
4.87
6.28
6.04
5.50
As of August 30, 2007, there was $64 million of total unrecognized compensation cost net of estimated forfeitures related
to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.4 years. The Company’s
nonvested options as of August 30, 2007, have a weighted-average exercise price of $13.06, a weighted-average remaining
contractual life of 4.95 years and a de minimis aggregate intrinsic value.
The fair value of each option award is estimated as of the date of grant using the Black-Scholes model. Expected
volatilities are based on implied volatilities from traded options on the Company’s stock and historical volatility. The expected
life of options granted is based on historical experience and on the terms and conditions of the options. The risk-free rates are
based on the U.S. Treasury yield in effect at the time of the grant. For purposes of this valuation model, no dividends have
been assumed. 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 and requires the input of subjective assumptions, including the
expected stock price volatility and estimated option life. Assumptions used in the Black-Scholes model are presented below:
Average expected life in years
Expected volatility
Weighted-average volatility
Risk-free interest rate
2007
2006
4.25
33%-42%
39%
4.5%-5.2%
4.25
42%-48%
47%
3.9%-5.2%
Restricted Stock: As of August 30, 2007, there were 5.3 million shares of restricted stock and restricted stock units
outstanding, of which 1.5 million were performance-based restricted stock awards. For service-based restricted stock awards,
restrictions generally lapse either in one-fourth or one-third increments during each year of employment after the grant date.
For performance-based restricted stock awards, vesting is contingent upon meeting certain Company-wide performance goals.
Restricted stock activity for 2007 is summarized as follows:
Outstanding at August 31, 2006
Granted
Restrictions lapsed
Outstanding at August 30, 2007
Expected to vest after August 30, 2007
Weighted-
average
remaining
contractual
life
(in years)
Aggregate
intrinsic
value
2.4
2.6
$ 60
$ 51
Number of
shares
2.3
3.8
(0.8)
5.3
4.5
The weighted-average grant-date fair value for restricted stock awards granted during 2007 and 2006 was $14.91 and
$13.04 per share, respectively. The total value of awards for which restrictions lapsed during 2007 and 2006 was $11 million
and $2 million. As of August 30, 2007, there was $49 million of total unrecognized compensation cost net of estimated
forfeitures, related to nonvested restricted stock awards, which is expected to be recognized over a weighted-average period of
1.4 years.
54
Stock Purchase Plan: The Company’s 1989 Employee Stock Purchase Plan (“ESPP”) allows eligible employees to
purchase shares of the Company’s common stock through payroll deductions. Prior to July 1, 2005, shares could be purchased
at 85% of the lower of the beginning or ending closing stock prices of each quarterly offering period. After July 1, 2005,
shares can be purchased at 95% of the ending closing stock price of each offering quarterly period. Shares can be resold when
purchased. Purchases are limited to 20% of an employee’s eligible compensation. As of August 30, 2007, 27.4 million shares
of the Company’s common stock had been issued under the ESPP and 2.1 million shares were available for future issuance
under the plan.
Non-Employee Director Stock Incentive Plan: Shares are issued under the Director Stock Incentive Plan (“DSIP”) as
compensation to non-employee directors of the Company. As of August 30, 2007, 64,666 shares of the Company’s common
stock had been issued under the DSIP and 435,334 shares were reserved for future issuance under the plan.
Stock-Based Compensation Expense: Total compensation cost for the Company’s stock plans was as follows:
Stock-based compensation expense by caption:
Cost of goods sold
Selling, general and administrative
Research and development
Stock-based compensation expense by type of award:
Stock options
Restricted stock
2007
2006
$
$
$
$
11
21
12
44
26
18
44
$
$
$
$
8
11
7
26
17
9
26
Stock-based compensation expense of $3 million and $1 million was capitalized and remained in inventory at the end of
2007 and 2006, respectively. As of August 30, 2007, $113 million of total unrecognized compensation costs net of estimated
forfeitures related to non-vested awards is expected to be recognized over a weighted-average period of 1.4 years.
Through 2005, the Company accounted for its stock plans using the intrinsic value method prescribed by APB Opinion No.
25, “Accounting for Stock Issued to Employees,” and related interpretations. Previously reported amounts have not been
restated. The following presents the pro forma income and per share data required under SFAS No. 123, “Accounting for
Stock-Based Compensation” as if a fair value based method had been used to account for stock-based compensation for 2005:
Net income available to common shareholders
Stock-based employee compensation expense included in reported
net income, net of tax
Less total stock-based employee compensation expense determined
under a fair value-based method for all awards, net of tax
Pro forma net loss available to common shareholders
Earnings (loss) per share:
Basic, as reported
Basic, pro forma
Diluted, as reported
Diluted, pro forma
2005
$ 188
2
(265)
(75)
$
$ 0.29
(0.12)
$ 0.29
(0.12)
Stock-based compensation expense in the above presentation does not reflect any significant income taxes, which is
consistent with the Company’s treatment of income or loss from its U.S. operations. (See “Income Taxes.”) In 2005, the
Company accelerated the vesting of substantially all of its unvested stock options then outstanding under the Company’s stock
plans to reduce compensation costs recognized subsequent to the adoption of SFAS 123(R).
55
Assumptions used in the Black-Scholes option valuation model to estimate the value of the Company’s options included in
pro forma amounts for 2005 are presented below:
Average expected life in years
Expected volatility
Risk-free interest rate
Employee Benefit Plans
2005
Employee stock
Purchase
plan shares
0.25
33%
2.1%
Stock option
plan shares
4.25
48%
3.6%
The Company has employee retirement plans at its U.S. and international sites. Details of the more significant plans are
discussed as follows:
Employee Savings Plan for U.S. Employees: The Company has a 401(k) retirement plan (“RAM Plan”) under which U.S.
employees may contribute up to 45% of their eligible pay (subject to IRS annual contribution limits) to various savings
alternatives, none of which include direct investment in the Company’s common stock. Under the RAM plan, the Company
matches in cash eligible contributions from employees up to 4% of the employee’s annual eligible earnings, or $2,000,
whichever is greater. Contribution expense for the Company’s RAM Plan was $31 million, $26 million and $18 million in
2007, 2006 and 2005, respectively.
Retirement Plans: The Company has pension plans in various countries worldwide. The pension plans are only available
to local employees and are generally government mandated. Upon adoption of FAS 158 as of August 30, 2007, the Company
recorded a liability of $8 million related to the unfunded pension liabilities of the plans.
Restructure
In an effort to increase the Company’s competitiveness and efficiency, in the fourth quarter of 2007, the Company
announced a number of initiatives to drive greater cost efficiencies and revenue growth across its operations. The initiatives
included workforce reductions in certain areas of the Company as the Company’s business is realigned. Additional initiatives
include establishing certain operations closer in location to the Company’s global customers, evaluating functions more
efficiently performed through partnerships or other outside relationships and reducing the Company’s overhead costs to meet
or exceed industry benchmarks. The Company will continue to execute the initiatives through 2008. In connection with the
restructure, the Company recorded a charge of $19 million consisting primarily of employee severance and related costs
resulting from a reduction in the Company’s workforce of approximately 1,000 employees (primarily from the Company’s
Memory segment). As of August 30, 2007, $5 million of the restructure costs remained unpaid and were included in accounts
payable and accrued expenses.
Other Operating (Income) Expense, Net
Other operating income for 2007 includes $43 million from gains on disposals of semiconductor equipment, a gain of $30
million from the sale of certain intellectual property to Toshiba Corporation and $7 million in grants received in connection
with the Company’s operations in China. Other operating expense for 2007 includes losses of $14 million from changes in
currency exchange rates. Other operating income for 2006 includes $230 million of net proceeds for the sale of the Company’s
existing NAND Flash memory designs and certain related technology to Intel net of amounts paid by the Company for a
perpetual, paid-up license to use and modify such designs. Other operating income for 2006 also includes $23 million in
additional amounts expected to be reimbursed resulting from the extension of an economic development agreement, which
allows the Company to recover amounts relating to certain investments in IM Flash. (See “Joint Ventures – NAND Flash Joint
Ventures with Intel.”) Other operating income for 2005 includes gains net of losses on disposals of semiconductor equipment
of $13 million and $12 million in receipts from the U.S. Government in connection with anti-dumping tariffs.
56
Income Taxes
Income (loss) before taxes and noncontrolling interests in net income and the income tax (provision) consisted of the
following:
Income (loss) before taxes and noncontrolling interests in net
income:
U.S.
Foreign
Income tax (provision):
Current:
U.S. federal
State
Foreign
Deferred:
U.S. federal
State
Foreign
Income tax (provision)
2007
2006
2005
$ (571)
403
$ (168)
$ 351
82
$ 433
$ 108
91
$ 199
$
$
(5)
--
(39)
(44)
--
--
14
14
(30)
$
$
(12)
(1)
(29)
(42)
--
--
24
24
(18)
$
$
--
(3)
(18)
(21)
--
--
10
10
(11)
The Company’s income tax (provision) computed using the U.S. federal statutory rate reconciled to the Company’s
income tax (provision) follows:
U.S. federal income tax benefit (provision) at statutory rate
State taxes, net of federal benefit
Foreign operations
Change in valuation allowance
Tax credits
Export sales benefit
Other
Income tax (provision)
2007
2006
2005
$
$
59
3
93
(219)
25
8
1
(30)
$ (152)
5
3
103
7
13
3
(18)
$
$
$
(70)
6
9
(7)
28
16
7
(11)
State taxes reflect investment tax credits of $10 million, $23 million and $14 million for 2007, 2006 and 2005, respectively.
57
Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for
financial reporting and income tax purposes. The Company’s deferred tax assets and liabilities consist of the following as of
the end of the periods shown below:
Deferred tax assets:
Net operating loss and credit carryforwards
Basis differences in investments in joint ventures
Deferred revenue
Accrued compensation
Inventories
Accounts payable
Accrued product and process technology
Other
Gross deferred tax assets
Less valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Excess tax over book depreciation
Receivables
Unremitted earnings on certain subsidiaries
Intangible assets
Product and process technology
Other
Deferred tax liabilities
2007
2006
$ 1,136
236
160
64
35
21
14
26
1,692
(1,142)
550
$ 929
301
160
51
16
43
11
36
1,547
(915)
632
(225)
(76)
(68)
(59)
(44)
(13)
(485)
(308)
(91)
(58)
(68)
(45)
(15)
(585)
Net deferred tax assets
$
65
$
47
Reported as:
Current deferred tax assets
Noncurrent deferred tax assets
Noncurrent deferred tax liabilities
Net deferred tax assets
$
$
25
65
(25)
65
$
$
26
49
(28)
47
The Company has a valuation allowance against substantially all of its U.S. net deferred tax assets. As of August 30, 2007,
the Company had aggregate U.S. tax net operating loss carryforwards of $2.2 billion and unused U.S. tax credit carryforwards
of $202 million. The Company also has unused state tax net operating loss carryforwards of $1.5 billion and unused state tax
credits of $169 million as of August 30, 2007. Substantially all of the net operating loss carryforwards expire in 2022 to 2027
and substantially all of the tax credit carryforwards expire in 2013 to 2027. As a consequence of prior business acquisitions,
utilization of the tax benefits for some of the tax carryforwards is subject to limitations imposed by Section 382 of the Internal
Revenue Code and some portion or all of these carryforwards may not be available to offset any future taxable income.
The changes in valuation allowance of $227 million and $(114) million in 2007 and 2006, respectively, are primarily due
to uncertainties of realizing certain U.S. net operating losses and certain tax credit carryforwards. The change in the valuation
allowance in 2007 and 2006 includes $6 million and $12 million, respectively, for stock plan deductions, which will be
credited to additional capital if realized.
Provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend
payments from such companies are expected to result in additional tax liability. Remaining undistributed earnings of $935
million as of August 30, 2007, 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.
58
Earnings Per Share
2007
2006
2005
Net income (loss) available to common shareholders – Basic
Net effect of assumed conversion of debt
Net income (loss) available to common shareholders – Diluted
$ (320)
--
$ (320)
$ 408
6
$ 414
$ 188
14
$ 202
Weighted-average common shares outstanding – Basic
Net effect of dilutive stock options and assumed conversion of debt
Weighted-average common shares outstanding – Diluted
769.1
--
769.1
691.7
33.4
725.1
647.7
54.3
702.0
Earnings (loss) per share:
Basic
Diluted
$ (0.42)
(0.42)
$ 0.59
0.57
$ 0.29
0.29
Listed below are the potential common shares, as of the end of the periods shown below, that could dilute basic earnings
per share in the future that were not included in the computation of diluted earnings per share because to do so would have
been antidilutive:
Employee stock plans
Convertible notes payable
Common stock warrants
Acquisitions
2007
2006
2005
124.9
97.6
29.1
68.7
6.2
29.1
117.4
--
29.1
Lexar Media, Inc. (“Lexar”): On June 21, 2006, the Company acquired Lexar, a designer, developer, manufacturer and
marketer of Flash memory products, in a stock for stock merger to broaden the Company’s NAND Flash memory product
offering, enhance its retail presence and strengthen its portfolio of intellectual property. Pursuant to the terms of the merger
agreement, each issued and outstanding share of common stock of Lexar was converted into 0.5925 shares of Micron’s
common stock (the “Exchange Ratio”), and each issued, outstanding and unexercised Lexar employee stock option with an
exercise price per share of $9.54 or less was converted into a Micron employee stock option using the Exchange Ratio. In
connection therewith, the Company issued 50.7 million shares of common stock, issued 6.6 million stock options and incurred
other acquisition costs resulting in an aggregate purchase price of $886 million. The Company’s results of operations for 2006
include the results of Lexar, which are included in the Company’s Memory segment, for the period subsequent to the
acquisition date.
59
The $886 million purchase price was allocated to the assets and liabilities of Lexar based on an estimate of fair values as
follows:
As of
August 31,
2006
Adjustments
As of
August 30,
2007
$ 101
$
--
$ 101
Cash and short-term investments
Receivables ($179 of which was
classified as noncurrent)
Inventories
Intangible assets
Deferred tax assets
Goodwill
Other assets
302
75
183
176
486
33
Accounts payable and accrued
expenses
Deferred tax liabilities
Debt
Aggregate purchase price
(181)
(176)
(113)
$ 886
$
15
(1)
--
4
(28)
(2)
12
--
--
--
317
74
183
180
458
31
(169)
(176)
(113)
$ 886
As of June 21, 2006, the estimated fair value of Lexar’s convertible debt exceeded its face value by $43 million. The
convertible debt was recorded at its $70 million face value and the $43 million was recorded as additional capital in the
accompanying consolidated financial statements.
Effective September 15, 2006, the Company and Toshiba Corporation entered into agreements settling all outstanding
NAND Flash memory-related litigation between the companies. Toshiba purchased certain of the Company’s semiconductor
technology patents and licensed certain patents previously owned by Lexar. The Company will receive payments totaling $288
million over three years, a substantial portion of which was included in the allocation of the purchase price for Lexar as a
receivable at an imputed interest rate of 5.9%. As of August 30, 2007, $193 million of the settlement proceeds remained in
current and noncurrent receivables.
The following unaudited pro forma information presents the consolidated results of operations of the Company as if the
acquisition of Lexar had taken place at the beginning of 2006 and at the beginning of 2005. The pro forma information does
not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations.
Net sales
Net income
Earnings per share – diluted
2006
2005
(unaudited)
$ 5,746
266
$ 5,682
102
$ 0.35
$ 0.15
Avago Technologies Limited Image Sensor Business: On December 11, 2006, the Company acquired the CMOS image
sensor business of Avago Technologies Limited (“Avago”), for an initial cash payment of $53 million and additional
contingent consideration at inception of up to $17 million if certain milestones were met through 2008. Due to the
achievement of certain milestones during 2007, the Company increased the initial $53 million acquisition cost (and its
preliminary allocation of this cost to goodwill) by $4 million. Based on a preliminary allocation of acquisition costs as of
August 30, 2007, the Company had recorded total assets of $58 million (including intangible assets of $17 million and
goodwill of $40 million) and total liabilities of $1 million. The Company’s results of operations subsequent to the acquisition
date include the CMOS image sensor business acquired from Avago as part of the Company’s Imaging segment. Mercedes
Johnson, a member of the Company’s Board of Directors, is the Senior Vice President, Finance and Chief Financial Officer of
Avago. Ms. Johnson recused herself from all deliberations of the Company’s Board of Directors concerning this transaction.
60
Joint Ventures
NAND Flash Joint Ventures with Intel (“IM Flash”): The Company has formed two joint ventures with Intel to
manufacture NAND Flash memory products for the exclusive benefit of the partners: IM Flash Technologies, LLC and IM
Flash Singapore LLP. As of August 30, 2007, the Company owned 51% and Intel owned 49% of IM Flash. The Company’s
capital contributions of assets and cash to IM Flash were matched by pro rata cash contributions from Intel of $1,238 million
and $936 million in 2007 and 2006, respectively. The partners share the output of IM Flash generally in proportion to their
ownership in IM Flash. IM Flash sells products to the joint venture partners at long-term negotiated prices approximating cost.
IM Flash sales to Intel were $255 million and $111 million for 2007 and 2006, respectively.
IM Flash manufactures NAND Flash memory products based on NAND Flash designs developed by the Company and
Intel and licensed to the Company. Product design and other research and development costs for NAND Flash are generally
shared equally between the Company and Intel. In 2007 and 2006, the Company received $240 million and $86 million,
respectively, from Intel under the NAND Flash research and development cost sharing arrangement. In the second quarter of
2006, the Company received net proceeds of $230 million from Intel for the sale of the Company’s then existing NAND Flash
memory designs and certain related technology and the Company’s acquisition of a perpetual, paid-up license to use and
modify such designs.
Under the terms of a lease agreement, IM Flash has the use of approximately 50% of the Company’s manufacturing
facility in Manassas, Virginia through January 2016. IM Flash purchases and installs manufacturing equipment into the leased
facility, which is operated and maintained by the Company. The cost of operating and maintaining the equipment is charged to
IM Flash. Under the terms of a wafer supply agreement, the Company manufactures wafers for IM Flash in its Boise, Idaho
facility through January 2011. The Company and Intel entered into various service contracts with IM Flash under which they
provide operational and administrative support services. The Company and Intel generally charge IM Flash for costs of
providing such services.
The Company has determined that both of the IM Flash joint ventures are variable interest entities as defined in FIN 46(R),
“Consolidation of Variable Interest Entities,” and that the Company is the primary beneficiary of both. Accordingly, IM Flash
financial results are included in the accompanying consolidated financial statements of the Company. All amounts pertaining
to Intel’s interests in IM Flash are reported as noncontrolling interest. IM Flash’s cash and marketable investment securities
are not anticipated to be made available to finance the Company’s other operations. The creditors of IM Flash have recourse
only to the assets of IM Flash and do not have recourse to any other assets of the Company.
TECH Semiconductor Singapore Pte. Ltd. (“TECH”): Since 1998, the Company has participated in TECH, a
semiconductor memory manufacturing joint venture in Singapore among the Company, the Singapore Economic Development
Board (“EDB”), Canon Inc. and HP. As of August 30, 2007, the Company owned an approximate 73% interest in TECH. The
shareholders’ agreement for the TECH joint venture expires in 2011. The Company began consolidating TECH’s financial
results as of the beginning of the Company’s third quarter of 2006. TECH’s cash and marketable investment securities are not
anticipated to be made available to finance the Company’s other operations. The creditors of TECH have recourse only to the
assets of TECH and do not have recourse to any other assets of the Company.
On March 30, 2007, the Company exercised its option and acquired all of the shares of TECH common stock held by EDB
for approximately $290 million, of which $216 million was outstanding as of August 30, 2007, payable through December
2007. As a result of the acquisition, the Company’s ownership interest in TECH increased from 43% to 73%. The Company
applied purchase accounting to the acquisition of these shares, which resulted in a $322 million reduction in noncontrolling
interest. The accompanying consolidated financial statements reflect the impact of acquiring these shares as of March 30, 2007.
TECH’s semiconductor manufacturing uses the Company’s product and process technology. Subject to specific terms and
conditions, the Company has agreed to purchase all of the products manufactured by TECH. The Company generally
purchases semiconductor memory products from TECH at prices determined quarterly, based on a discount from average
selling prices realized by the Company for the preceding quarter. The Company performs assembly and test services on
product manufactured by TECH. The Company also provides certain technology, engineering and training to support TECH.
Through the second quarter of 2006, prior to the consolidation of TECH, all of these transactions with TECH were recognized
as part of the net cost of products purchased from TECH. The net cost of products purchased from TECH amounted to $287
million for the first six months of 2006 and $652 million for 2005.
61
MP Mask Technology Center, LLC (“MP Mask”): In the third quarter of 2006, the Company formed a joint venture, MP
Mask, with Photronics, Inc. (“Photronics”) to produce photomasks for leading-edge and advanced next generation
semiconductors. The Company contributed its then existing reticle manufacturing operation to the venture. In exchange for a
49.99% interest in MP Mask, Photronics paid $48 million cash and $15 million in notes due over two years to the Company.
In connection with the joint venture, the Company received $72 million in exchange for entering into a license agreement with
Photronics, which will be recognized over the term of the 10-year agreement. The Company and Photronics also entered into
supply arrangements wherein the Company is expected to purchase a substantial majority of the reticles produced by MP Mask.
The financial results of MP Mask are included in the consolidated financial results of the Company.
Segment Information
The Company’s reportable segments are Memory and Imaging. The Memory segment’s primary products are DRAM and
NAND Flash and the Imaging segment’s primary product is CMOS image sensors. Segment information reported below is
consistent with how it is reviewed and evaluated by the Company’s chief operating decision makers and is based on the nature
of the Company’s operations and products offered to customers. The Company does not identify or report depreciation and
amortization, capital expenditures or assets by segment.
Net sales:
Memory
Imaging
Total consolidated net sales
Operating income (loss):
Memory
Imaging
Total consolidated operating income (loss)
Geographic Information
Geographic net sales based on customer location were as follows:
United States
Asia Pacific (excluding China and Japan)
China
Europe
Japan
Other
2007
2006
2005
$ 5,001
687
$ 5,688
$ 4,523
749
$ 5,272
$ 4,577
303
$ 4,880
$ (288)
8
$ (280)
$ 197
153
$ 350
$ 192
25
$ 217
2007
2006
2005
$ 1,719
1,496
1,064
666
477
266
$ 5,688
$ 1,721
1,068
1,049
719
494
221
$ 5,272
$ 1,657
900
775
906
380
262
$ 4,880
Net property, plant and equipment by geographic area was as follows:
United States
Singapore
Italy
Japan
Other
2007
2006
2005
$ 6,545
1,212
268
226
28
$ 8,279
$ 4,422
867
318
269
12
$ 5,888
$ 3,677
261
359
379
8
$ 4,684
62
Quarterly Financial Information (Unaudited)
(in millions except per share amounts)
2007
Net sales
Gross margin
Operating income (loss)
Net income (loss)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 1,530
442
110
115
$ 1,427
357
(34)
(52)
$ 1,294
106
(195)
(225)
$ 1,437
173
(161)
(158)
Diluted earnings (loss) per share
$ 0.15
$ (0.07)
$ (0.29)
$ (0.21)
2006
Net sales
Gross margin
Operating income
Net income
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 1,362
311
62
63
$ 1,225
236
188
193
$ 1,312
329
47
88
$ 1,373
324
53
64
Diluted earnings per share
$ 0.09
$ 0.27
$ 0.12
$ 0.08
As a result of a settlement agreement with a class of direct purchasers of certain DRAM products, the Company recorded a
$50 million charge to revenue and $31 million net charge to selling, general and administrative expenses in the first quarter of
2007. The aggregate net charge including the impact on the Company’s compensation programs was a $77 million reduction
in net income.
Results for the second quarter of 2006 include a $230 million gain from the sale of the Company’s existing NAND Flash
memory designs and certain related technology to Intel net of amounts paid by the Company for a perpetual, paid-up license to
use and modify such designs.
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Micron Technology, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 8 present
fairly, in all material respects, the financial position of Micron Technology, Inc. and its subsidiaries at August 30, 2007 and
August 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended August
30, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index appearing under Item 8 presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
August 30, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these
financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal
Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in the Significant Accounting Policies note to the consolidated financial statements, the Company changed
the manner in which it accounts for share-based compensation in the year ended August 31, 2006.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 24, 2007
64
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
An evaluation was carried out under the supervision and with the participation of the Company’s management, including
its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as
of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal
financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and forms and (ii) accumulated and
communicated to the Company’s management, including the Company’s principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
During the fourth quarter of fiscal 2007, there were no changes in the Company’s internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. The Company’s internal control over financial
reporting includes those policies and procedures that i) pertain to the maintenance of records that in reasonable detail
accurately reflect the transactions and dispositions of the assets of the Company; ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the
Company’s financial statements.
Internal control over financial reporting cannot provide absolute assurance regarding the prevention or detection of
misstatements because of inherent limitations. These inherent limitations are known by management and considered in the
design of the Company’s internal control over financial reporting which reduce, though not eliminate, this risk.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based
on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial
reporting was effective as of August 30, 2007. The effectiveness of the Company’s internal control over financial reporting as
of August 30, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report, which is included in Part II, Item 8, of this Form 10-K.
Item 9B. Other Information
None.
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 and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
65
Item 14. Principal Accounting Fees and Services
Certain information concerning the registrant’s executive officers is included under the caption, “Directors and Executive
Officers of the Registrant,” in Part I, Item 1 of this report. Other information required by Items 10, 11, 12, 13 and 14 will be
contained in the registrant’s Proxy Statement which will be filed with the Securities and Exchange Commission within 120
days after August 30, 2007, and is incorporated herein by reference.
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this report:
PART IV
1. Financial Statement: See Index to Consolidated Financial Statements under Item 8.
2. Certain Financial Statement Schedules have been omitted since they are either not required, not applicable or the
information is otherwise included.
3. Exhibits.
Exhibit
Description
1.1
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Underwriting Agreement dated as of May 17, 2007, by and between Micron Technology, Inc. and Morgan
Stanley & Co. Incorporated, as representative of the underwriters (1)
Agreement and Plan of Merger by and among Micron Technology, Inc., March 2006 Merger Corp. and Lexar
Media, Inc., dated as of March 8, 2006 (2)
First Amendment to Agreement and Plan of Merger dated as of May 30, 2006, by and among Micron
Technology, Inc., March 2006 Merger Corp. and Lexar Media, Inc. (3)
Second Amendment to Agreement and Plan of Merger dated as of June 4, 2006, by and among Micron
Technology, Inc., March 2006 Merger Corp. and Lexar Media, Inc. (4)
Restated Certificate of Incorporation of the Registrant (5)
Bylaws of the Registrant, as amended (6)
Form of Global Warrant representing Warrants to purchase Common Stock expiring May 15, 2008 (the
“Warrants”) (7)
Securities Purchase Agreement dated September 24, 2003, between the Registrant and Intel Capital Corporation
(8)
Stock Rights Agreement dated September 24, 2003, between the Registrant and Intel Capital Corporation (8)
Indenture dated March 30, 2005, by and between Lexar Media, Inc. and U.S. Bank National Association (9)
First Supplemental Indenture to the Lexar Indenture dated as of June 21, 2006, between Lexar and U.S. Bank
National Association (10)
Indenture dated as of May 23, 2007 by and between Micron Technology, Inc. and Wells Fargo Bank, National
Association, as trustee (1)
Executive Officer Performance Incentive Plan (11)
1989 Employee Stock Purchase Plan (13)
1994 Stock Option Plan (12)
1994 Stock Option Plan Form of Agreement and Terms and Conditions (13)
1997 Nonstatutory Stock Option Plan (14)
1998 Non-Employee Director Stock Incentive Plan (15)
1998 Nonstatutory Stock Option Plan (14)
2001 Stock Option Plan (16)
2001 Stock Option Plan Form of Agreement (17)
2002 Employment Inducement Stock Option Plan (16)
2004 Equity Incentive Plan (10)
2004 Equity Incentive Plan Forms of Agreement and Terms and Conditions (13)
Nonstatutory Stock Option Plan (18)
Nonstatutory Stock Option Plan Form of Agreement and Terms and Conditions (13)
Lexar Media, Inc. 2000 Equity Incentive Plan (19)
Micron Quantum Devices, Inc. 1996 Stock Option Plan (12)
Micron Quantum Devices, Inc. 1996 Stock Option Plan Sample Stock Option Assumption Letter (12)
66
10.18
10.19
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34*
10.35
10.36*
10.37*
10.38*
10.39*
10.40*
10.41*
10.42*
10.43*
10.44*
10.45
10.46
10.47
21.1
23.1
31.1
31.2
32.1
32.2
Rendition, Inc. 1994 Equity Incentive Plan (20)
Rendition, Inc. 1994 Equity Incentive Plan Sample Stock Option Assumption Letter (20)
Settlement and Release Agreement dated September 15, 2006, by and among Toshiba Corporation, Micron
Technology, Inc. and Acclaim Innovations, LLC (21)
Patent License Agreement dated September 15, 2006, by and among Toshiba Corporation, Acclaim Innovations,
LLC and Micron Technology, Inc. (21)
Omnibus Agreement dated as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation
(10)
Limited Liability Partnership Agreement dated as of February 27, 2007, between Micron Semiconductor Asia
Pte. Ltd. and Intel Technology Asia Pte. Ltd. (10)
Supply Agreement dated as of February 27, 2007, between Micron Semiconductor Asia Pte. Ltd. and IM Flash
Singapore, LLP (10)
Amended and Restated Limited Liability Company Operating Agreement of IM Flash Technologies, LLC dated
as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation (10)
Supply Agreement dated as of February 27, 2007, between Intel Technology Asia Pte. Ltd. and IM Flash
Singapore, LLP (10)
Form of Indemnification Agreement between the Registrant and its officers and directors (22)
Form of Severance Agreement between the Company and its officers (23)
Form of Agreement and Amendment to Severance Agreement between the Company and its officers (24)
Purchase Agreement dated October 1, 1998, between the Registrant and TECH Semiconductor Singapore Pte.
Ltd. (25)
Purchase Agreement dated as of July 12, 2001, between the Registrant and Lehman Brothers, Inc. relating to the
Warrants (7)
Registration Rights Agreement dated as of July 18, 2001, between the Registrant and Lehman Brothers, Inc.,
relating to the Warrants (7)
Warrant Agreement dated as of July 18, 2001, between the Registrant and Wells Fargo Bank Minnesota, N.A.,
relating to the Warrants (7)
Business Agreement dated September 24, 2003, between the Registrant and Intel Corporation (8)
Securities Rights and Restrictions Agreement dated September 24, 2003, between the Registrant and Intel
Capital (8)
Master Agreement dated as of November 18, 2005, between Micron Technology, Inc. and Intel Corporation (26)
Limited Liability Company Operating Agreement of IM Flash Technologies, LLC dated as of January 6, 2006,
between Micron Technology, Inc. and Intel Corporation (26)
Manufacturing Services Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash
Technologies, LLC (26)
Boise Supply Agreement dated as of January 6, 2006, between IM Flash Technologies, LLC and Micron
Technology, Inc. (26)
MTV Lease Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash
Technologies, LLC (26)
Product Designs Assignment Agreement dated January 6, 2006, between Intel Corporation and Micron
Technology, Inc. (26)
NAND Flash Supply Agreement, effective as of January 6, 2006, between Apple Computer, Inc. and Micron
Technology, Inc. (26)
Supply Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies,
LLC (26)
Supply Agreement dated as of January 6, 2006, between Intel Corporation and IM Flash Technologies, LLC (26)
Capped Call Confirmation (Reference No. CEODL6) by and between Micron Technology, Inc. and Morgan
Stanley & Co. International plc (1)
Capped Call Confirmation (Reference No. 53228800) by and between Micron Technology, Inc. and Credit
Suisse International (1)
Capped Call Confirmation (Reference No. 53228855) by and between Micron Technology, Inc. and Credit
Suisse International (1)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a) Certification of Chief Executive Officer
Rule 13a-14(a) Certification of Chief Financial Officer
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
67
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
Incorporated by reference to Current Report on Form 8-K dated May 17, 2007
Incorporated by reference to Current Report on Form 8-K dated March 8, 2006
Incorporated by reference to Current Report on Form 8-K dated May 30, 2006
Incorporated by reference to Current Report on Form 8-K dated June 4, 2006
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2001
Incorporated by reference to Current Report on Form 8-K dated December 5, 2006
Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended August 30, 2001
Incorporated by reference to Current Report on Form 8-K dated September 24, 2003
Incorporated by reference to Lexar Media, Inc.’s Current Report on Form 8-K dated March 30, 2005
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2007
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 2, 2004
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-50353)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 3, 2005
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended November 28, 2002
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. 333-102545)
Incorporated by reference to Current Report on Form 8-K dated April 3, 2005
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-103341)
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-135459)
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-65449)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006
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 28, 2003
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 1997
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 December 1, 2005
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.
68
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
26th day of October 2007.
SIGNATURES
Micron Technology, Inc.
By:
/s/ W. G. Stover, Jr.
W. 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)
/s/ W. G. Stover, Jr.
(W. G. Stover, Jr.)
/s/ Teruaki Aoki
(Teruaki Aoki)
/s/ James W. Bagley
(James W. Bagley)
/s/ Mercedes Johnson
(Mercedes Johnson)
/s/ Lawrence N. Mondry
(Lawrence N. Mondry)
/s/ Robert E. Switz
(Robert E. Switz)
Chairman of the Board,
Chief Executive Officer
(Principal Executive
Officer)
October 26, 2007
Vice President of Finance, October 26, 2007
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Director
October 26, 2007
Director
October 26, 2007
Director
October 26, 2007
Director
October 26, 2007
Director
October 26, 2007
69
MICRON TECHNOLOGY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Balance at
Beginning of
Year
Acquisitions
and
Consolidation
of TECH
Charged
(Credited) to
Costs and
Expenses
Deductions/
Write-Offs
Balance
at End of
Year
Allowance for Doubtful Accounts
Year ended August 30, 2007
Year ended August 31, 2006
Year ended September 1, 2005
Allowance for Obsolete Inventories
Year ended August 30, 2007
Year ended August 31, 2006
Year ended September 1, 2005
Deferred Tax Asset Valuation Allowance
Year ended August 30, 2007
Year ended August 31, 2006
Year ended September 1, 2005
$
$
4
2
2
35
24
26
$
915
1,029
1,004
$
$
$
--
--
--
--
--
--
(12)
(36)
--
$
$
$
1
2
--
58
36
26
219
(103)
7
$
$
$
(1)
--
--
(23)
(25)
(28)
20
25
18
$
$
4
4
2
70
35
24
$ 1,142
915
1,029
The allowance for obsolete inventories excludes any charges for write-downs of work in process and finished goods
inventories to their estimated fair market values. (See “Item 8. Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements.”)
70
MICRON TECHNOLOGY, INC.
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21.1
Name
Lexar Media, Inc.
Micron Europe Limited
Also does business as Crucial Technology Europe
Micron Japan, Ltd.
Micron Semiconductor Asia Pte. Ltd.
Also does business as Crucial Technology Asia
Micron Semiconductor (Deutschland) GmbH
Micron Semiconductor Products, Inc.
Also does business as Crucial Technology
Micron Semiconductor (Shanghai) Co., Ltd.
Micron Semiconductor (Xiamen) Co., Ltd.
Micron Semiconductor (Xi’an) Co., Ltd.
Micron Technology Italia S.r.l.
Micron Technology Puerto Rico, Inc.
Micron Technology Texas, LLC
State (or Jurisdiction)
in which Organized
Delaware
United Kingdom
Japan
Singapore
Germany
Idaho
China
China
China
Italy
Puerto Rico
Idaho
EXHIBIT 31.1
RULE 13a-14(a) CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
I, Steven R. Appleton, certify that:
1.
I have reviewed this annual report on Form 10-K of Micron Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: October 26, 2007
/s/ Steven R. Appleton
Steven R. Appleton
Chairman and Chief Executive Officer
EXHIBIT 31.2
RULE 13a-14(a) CERTIFICATION OF
CHIEF FINANCIAL OFFICER
I, W. G. Stover, Jr., certify that:
1.
I have reviewed this annual report on Form 10-K of Micron Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: October 26, 2007
/s/ W. G. Stover, Jr..
W. G. Stover, Jr.
Vice President of Finance and Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. 1350
EXHIBIT 32.1
I, Steven R. Appleton, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that the Annual Report of Micron Technology, Inc. on Form 10-K for the period ended August 30, 2007, fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the
Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of
Micron Technology, Inc.
Date: October 26, 2007
By: /s/ Steven R. Appleton
Steven R. Appleton
Chairman and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350
EXHIBIT 32.2
I, W. G. Stover, Jr., certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that the Annual Report of Micron Technology, Inc. on Form 10-K for the period ended August 30, 2007, fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Annual
Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Micron
Technology, Inc.
Date: October 26, 2007
By: /s/ W. G. Stover, Jr.
W. G. Stover, Jr.
Vice President of Finance and Chief Financial Officer