UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended May 29, 2008
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
Commission
file number 1-10658
Micron
Technology, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
75-1618004
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
8000
S. Federal Way, Boise, Idaho
|
83716-9632
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code
|
(208)
368-4000
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
(Do
not check if a smaller reporting company)
|
Smaller
Reporting Company o
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No
x
The number of outstanding shares of the
registrant’s common stock as of June 30, 2008 was 761,040,324.
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions except per share amounts)
(Unaudited)
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
May
29,
2008
|
|
|
May
31,
2007
|
|
|
May
29,
2008
|
|
|
May
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,498 |
|
|
$ |
1,294 |
|
|
$ |
4,392 |
|
|
$ |
4,251 |
|
Cost
of goods sold
|
|
|
1,450 |
|
|
|
1,188 |
|
|
|
4,382 |
|
|
|
3,346 |
|
Gross margin
|
|
|
48 |
|
|
|
106 |
|
|
|
10 |
|
|
|
905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
116 |
|
|
|
134 |
|
|
|
348 |
|
|
|
467 |
|
Research
and development
|
|
|
170 |
|
|
|
195 |
|
|
|
513 |
|
|
|
621 |
|
Goodwill
impairment
|
|
|
-- |
|
|
|
-- |
|
|
|
463 |
|
|
|
-- |
|
Restructure
|
|
|
8 |
|
|
|
-- |
|
|
|
29 |
|
|
|
-- |
|
Other
operating (income) expense, net
|
|
|
(21 |
) |
|
|
(28 |
) |
|
|
(86 |
) |
|
|
(64 |
) |
Operating loss
|
|
|
(225 |
) |
|
|
(195 |
) |
|
|
(1,257 |
) |
|
|
(119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
15 |
|
|
|
29 |
|
|
|
68 |
|
|
|
105 |
|
Interest
expense
|
|
|
(21 |
) |
|
|
(12 |
) |
|
|
(62 |
) |
|
|
(17 |
) |
Other
non-operating income (expense), net
|
|
|
-- |
|
|
|
1 |
|
|
|
(7 |
) |
|
|
9 |
|
Loss before taxes and
noncontrolling interests
|
|
|
(231 |
) |
|
|
(177 |
) |
|
|
(1,258 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (provision)
|
|
|
(13 |
) |
|
|
(9 |
) |
|
|
(16 |
) |
|
|
(24 |
) |
Noncontrolling
interests in net (income) loss
|
|
|
8 |
|
|
|
(39 |
) |
|
|
(1 |
) |
|
|
(116 |
) |
Net
loss
|
|
$ |
(236 |
) |
|
$ |
(225 |
) |
|
$ |
(1,275 |
) |
|
$ |
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.30 |
) |
|
$ |
(0.29 |
) |
|
$ |
(1.65 |
) |
|
$ |
(0.21 |
) |
Diluted
|
|
|
(0.30 |
) |
|
|
(0.29 |
) |
|
|
(1.65 |
) |
|
|
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
772.8 |
|
|
|
769.9 |
|
|
|
772.4 |
|
|
|
768.5 |
|
Diluted
|
|
|
772.8 |
|
|
|
769.9 |
|
|
|
772.4 |
|
|
|
768.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
BALANCE SHEETS
(in
millions except par value and share amounts)
(Unaudited)
As
of
|
|
May
29,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
1,474 |
|
|
$ |
2,192 |
|
Short-term
investments
|
|
|
110 |
|
|
|
424 |
|
Receivables
|
|
|
995 |
|
|
|
994 |
|
Inventories
|
|
|
1,453 |
|
|
|
1,532 |
|
Prepaid
expenses
|
|
|
67 |
|
|
|
67 |
|
Deferred
income taxes
|
|
|
30 |
|
|
|
25 |
|
Total current
assets
|
|
|
4,129 |
|
|
|
5,234 |
|
Intangible
assets, net
|
|
|
375 |
|
|
|
401 |
|
Property,
plant and equipment, net
|
|
|
8,721 |
|
|
|
8,279 |
|
Deferred
income taxes
|
|
|
72 |
|
|
|
65 |
|
Goodwill
|
|
|
58 |
|
|
|
515 |
|
Other
assets
|
|
|
261 |
|
|
|
324 |
|
Total assets
|
|
$ |
13,616 |
|
|
$ |
14,818 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,374 |
|
|
$ |
1,385 |
|
Deferred
income
|
|
|
80 |
|
|
|
84 |
|
Equipment
purchase contracts
|
|
|
68 |
|
|
|
134 |
|
Current
portion of long-term debt
|
|
|
262 |
|
|
|
423 |
|
Total current
liabilities
|
|
|
1,784 |
|
|
|
2,026 |
|
Long-term
debt
|
|
|
2,159 |
|
|
|
1,987 |
|
Deferred
income taxes
|
|
|
11 |
|
|
|
25 |
|
Other
liabilities
|
|
|
343 |
|
|
|
421 |
|
Total
liabilities
|
|
|
4,297 |
|
|
|
4,459 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests in subsidiaries
|
|
|
2,811 |
|
|
|
2,607 |
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.10 par value, authorized 3 billion shares, issued and
outstanding 761.0 million and 757.9 million shares,
respectively
|
|
|
76 |
|
|
|
76 |
|
Additional
capital
|
|
|
6,558 |
|
|
|
6,519 |
|
Retained
earnings (accumulated deficit)
|
|
|
(112 |
) |
|
|
1,164 |
|
Accumulated
other comprehensive loss
|
|
|
(14 |
) |
|
|
(7 |
) |
Total shareholders’
equity
|
|
|
6,508 |
|
|
|
7,752 |
|
Total liabilities and
shareholders’ equity
|
|
$ |
13,616 |
|
|
$ |
14,818 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
(Unaudited)
Nine
months ended
|
|
May
29,
2008
|
|
|
May
31,
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,275 |
) |
|
$ |
(162 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
1,528 |
|
|
|
1,244 |
|
Goodwill
impairment
|
|
|
463 |
|
|
|
-- |
|
Provision to write-down
inventories to estimated market values
|
|
|
77 |
|
|
|
-- |
|
Stock-based
compensation
|
|
|
40 |
|
|
|
30 |
|
Noncash restructure
charges
|
|
|
7 |
|
|
|
-- |
|
Gains from disposition of
equipment, net of write-downs
|
|
|
(70 |
) |
|
|
(25 |
) |
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Decrease in
receivables
|
|
|
11 |
|
|
|
158 |
|
(Increase) decrease in
inventories
|
|
|
2 |
|
|
|
(487 |
) |
(Decrease) in accounts payable
and accrued expenses
|
|
|
(48 |
) |
|
|
(56 |
) |
Deferred income
taxes
|
|
|
(3 |
) |
|
|
(2 |
) |
Other
|
|
|
43 |
|
|
|
93 |
|
Net cash provided by operating
activities
|
|
|
775 |
|
|
|
793 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures
for property, plant and equipment
|
|
|
(1,809 |
) |
|
|
(2,851 |
) |
Purchases
of available-for-sale securities
|
|
|
(259 |
) |
|
|
(1,227 |
) |
Acquisition
of noncontrolling interest in TECH
|
|
|
-- |
|
|
|
(73 |
) |
Proceeds
from maturities of available-for-sale securities
|
|
|
529 |
|
|
|
2,088 |
|
Proceeds
from sales of property, plant and equipment
|
|
|
175 |
|
|
|
49 |
|
Proceeds
from sales of available-for-sale securities
|
|
|
24 |
|
|
|
531 |
|
Decrease
in restricted cash
|
|
|
-- |
|
|
|
14 |
|
Other
|
|
|
51 |
|
|
|
(44 |
) |
Net cash used for investing
activities
|
|
|
(1,289 |
) |
|
|
(1,513 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from debt
|
|
|
507 |
|
|
|
1,300 |
|
Cash
received from noncontrolling interests
|
|
|
295 |
|
|
|
974 |
|
Proceeds
from equipment sale-leaseback transactions
|
|
|
92 |
|
|
|
358 |
|
Proceeds
from issuance of common stock
|
|
|
4 |
|
|
|
55 |
|
Repayments
of debt
|
|
|
(653 |
) |
|
|
(159 |
) |
Payments
on equipment purchase contracts
|
|
|
(348 |
) |
|
|
(393 |
) |
Distributions
to noncontrolling interests
|
|
|
(92 |
) |
|
|
-- |
|
Debt
issuance costs
|
|
|
(9 |
) |
|
|
(27 |
) |
Cash
paid for capped call transactions
|
|
|
-- |
|
|
|
(151 |
) |
Other
|
|
|
-- |
|
|
|
(1 |
) |
Net cash provided by (used for)
financing activities
|
|
|
(204 |
) |
|
|
1,956 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and equivalents
|
|
|
(718 |
) |
|
|
1,236 |
|
Cash
and equivalents at beginning of period
|
|
|
2,192 |
|
|
|
1,431 |
|
Cash
and equivalents at end of period
|
|
$ |
1,474 |
|
|
$ |
2,667 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
Income
taxes paid, net
|
|
$ |
(24 |
) |
|
$ |
(33 |
) |
Interest
paid, net of amounts capitalized
|
|
|
(59 |
) |
|
|
(13 |
) |
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Equipment acquisitions on
contracts payable and capital leases
|
|
|
404 |
|
|
|
802 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(All
tabular amounts in millions except per share amounts)
(Unaudited)
Significant
Accounting Policies
Basis of
presentation: Micron Technology, Inc. and its subsidiaries
(hereinafter referred to collectively as the “Company”) manufacture and market
DRAM, NAND Flash memory, CMOS image sensors and other semiconductor
components. The Company has two segments, Memory and
Imaging. The Memory segment’s primary products are DRAM and NAND
Flash and the Imaging segment’s primary product is CMOS image
sensors. The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and include the accounts of the Company and its
consolidated subsidiaries. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments
necessary to present fairly the consolidated financial position of the Company
and its consolidated results of operations and cash flows.
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31. The
Company’s third quarters of fiscal 2008 and 2007 ended on May 29, 2008 and May
31, 2007, respectively. The Company’s fiscal 2007 ended on August 30,
2007. All period references are to the Company’s fiscal periods
unless otherwise indicated. These interim financial statements should
be read in conjunction with the consolidated financial statements and
accompanying notes included in the Company’s Annual Report on Form 10-K for the
year ended August 30, 2007.
Recently issued
accounting standards: In May 2008, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements that are presented in conformity with
generally accepted accounting principles. SFAS No. 162 becomes
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” The
Company does not expect that the adoption of SFAS No. 162 will have a material
impact on its financial statements.
In May 2008, the FASB issued FASB Staff
Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” FSP No. APB 14-1 requires that issuers of convertible
debt instruments that may be settled in cash upon conversion separately account
for the liability and equity components in a manner that will reflect the
entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. The Company is required to adopt FSP No. APB 14-1
retrospectively, effective at the beginning of 2010. The Company is
evaluating the impact that the adoption of FSP No. APB 14-1 will have on its
financial statements.
In April 2008, the FASB issued FSP No.
FAS 142-3, “Determination of the Useful Life of Intangible
Assets.” FSP No. FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and
Other Intangible Assets.” The Company is required to adopt FSP No.
FAS 142-3 effective at the beginning of 2010. The Company is
evaluating the impact that the adoption of FSP No. FAS 142-3 will have on its
financial statements.
In March 2008, the FASB issued
SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133.” SFAS No. 161
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. The Company is required
to adopt SFAS No. 161 effective for the second quarter of 2009. The
Company is evaluating the impact that the adoption of SFAS No. 161 will have on
its financial statements.
In December 2007, the FASB
ratified Emerging Issues Task Force (“EITF”) Issue No. 07-1, “Accounting for
Collaborative Arrangements,” which defines collaborative arrangements and
establishes reporting and disclosure requirements for transactions between
participants in a collaborative arrangement and between participants in the
arrangements and third parties. The Company is required to adopt EITF
No. 07-1 effective at the beginning of 2010. The Company is
evaluating the impact that the adoption of EITF No. 07-1 will have on its
financial statements.
In December 2007, the FASB issued
SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS No. 141(R)”), which establishes the principles and
requirements for how an acquirer in a business combination (1) recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interests in the acquiree,
(2) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and (3) determines what
information to disclose. The Company is required to adopt SFAS No.
141(R) effective at the beginning of 2010. The impact of the adoption
of SFAS No. 141(R) will depend on the nature and extent of business combinations
occurring on or after the beginning of 2010.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 requires that (1)
noncontrolling interests be reported as a separate component of equity, (2) net
income attributable to the parent and to the non-controlling interest be
separately identified in the income statement, (3) changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and (4) any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. The Company is required to adopt SFAS No. 160 effective
at the beginning of 2010. The Company is evaluating the impact that
the adoption of SFAS No. 160 will have on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” Under SFAS No.
159, the Company may elect to measure many financial instruments and certain
other items at fair value on an instrument by instrument basis, subject to
certain restrictions. The Company is required to adopt SFAS No. 159
effective at the beginning of 2009. The impact of the adoption of
SFAS No. 159 on the Company’s financial statements will depend on the extent to
which the Company elects to measure eligible items at fair value.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements. In
February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13,” which amends SFAS No. 157 to exclude accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13. In February 2008,
the FASB also issued FSP No. FAS 157-2, “Effective Date of FASB Statement
No. 157,” which delays the effective date of SFAS No. 157 until
the beginning of 2010 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least
annually). The Company is required to adopt SFAS No. 157 for
financial assets and liabilities effective at the beginning of
2009. The Company is evaluating the impact that the adoption of SFAS
No. 157 will have on its financial statements.
In June 2006, the FASB issued
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109.” FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement. The Company adopted FIN 48 on August 31,
2007. The adoption of FIN 48 did not have a significant impact on the
Company’s results of operations or financial position. The Company
did not change its policy of recognizing accrued interest and penalties related
to unrecognized tax benefits within the income tax provision with the adoption
of FIN 48. (See “Income Taxes” note.)
In February 2006, the FASB issued SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS
No. 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require
bifurcation. The Company adopted SFAS No. 155 as of the beginning of
2008. The adoption of SFAS No. 155 did not have a significant impact
on the Company’s results of operations or financial condition.
Supplemental
Balance Sheet Information
Receivables
|
|
May
29,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
$ |
749 |
|
|
$ |
739 |
|
Taxes other than
income
|
|
|
44 |
|
|
|
44 |
|
Other
|
|
|
203 |
|
|
|
215 |
|
Allowance for doubtful
accounts
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
$ |
995 |
|
|
$ |
994 |
|
As of May 29, 2008 and August 30, 2007,
other receivables included $77 million and $108 million, respectively, due from
Intel Corporation primarily for amounts related to NAND Flash product design and
process development activities. Other receivables as of May 29, 2008
and August 30, 2007 also included $77 million and $83 million, respectively, due
from settlement of litigation. As of May 29, 2008, other receivables
also included $8 million due from Nanya Technology Corporation related to
licensing of intellectual property in connection with the MeiYa DRAM Joint
Venture. (See “Joint Ventures – MeiYa DRAM Joint Venture with Nanya
Technology Corporation” note.)
Other noncurrent assets as of May 29,
2008 and August 30, 2007 included receivables of $37 million and $110 million,
respectively, due from settlement of litigation.
Inventories
|
|
May
29,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$ |
439 |
|
|
$ |
517 |
|
Work in process
|
|
|
825 |
|
|
|
772 |
|
Raw materials and
supplies
|
|
|
189 |
|
|
|
243 |
|
|
|
$ |
1,453 |
|
|
$ |
1,532 |
|
The Company’s results of operations for
the second and first quarters of 2008 and fourth quarter of 2007 included
charges of $15 million, $62 million and $20 million, respectively, to write down
the carrying value of work in process and finished goods inventories of memory
products (both DRAM and NAND Flash) to their estimated market
values.
Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
29, 2008
|
|
|
August
30, 2007
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and process
technology
|
|
$ |
570 |
|
|
$ |
(307 |
) |
|
$ |
544 |
|
|
$ |
(271 |
) |
Customer
relationships
|
|
|
127 |
|
|
|
(31 |
) |
|
|
127 |
|
|
|
(19 |
) |
Other
|
|
|
29 |
|
|
|
(13 |
) |
|
|
29 |
|
|
|
(9 |
) |
|
|
$ |
726 |
|
|
$ |
(351 |
) |
|
$ |
700 |
|
|
$ |
(299 |
) |
During the first nine months of 2008
and 2007, the Company capitalized $33 million and $76 million, respectively, for
product and process technology with weighted-average useful lives of 10 years
and 9 years, respectively.
Amortization expense for intangible
assets was $20 million and $60 million for the third quarter and first nine
months of 2008, respectively, and $19 million and $55 million for the third
quarter and first nine months of 2007, respectively. Annual
amortization expense for intangible assets held as of May 29, 2008 is estimated
to be $80 million for 2008, $71 million for 2009, $60 million for 2010, $55
million for 2011 and $46 million for 2012.
Property,
Plant and Equipment
|
|
May
29,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
99 |
|
|
$ |
107 |
|
Buildings
|
|
|
3,778 |
|
|
|
3,636 |
|
Equipment
|
|
|
13,176 |
|
|
|
12,379 |
|
Construction in
progress
|
|
|
590 |
|
|
|
209 |
|
Software
|
|
|
282 |
|
|
|
267 |
|
|
|
|
17,925 |
|
|
|
16,598 |
|
Accumulated
depreciation
|
|
|
(9,204 |
) |
|
|
(8,319 |
) |
|
|
$ |
8,721 |
|
|
$ |
8,279 |
|
Depreciation expense was $493 million
and $1,467 million for the third quarter and first nine months of 2008,
respectively, and $426 million and $1,208 million for the third quarter and
first nine months of 2007, respectively.
As of August 30, 2007, the Company had
goodwill related to its Memory segment of $463 million. During the
second quarter of 2008, the Company wrote off all of the segment’s goodwill
based on the results of the Company’s test for impairment. As of May
29, 2008 and August 30, 2007, the Company had goodwill related to its Imaging
segment of $58 million and $52 million, respectively. The $6 million
increase in goodwill for the Imaging segment during the first nine months of
2008 was due to additional contingent payments made in connection with the
Company’s acquisition of the CMOS image sensor business of Avago Technologies
Limited. The Company’s assessment of goodwill impairment in the
second quarter of 2008 indicated that the fair value of the Imaging segment
exceeded its carrying value and therefore goodwill in the segment was not
impaired.
SFAS No. 142, “Goodwill and Other
Intangible Assets,” requires that goodwill be tested for impairment at a
reporting unit level. The Company has determined that its reporting
units are its Memory and Imaging segments based on its organizational structure
and the financial information that is provided to and reviewed by
management. The Company tests goodwill for impairment annually and
whenever events or circumstances make it more likely than not that an impairment
may have occurred. Goodwill is tested for impairment using a two-step
process. In the first step, the fair value of a reporting unit is
compared to its carrying value. If the fair value of a reporting unit
exceeds the carrying value of the net assets assigned to a reporting unit,
goodwill is considered not impaired and no further testing is
required. If the carrying value of the net assets assigned to a
reporting unit exceeds the fair value of a reporting unit, the second step of
the impairment test is performed in order to determine the implied fair value of
a reporting unit’s goodwill. Determining the implied fair value of
goodwill requires valuation of a reporting unit’s tangible and intangible assets
and liabilities in a manner similar to the allocation of purchase price in a
business combination. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, goodwill is deemed impaired and is
written down to the extent of the difference.
In the first and second quarters of
2008, the Company experienced a sustained, significant decline in its stock
price. As a result of the decline in stock prices, the Company’s
market capitalization fell significantly below the recorded value of its
consolidated net assets for most of the second quarter of 2008. The
reduced market capitalization reflected, in part, the Memory segment’s lower
average selling prices and expected continued weakness in pricing for the
Company’s memory products. Accordingly, in the second quarter of
2008, the Company performed an assessment of goodwill for
impairment.
Based on the results of the Company’s
assessment of goodwill for impairment, it was determined that the carrying value
of the Memory segment exceeded its estimated fair value. Therefore,
the Company performed a preliminary second step of the impairment test to
determine the implied fair value of goodwill. Specifically, the
Company allocated the estimated fair value of the Memory segment as determined
in the first step to recognized and unrecognized net assets, including
allocations to intangible assets such as intellectual property, customer
relationships and brand and trade names. The result of the
preliminary analysis indicated that there would be no remaining implied value
attributable to goodwill in the Memory segment and accordingly, the Company
wrote off all $463 million of goodwill associated with its Memory segment as of
February 28, 2008. In the third quarter of 2008, the Company
finalized the second step of the impairment analysis and the results confirmed
that there was no implied value attributable to goodwill in the Memory segment
as of February 28, 2008.
In the first step of the impairment
analysis, the Company performed extensive valuation analyses utilizing both
income and market approaches to determine the fair value of its reporting
units. Under the income approach, the Company determined the fair
value based on estimated future cash flows discounted by an estimated
weighted-average cost of capital, which reflects the overall level of inherent
risk of a reporting unit and the rate of return an outside investor would expect
to earn. Estimated future cash flows were based on our internal
projection models, industry projections and other assumptions deemed reasonable
by management. Under the market-based approach, the Company derived
the fair value of its reporting units based on revenue and earnings multiples of
comparable publicly-traded peer companies. In the second step of the
impairment analysis, the Company determined the implied fair value of goodwill
for the Memory segment by allocating the fair value of the segment to all of its
assets and liabilities in accordance with SFAS No. 141, “Business Combinations,”
as if the segment had been acquired in a business combination and the price paid
to acquire it was the fair value.
Accounts
Payable and Accrued Expenses
|
|
May
29,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
814 |
|
|
$ |
856 |
|
Salaries, wages and
benefits
|
|
|
227 |
|
|
|
247 |
|
Customer
advances
|
|
|
167 |
|
|
|
85 |
|
Income and other
taxes
|
|
|
35 |
|
|
|
33 |
|
Interest
payable
|
|
|
19 |
|
|
|
19 |
|
Other
|
|
|
112 |
|
|
|
145 |
|
|
|
$ |
1,374 |
|
|
$ |
1,385 |
|
As of May 29, 2008 and August 30, 2007,
customer advances included $167 million and $83 million, respectively, for the
Company’s obligation to provide certain NAND Flash memory products to Apple
Computer, Inc. (“Apple”) until December 31, 2010 pursuant to a prepaid NAND
Flash supply agreement. As of May 29, 2008 and August 30, 2007, other
accounts payable and accrued expenses included $12 million and $17 million,
respectively, for amounts due to Intel for NAND Flash product design and process
development and licensing fees pursuant to a product designs development
agreement.
As of May 29, 2008 and August 30, 2007,
other noncurrent liabilities included $83 million and $167 million,
respectively, pursuant to the supply agreement with Apple.
Debt
|
|
May
29,
2008
|
|
|
August
30,
2007
|
|
|
|
|
|
|
|
|
Convertible
senior notes payable, interest rate of 1.875%, due June
2014
|
|
$ |
1,300 |
|
|
$ |
1,300 |
|
Capital
lease obligations payable in monthly installments through August 2021,
weighted-average imputed interest rate of 6.6%
|
|
|
678 |
|
|
|
666 |
|
Notes
payable in periodic installments through July 2015, weighted-average
interest rate of 4.2% and 4.5%, respectively
|
|
|
373 |
|
|
|
374 |
|
Convertible
subordinated notes payable, interest rate of 5.6%, due April
2010
|
|
|
70 |
|
|
|
70 |
|
|
|
|
2,421 |
|
|
|
2,410 |
|
Less
current portion
|
|
|
(262 |
) |
|
|
(423 |
) |
|
|
$ |
2,159 |
|
|
$ |
1,987 |
|
As of May 29, 2008, notes payable and
capital lease obligations above included $113 million, denominated in Japanese
yen, at a weighted-average interest rate of 1.6%, and $51 million, denominated
in Singapore dollars, at a weighted-average interest rate of 6.0%.
During the third quarter of 2008, the
Company received $44 million in proceeds from sales-leaseback transactions and
in connection with these transactions, recorded capital lease obligations
aggregating $43 million with a weighted-average imputed interest rate of 6.1%,
payable in periodic installments through May 2012. During the first
nine months of 2008, the Company received $92 million in proceeds from
sales-leaseback transactions and in connection with these transactions, recorded
capital lease obligations aggregating $91 million with a weighted-average
imputed interest rate of 6.7%, payable in periodic installments through May
2012.
During the second quarter of 2008, the
Company’s joint venture subsidiary, TECH Semiconductor Singapore Pte. Ltd.,
(“TECH”) borrowed $240 million against a credit facility at Singapore Interbank
Offered Rate ("SIBOR") plus 2.5%. On March 31, 2008, TECH entered into a
new credit facility that enabling TECH to borrow up to $600 million at SIBOR
plus 2.5%. The facility is available for drawdown through December 31,
2008. During the third quarter of 2008, TECH drew $270 million under
the new credit facility and retired the previous credit facility by paying off
the $240 million outstanding. The new credit facility is
collateralized by substantially all of the assets of TECH (approximately $1,526
million as of May 29, 2008) and contains certain covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios, and restrict TECH’s ability to incur indebtedness, create liens and
acquire or dispose of assets. Payments under the new facility are due
in approximately equal installments over 13 quarters commencing in May
2009. Beginning March 2009, TECH will be required to maintain $30
million in restricted cash and this restricted cash requirement will increase to
$60 million in September 2009. The Company has guaranteed
approximately 73% of the outstanding amount of the facility, with the Company’s
obligation increasing to 100% of the outstanding amount of the facility upon the
occurrence of certain conditions.
Contingencies
The Company has accrued a liability and
charged operations for the estimated costs of adjudication or settlement of
various asserted and unasserted claims existing as of the balance sheet date,
including those described below. The Company is currently a party to
other legal actions arising out of the normal course of business, none of which
is expected to have a material adverse effect on the Company’s business, results
of operations or financial condition.
In the normal course of business, the
Company is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party. It is not possible to predict
the maximum potential amount of future payments under these types of agreements
due to the conditional nature of the Company’s obligations and the unique facts
and circumstances involved in each particular
agreement. Historically, payments made by the Company under these
types of agreements have not had a material effect on the Company’s business,
results of operations or financial condition.
The Company is involved in the
following patent, antitrust, securities and Lexar matters.
Patent
Matters: As is typical in the semiconductor and other high
technology industries, from time to time, others have asserted, and may in the
future assert, that the Company’s products or manufacturing processes infringe
their intellectual property rights. In this regard, the Company is
engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of
Rambus’ patents and certain of the Company’s claims and
defenses. Lawsuits between Rambus and the Company are pending in the
U.S. District Court for the District of Delaware, U.S. District Court for the
Northern District of California, Germany, France, and Italy. The
Company also is engaged in patent litigation with Mosaid Technologies, Inc.
(“Mosaid”) in both the U.S. District Court for the Northern District of
California and the U.S. District Court for the Eastern District of
Texas. Among other things, the above lawsuits pertain to certain of
the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM, RLDRAM and image sensor
products, which account for a significant portion of net sales.
The Company is unable to predict the
outcome of assertions of infringement made against the Company and therefore
cannot estimate the range of possible loss. A court determination
that the Company’s products or manufacturing processes infringe the intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing could have a material adverse effect
on the Company’s business, results of operations or financial
condition.
Antitrust
Matters: 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 has
cooperated fully and actively with the DOJ in its investigation. The
Company has cooperated 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.
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. A number of these cases have been removed to federal
court and transferred to the U.S. District Court for the Northern District of
California for consolidated proceedings. On January 29, 2008,
the Northern District of California court granted in part and denied in part the
Company’s motion to dismiss plaintiffs’ second amended consolidated
complaint. Plaintiffs subsequently filed a motion seeking
certification for interlocutory appeal of the decision. On February
27, 2008, plaintiffs filed a third amended complaint. On June 26,
2008, the United States Court of Appeals for the Ninth Circuit accepted
plaintiffs’ interlocutory appeal.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Three states, Ohio, New Hampshire, and Texas, subsequently
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware, and
Vermont subsequently voluntarily dismissed their claims. The amended
complaint alleges, among other things, violations of the Sherman Act, Cartwright
Act, and certain other states’ consumer protection and antitrust laws and seeks
damages, and injunctive and other relief. Additionally, on July 13,
2006, the State of New York filed a similar suit in the U.S. District Court for
the Southern District of New York. That case was subsequently
transferred to the U.S. District Court for the Northern District of California
for pre-trial purposes. The State of New York filed an amended
complaint on October 1, 2007.
Three purported class action DRAM
lawsuits also have been filed in Quebec, Ontario, and British Columbia, Canada,
on behalf of direct and indirect purchasers, alleging violations of the Canadian
Competition Act. The substantive allegations in these cases are
similar to those asserted in the cases filed in the United States. In
May and June 2008 respectively, plaintiffs’ motion for class certification was
denied in the British Columbia and Quebec cases. In the British
Columbia case, plaintiffs have filed an appeal of that decision.
In February and March 2007, All
American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers
in the U.S. District Court for the Northern District of California after
opting-out of a direct purchaser class action suit that was
settled. The complaints allege, among other things, violations of
federal and state antitrust and competition laws in the DRAM industry, and seek
damages, injunctive relief, and other remedies.
On October 11, 2006, the Company
received a grand jury subpoena from the U.S. District Court for the Northern
District of California seeking information regarding an investigation by the DOJ
into possible antitrust violations in the “Static Random Access Memory” or
“SRAM” industry. The Company believes that it is not a target of the
investigation and is cooperating with the DOJ in its investigation of the SRAM
industry.
Subsequent to the 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.
Three purported class action SRAM
lawsuits also have been filed in Canada, on behalf of direct and indirect
purchasers, alleging violations of the Canadian Competition Act. The
substantive allegations in these cases are similar to those asserted in the SRAM
cases filed in the United States.
In 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 it is not a target of the investigation.
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 February 8, 2008, the plaintiffs filed a consolidated
amended complaint that did not name the Company as a defendant.
Three purported class action Flash
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
Flash cases filed in the United States.
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 and therefore cannot estimate the
range of possible loss. The final resolution of these alleged
violations of antitrust laws could result in significant liability and could
have a material adverse effect on the Company’s business, results of operations
or financial condition.
Securities
Matters: On February 24, 2006, a putative class action
complaint was filed against the Company and certain of its officers in the U.S.
District Court for the District of Idaho alleging claims under Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys’ fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of the Company’s stock
during the period from February 24, 2001 to September 18, 2002.
In addition, on March 23, 2006, a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleges breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint seeks
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint is derivative in nature and does not seek monetary damages from the
Company. However, the Company may be required, throughout the
pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On January 25, 2008, the Court granted the Company’s
motion to dismiss the second amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Court of Appeals.
The Company is unable to predict the
outcome of these cases and therefore cannot estimate the range of possible
loss. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Lexar
Matters: 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 named the Company as a defendant. The complaints
alleged 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
sought, 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. On November 16,
2007, the Court granted Lexar’s and the Company’s renewed motion to dismiss the
case as to all parties with prejudice. On December 18, 2007, the
Court entered an order holding that the plaintiffs had waived any right to
appeal the final judgment.
Stock
Warrants
In 2001, the Company received $480
million from the issuance of warrants to purchase 29.1 million shares of the
Company’s common stock. The warrants entitled the holders to exercise
their warrants and purchase shares of common stock for $56.00 per share at any
time through May 15, 2008. The warrants expired on May 15,
2008.
Equity
Plans
As of May 29, 2008, the Company had an
aggregate of 201.8 million shares of its common stock reserved for issuance
under its various equity plans, of which 126.3 million shares were subject to
outstanding stock awards and 75.5 million shares were available for future
grants. Awards are subject to terms and conditions as determined by
the Company’s Board of Directors.
Stock
Options: The Company granted 0.4 million and 6.9 million stock
options during the third quarter and first nine months of 2008, respectively,
with weighted-average grant-date fair values per share of $2.67 and $2.54,
respectively. The Company granted 0.2 million and 8.0 million stock
options during the third quarter and first nine months of 2007, respectively,
with weighted-average grant-date fair values per share of $4.20 and $4.88,
respectively.
The fair value of each option award is
estimated as of the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable and requires the input of subjective assumptions, including
the expected stock price volatility and estimated option life. The
expected volatilities utilized by the Company are based on implied volatilities
from traded options on the Company’s stock and on historical
volatility. The risk-free rates utilized by the Company are based on
the U.S. Treasury yield in effect at the time of the grant. No
dividends have been assumed in the Company’s estimated option
values. Assumptions used in the Black-Scholes model are presented
below:
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
May
29,
2008
|
|
|
May
31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average expected life in
years
|
|
|
4.25 |
|
|
|
4.25 |
|
|
|
4.25 |
|
|
|
4.25 |
|
Expected
volatility
|
|
|
45%-48 |
% |
|
|
34%-37 |
% |
|
|
37%-48 |
% |
|
|
34%-42 |
% |
Weighted-average
volatility
|
|
|
48 |
% |
|
|
36 |
% |
|
|
46 |
% |
|
|
39 |
% |
Weighted-average risk-free
interest rate
|
|
|
2.5 |
% |
|
|
4.6 |
% |
|
|
2.9 |
% |
|
|
4.7 |
% |
Restricted
Stock: The Company awards restricted stock and restricted
stock units (collectively, “Restricted Awards”) under its equity
plans. During the third quarter of 2008, the Company granted 0.6
million and 0.1 million shares of service-based and performance-based Restricted
Awards, respectively. During the first nine months of 2008 and 2007,
the Company granted 4.2 million and 2.7 million shares, respectively, of
service-based Restricted Awards, and 1.4 million and 0.9 million shares,
respectively, of performance-based Restricted Awards. The
weighted-average grant-date fair values per share were $7.56 and $8.42 for
Restricted Awards granted during the third quarter and first nine months of
2008, respectively, and $15.07 for Restricted Awards granted during the first
nine months of 2007.
Stock-Based
Compensation Expense: Total compensation costs for the
Company’s equity plans were as follows:
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by caption:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
11 |
|
|
$ |
8 |
|
Selling, general and
administrative
|
|
|
6 |
|
|
|
4 |
|
|
|
18 |
|
|
|
14 |
|
Research and
development
|
|
|
4 |
|
|
|
3 |
|
|
|
11 |
|
|
|
8 |
|
|
|
$ |
14 |
|
|
$ |
10 |
|
|
$ |
40 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
19 |
|
|
$ |
18 |
|
Restricted
stock
|
|
|
7 |
|
|
|
3 |
|
|
|
21 |
|
|
|
12 |
|
|
|
$ |
14 |
|
|
$ |
10 |
|
|
$ |
40 |
|
|
$ |
30 |
|
Stock-based compensation expense of $3
million was capitalized and remained in inventory at May 29, 2008. As
of May 29, 2008, $120 million of total unrecognized compensation costs related
to non-vested awards was expected to be recognized through the third quarter of
2012, resulting in a weighted-average period of 1.3
years. 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” note.)
Restructure
In an effort to increase its
competitiveness and efficiency, in the fourth quarter of 2007 the Company began
pursuing a number of initiatives to reduce costs across its
operations. These initiatives included workforce reductions in
certain areas of the Company as its business was
realigned. Additional initiatives included establishing certain
operations closer in location to the Company’s global customers and evaluating
functions more efficiently performed through partnerships or other outside
relationships. In addition, the Company continues to focus on
reducing overhead costs to meet or exceed industry benchmarks.
In the third quarter and first nine
months of 2008, the Company recorded charges of $8 million and $29 million,
respectively, primarily within its Memory segment, for employee severance and
related costs, a write-down of certain facilities to their fair values, and
relocation and retention bonuses. Since the beginning of the fourth
quarter of 2007, the Company has incurred $48 million due to the restructuring
initiatives. As of May 29, 2008 and August 30, 2007, $8 million and
$5 million, respectively, of the restructure costs remained unpaid and were
included in accounts payable and accrued expenses.
Other
Operating (Income) Expense, Net
Other operating (income) expense for
the third quarter and first nine months of 2008 included gains of $13 million
and $70 million, respectively, on disposals of semiconductor
equipment. Other operating (income) expense for the first nine months
of 2008 included a gain of $38 million for receipts from the U.S. government in
connection with anti-dumping tariffs and losses of $33 million from changes in
currency exchange rates. Other operating (income) expense for the
third quarter of 2007 included $15 million from gains on disposals of
semiconductor equipment and $7 million in grants received in connection with the
Company’s operations in China. Other operating income for the first
nine months of 2007 included $25 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.
Income
Taxes
Income taxes for 2008 and 2007
primarily reflect taxes on the Company’s non-U.S. operations and U.S.
alternative minimum tax. The Company has a valuation allowance for
its net deferred tax asset associated with its U.S. operations. The
benefit for taxes on U.S. operations in 2008 and 2007 was substantially offset
by changes in the valuation allowance.
Effective at the beginning of the first
quarter of 2008, the Company adopted the provisions of FIN 48. In
connection with the adoption of FIN 48, the Company increased its liability and
decreased retained earnings by $1 million for net unrecognized tax benefits at
August 31, 2007. As of August 31, 2007, the Company had $16 million
of unrecognized income tax benefits, of which $15 million, if recognized, would
affect the Company’s effective tax rate. In the first nine months of
2008, unrecognized tax benefits decreased by $15 million primarily due to the
expiration of certain foreign statutes of limitations. The Company
does not expect to recognize any significant additional previously unrecognized
tax benefits through the third quarter of 2009. As of May 29, 2008
and August 31, 2007, accrued interest and penalties related to uncertain tax
positions were de minimis.
The Company and its subsidiaries file
income tax returns with the United States federal government, various U.S.
states and various foreign jurisdictions throughout the world. The
Company’s U.S. federal and state tax returns remain open to examination for 2005
through 2007 and 2004 through 2007, respectively. In addition, tax
years open to examination in multiple foreign taxing jurisdictions range from
1999 to 2007. The Company is currently undergoing audits in the U.K.
for 2004.
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 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 earnings per share
calculations. Antidilutive potential common shares that could dilute
basic earnings per share in the future were 223.8 million for the third quarter
and first nine months of 2008, and 257.1 million for the third quarter and first
nine months of 2007.
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common
shareholders
|
|
$ |
(236 |
) |
|
$ |
(225 |
) |
|
$ |
(1,275 |
) |
|
$ |
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding
|
|
|
772.8 |
|
|
|
769.9 |
|
|
|
772.4 |
|
|
|
768.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.30 |
) |
|
$ |
(0.29 |
) |
|
$ |
(1.65 |
) |
|
$ |
(0.21 |
) |
Diluted
|
|
|
(0.30 |
) |
|
|
(0.29 |
) |
|
|
(1.65 |
) |
|
|
(0.21 |
) |
Comprehensive
Income (Loss)
Comprehensive loss for the third
quarter and first nine months of 2008 was ($244) million and ($1,282) million,
respectively, and included ($8) million and ($7) million net of tax,
respectively, of unrealized losses on investments. Comprehensive loss for the
third quarter and first nine months of 2007 was ($225) million and ($163)
million, respectively, and included de minimis amounts of unrealized gains and
losses on investments.
Acquisition
of 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 the date of acquisition of up to $17 million if certain
milestones were met through calendar 2008. As of May 29, 2008, the
Company had paid $10 million of additional contingent consideration, which was
recorded as an increase in goodwill subsequent to the acquisition
date. The Company recorded total assets of $64 million (including
intangible assets of $17 million and goodwill of $46 million) and total
liabilities of $1 million. The Company’s results of operations
subsequent to the acquisition date include the CMOS image sensor business
acquired from Avago as part of the Company’s Imaging
segment. Mercedes Johnson, a member of the Company’s Board of
Directors, was the Senior Vice President, Finance and Chief Financial Officer of
Avago at the time of the transaction. Ms. Johnson recused herself
from all deliberations of the Company’s Board of Directors concerning this
transaction.
Joint
Ventures
NAND Flash Joint
Ventures with Intel (“IM Flash”): The Company has formed two
joint ventures with Intel Corporation (“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 May 29, 2008, the
Company owned 51% and Intel owned 49% of IM Flash. The financial
results of IM Flash are included in the accompanying consolidated financial
statements of the Company. 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 $280 million and
$744 million for the third quarter and first nine months of 2008, respectively,
and $160 million and $327 million for the third quarter and first nine months of
2007, respectively, and $497 million for 2007.
IM Flash manufactures NAND Flash memory
products based on NAND Flash designs developed by the Company and Intel and
licensed to the Company. Product design and other research and
development (“R&D”) costs for NAND Flash are generally shared equally
between the Company and Intel. As a result of reimbursements received
from Intel under a NAND Flash R&D cost-sharing arrangement, the Company’s
R&D expenses were reduced by $34 million and $116 million for the third
quarter and first nine months of 2008, respectively, and $43 million and
$173 million for the third quarter and first nine months of 2007,
respectively.
All amounts pertaining to Intel’s
interests in IM Flash are reported as noncontrolling interest. Intel
contributed to IM Flash $11 million and $203 million (net of $92 million of
distributions to Intel in the third quarter of 2008) in the third quarter and
first nine months of 2008, respectively, and $319 million and $966 million for
the third quarter and first nine months of 2007, respectively. IM
Flash’s cash and marketable investment securities ($293 million as of May 29,
2008) are not anticipated to be made available to finance the Company’s other
operations. The creditors of IM Flash have recourse only to the
assets of IM Flash and do not have recourse to any other assets of the
Company.
TECH
Semiconductor Singapore Pte. Ltd. (“TECH”): Since 1998, the
Company has participated in TECH, a semiconductor memory manufacturing joint
venture in Singapore among the Company, Canon Inc. and Hewlett-Packard
Company. As of May 29, 2008, the Company owned an approximate 73%
interest in TECH. TECH’s cash and marketable investment securities
($146 million as of May 29, 2008) are not anticipated to be made available to
finance the Company’s other operations. On March 31, 2008, TECH
entered into a $600 million credit facility, which is guaranteed, in part, by
the Company. (See “Debt” note.)
On March 30, 2007, the Company
exercised its option and acquired all of the shares of TECH common stock held by
the Singapore Economic Development Board for approximately $290 million, which
included a note payable for $216 million. This note was fully paid in
December 2007. As a result of the acquisition, the Company’s
ownership interest in TECH increased from 43% to 73%.
MeiYa DRAM Joint
Venture with Nanya Technology Corporation (“Nanya”):
On June 8, 2008, the
Company and Nanya formed a joint venture corporation ("MeiYa") that will
manufacture stack DRAM products and sell such products exclusively to the
Company and Nanya. The Company and Nanya each contributed
approximately $40 million in cash to MeiYa and each owns 50% of
MeiYa. The Company and Nanya have each committed to contribute an
additional $510 million prior to December 31, 2009. MeiYa leases a
fabrication facility from Nanya and, after upgrading the facility to process
300mm DRAM wafers, will begin manufacturing stack DRAM products. The
Company and Nanya will purchase all of the output of MeiYa generally in
proportion to their ownership in MeiYa pursuant to the terms of a pricing
arrangement. Under the pricing arrangement, the Company’s price for
products purchased from MeiYa is based on a margin sharing
formula. The Company has determined that MeiYa is a variable interest
entity as defined in FIN 46(R), “Consolidation of Variable Interest Entities –
an interpretation of ARB No. 51,” and that the Company is not the primary
beneficiary of MeiYa. The Company accounts for its interest in MeiYa
under the equity method.
In the third quarter of 2008,
the Company transferred and licensed certain intellectual property related to
the manufacture of stack DRAM products to Nanya and licensed certain
intellectual property from Nanya. In addition, the Company began
transferring technology to MeiYa in the third quarter of 2008. The
Company and Nanya also jointly develop process technology and designs for
manufacturing stack DRAM products with each party bearing its own development
costs until such time that the development costs exceed a specified amount,
following which such costs would be shared. The Company will receive an
aggregate of $232 million from Nanya and MeiYa through 2010 for licensing
and technology transfer fees, of which the Company realized $8 million of
revenue in the third quarter of 2008. The Company will also receive
royalties, from Nanya for stack DRAM products manufactured by
Nanya.
Segment
Information
The Company’s segments are Memory and
Imaging. The Memory segment’s primary products are DRAM and NAND
Flash memory 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.
|
|
Quarter
ended
|
|
|
Nine
months ended
|
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
May
29,
2008
|
|
|
May 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
1,327 |
|
|
$ |
1,156 |
|
|
$ |
3,917 |
|
|
$ |
3,713 |
|
Imaging
|
|
|
171 |
|
|
|
138 |
|
|
|
475 |
|
|
|
538 |
|
Total consolidated net
sales
|
|
$ |
1,498 |
|
|
$ |
1,294 |
|
|
$ |
4,392 |
|
|
$ |
4,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
(228 |
) |
|
$ |
(178 |
) |
|
$ |
(1,230 |
) |
|
$ |
(142 |
) |
Imaging
|
|
|
3 |
|
|
|
(17 |
) |
|
|
(27 |
) |
|
|
23 |
|
Total consolidated operating
loss
|
|
$ |
(225 |
) |
|
$ |
(195 |
) |
|
$ |
(1,257 |
) |
|
$ |
(119 |
) |
Item
2. 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 cost sharing
of stack DRAM development costs with Nanya and future plans for the
Aptina Imaging business; in “Net Sales” regarding increases in NAND Flash memory
production; in “Gross Margin” regarding future charges for inventory
write-downs; in “Restructure” regarding future actions; in “Recently Issued
Accounting Standards” regarding the adoption of new accounting standards; in
“Stock-based Compensation” regarding future stock-based compensation costs; and
in “Liquidity and Capital Resources” regarding capital spending in 2008 and
2009, future net contributions to IM Flash and future contributions to
MeiYa. 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 “PART
II. OTHER INFORMATION – Item 1A. Risk
Factors.” This discussion should be read in conjunction with the
Consolidated Financial Statements and accompanying notes and with the Company’s
Annual Report on Form 10-K for the year ended August 30, 2007. All
period references are to the Company’s fiscal periods unless otherwise
indicated. The Company’s fiscal year is the 52 or 53-week period
ending on the Thursday closest to August 31. All 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 developing new products, advancing its technology and
reducing costs. In addition, the Company increased its manufacturing
capacity in 2008 and 2007 by ramping NAND Flash production at two 300mm wafer
fabrication facilities and converting another facility to 300mm DRAM wafer
fabrication. To reduce costs, the Company implemented restructure
initiatives aimed at reducing manufacturing and overhead costs through
outsourcing, relocation of operations and workforce reductions. In
recent years, the Company has strategically entered into the NAND Flash memory
and specialty DRAM markets. The Company is able to leverage its
existing product and process technology and semiconductor memory manufacturing
expertise in these markets.
MeiYa DRAM Joint
Venture with Nanya Technology Corporation (“Nanya”):
On June 8, 2008, the
Company and Nanya formed a joint venture corporation ("MeiYa") that will
manufacture stack DRAM products and sell such products exclusively to the
Company and Nanya. The Company and Nanya each contributed
approximately $40 million in cash to MeiYa and each owns 50% of
MeiYa. The Company and Nanya have each committed to contribute an
additional $510 million prior to December 31, 2009. MeiYa leases a
fabrication facility from Nanya and, after upgrading the facility to process
300mm DRAM wafers, will begin manufacturing stack DRAM products. The
Company and Nanya will purchase all of the output of MeiYa generally in
proportion to their ownership in MeiYa pursuant to the terms of a pricing
arrangement. Under the pricing arrangement, the Company’s price for
products purchased from MeiYa is based on a margin sharing
formula. The Company accounts for its interest in MeiYa under the
equity method.
In the third quarter of 2008, the
Company transferred and licensed certain intellectual property related to the
manufacture of stack DRAM products to Nanya and licensed certain intellectual
property from Nanya. In addition, the Company began transferring
technology to MeiYa in the third quarter of 2008. The Company and
Nanya also jointly develop process technology and designs for manufacturing
stack DRAM products with each party bearing its own development costs until such
time that the development costs exceed a specified amount, following which such
costs would be shared. The Company will receive an aggregate of $232
million from Nanya and MeiYa through 2010 for licensing and technology
transfer fees, of which the Company realized $8 million of revenue in the third
quarter of 2008. The Company will also receive royalties, from Nanya for
stack DRAM products manufactured by Nanya.
Aptina Imaging
Business: The Company is engaged in ongoing negotiations with
private investors regarding the separation of its CMOS image sensor business,
operating under the name "Aptina," to a newly created independent entity in
which it would retain a significant minority ownership interest. It is expected
that the Company would enter into a supply agreement in connection with the
transaction pursuant to which it would continue to manufacture products for the
business. The Company currently anticipates concluding the transaction before
the end of its fiscal year end.
Goodwill
Impairment: In the second quarter of 2008, the Company
performed an assessment of impairment of goodwill. As a result of
this assessment, the Company recorded a noncash impairment charge of $463
million to the goodwill recorded in its Memory segment. (See “Item 1.
Financial Statements – Notes to Consolidated Financial Statements – Supplemental
Balance Sheet Information – Goodwill.”)
Inventory
Write-Downs: The Company’s results
of operations for second and first quarters of 2008 and fourth quarter of 2007
included charges of $15 million, $62 million and $20 million, respectively, to
write down the carrying value of work in process and finished goods inventories
of memory products (both DRAM and NAND Flash) to their estimated market
values.
Results
of Operations
|
|
Third
Quarter
|
|
|
|
Second
Quarter
|
|
|
|
Nine
Months
|
|
|
|
|
2008
|
|
|
%
of net sales
|
|
|
|
2007
|
|
|
%
of net sales
|
|
|
|
2008
|
|
|
%
of net sales
|
|
|
|
2008
|
|
|
%
of net sales
|
|
|
|
2007
|
|
|
%
of net sales
|
|
|
|
|
(amounts
in millions and as a percent of net sales)
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
1,327 |
|
|
|
89 |
|
% |
|
$ |
1,156 |
|
|
|
89 |
|
% |
|
$ |
1,224 |
|
|
|
90 |
|
% |
|
$ |
3,917 |
|
|
|
89 |
|
% |
|
$ |
3,713 |
|
|
|
87 |
|
% |
Imaging
|
|
|
171 |
|
|
|
11 |
|
% |
|
|
138 |
|
|
|
11 |
|
% |
|
|
135 |
|
|
|
10 |
|
% |
|
|
475 |
|
|
|
11 |
|
% |
|
|
538 |
|
|
|
13 |
|
% |
|
|
$ |
1,498 |
|
|
|
100 |
|
% |
|
$ |
1,294 |
|
|
|
100 |
|
% |
|
$ |
1,359 |
|
|
|
100 |
|
% |
|
$ |
4,392 |
|
|
|
100 |
|
% |
|
$ |
4,251 |
|
|
|
100 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
(11 |
) |
|
|
(1 |
) |
% |
|
$ |
68 |
|
|
|
6 |
|
% |
|
$ |
(76 |
) |
|
|
(6 |
) |
% |
|
$ |
(126 |
) |
|
|
(3 |
) |
% |
|
$ |
710 |
|
|
|
19 |
|
% |
Imaging
|
|
|
59 |
|
|
|
35 |
|
% |
|
|
38 |
|
|
|
28 |
|
% |
|
|
33 |
|
|
|
24 |
|
% |
|
|
136 |
|
|
|
29 |
|
% |
|
|
195 |
|
|
|
36 |
|
% |
|
|
$ |
48 |
|
|
|
3 |
|
% |
|
$ |
106 |
|
|
|
8 |
|
% |
|
$ |
(43 |
) |
|
|
(3 |
) |
% |
|
$ |
10 |
|
|
|
0 |
|
% |
|
$ |
905 |
|
|
|
21 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$ |
116 |
|
|
|
8 |
|
% |
|
$ |
134 |
|
|
|
10 |
|
% |
|
$ |
120 |
|
|
|
9 |
|
% |
|
$ |
348 |
|
|
|
8 |
|
% |
|
$ |
467 |
|
|
|
11 |
|
% |
R&D
|
|
|
170 |
|
|
|
11 |
|
% |
|
|
195 |
|
|
|
15 |
|
% |
|
|
180 |
|
|
|
13 |
|
% |
|
|
513 |
|
|
|
12 |
|
% |
|
|
621 |
|
|
|
15 |
|
% |
Goodwill
impairment
|
|
|
-- |
|
|
|
-- |
|
|
|
|
-- |
|
|
|
-- |
|
|
|
|
463 |
|
|
|
34 |
|
% |
|
|
463 |
|
|
|
11 |
|
% |
|
|
-- |
|
|
|
-- |
|
|
Restructure
|
|
|
8 |
|
|
|
1 |
|
% |
|
|
-- |
|
|
|
-- |
|
|
|
|
8 |
|
|
|
1 |
|
% |
|
|
29 |
|
|
|
1 |
|
% |
|
|
-- |
|
|
|
-- |
|
|
Other
operating (income) expense, net
|
|
|
(21 |
) |
|
|
(1 |
) |
% |
|
|
(28 |
) |
|
|
(2 |
) |
% |
|
|
(42 |
) |
|
|
(3 |
) |
% |
|
|
(86 |
) |
|
|
(2 |
) |
% |
|
|
(64 |
) |
|
|
(2 |
) |
% |
Net
loss
|
|
|
(236 |
) |
|
|
(16 |
) |
% |
|
|
(225 |
) |
|
|
(17 |
) |
% |
|
|
(777 |
) |
|
|
(57 |
) |
% |
|
|
(1,275 |
) |
|
|
(29 |
) |
% |
|
|
(162 |
) |
|
|
(4 |
) |
% |
Net
Sales
Total net sales for the third quarter
of 2008 increased 10% as compared to the second quarter of 2008 primarily due to
an 8% increase in Memory sales and a 27% increase in Imaging
sales. Memory sales for the third quarter of 2008 reflect significant
increases in gigabits sold partially offset by significant declines in per
gigabit average selling prices as compared to the second quarter of
2008. Memory sales were approximately 90% of total net sales for the
third and second quarters of 2008 and the third quarter of 2007. The
increase in Imaging sales for the third quarter of 2008 as compared to the
second quarter of 2008 was primarily due to higher unit sales. Total
net sales for the third quarter of 2008 increased 16% as compared to the third
quarter of 2007 primarily due to a 15% increase in Memory sales and a 24%
increase in Imaging sales. Total net sales for the first nine months
of 2008 increased 3% as compared to the first nine months of 2007 primarily due
to a 5% increase in Memory sales partially offset by a 12% decrease in Imaging
sales.
Memory: Memory
sales for the third quarter of 2008 increased 8% from the second quarter of 2008
as sales of NAND Flash products increased by approximately 10% and sales of DRAM
products increased by approximately 5%.
Sales of NAND Flash products for the
third quarter of 2008 increased from the second quarter of 2008 primarily due to
an increase of approximately 40% in gigabits sold as a result of production
increases partially offset by a decline of approximately 20% in average selling
prices per gigabit. Gigabit production of NAND Flash products
increased approximately 55% for the third quarter of 2008 as compared to the
second quarter of 2008, primarily due to the continued ramp of NAND Flash
products at the Company’s 300mm fabrication facilities and transitions to higher
density, advanced geometry devices. Sales of NAND Flash products
represented approximately 35% of the Company’s total net sales for the third and
second quarters of 2008 and approximately 25% for the third quarter of
2007. The Company expects that its gigabit production of NAND Flash
products will continue to increase significantly in the fourth quarter of
2008.
Sales of DRAM products for the third
quarter of 2008 increased from the second quarter of 2008 primarily due to an
increase of approximately 10% in gigabit sales partially offset by a decline of
approximately 5% in average selling prices principally due to a slight shift in
product mix to DDR2 DRAM products. Gigabit production of DRAM
products increased approximately 15% for the third quarter of 2008 as compared
to the second quarter of 2008, primarily due to production efficiencies from
improvements in product and process technologies, including TECH’s conversion to
300mm wafer fabrication. Sales of DDR2 and DDR3 DRAM products were
approximately 30% of the Company’s total net sales in the third quarter and
second quarter of 2008 and approximately 35% for the third quarter of
2007.
Memory sales for the third quarter of
2008 increased 15% from the third quarter of 2007 as an increase of
approximately 60% in sales of NAND Flash products was partially offset by a
decrease of approximately 5% in sales of DRAM products. Memory sales
for the first nine months of 2008 increased 5% as compared to the first nine
months of 2007 primarily due to an increase of approximately 75% in sales of
NAND Flash products partially offset by a decrease of approximately 15% in sales
of DRAM products. Sales of NAND Flash products for the third quarter
of 2008 and first nine months of 2008 increased from the corresponding periods
of 2007 primarily due to significant increases in gigabits sold partially offset
by declines of approximately 70% in average selling prices for both
periods. The significant increases in gigabit sales of NAND Flash
products were primarily due to increased production as a result of the continued
ramp of NAND Flash products at the Company’s 300mm fabrication facilities and
transitions to higher density, advanced geometry devices. The
decrease in sales of DRAM products for the third quarter and first nine months
of 2008 from the corresponding periods of 2007 was primarily the result of
declines in average selling prices of approximately 45% and 55% respectively,
mitigated by increases in gigabits sold of approximately 70% and 90%,
respectively. Gigabit production of DRAM products increased
approximately 70% and 80% for the third quarter and first nine months of 2008 as
compared to the corresponding periods of 2007, primarily due to production
efficiencies from improvements in product and process technologies.
Imaging: Imaging
sales for the third quarter of 2008 increased 27% from the second quarter of
2008 primarily due to higher unit sales, particularly for products with
5-megapixel resolution. Imaging sales for the third quarter of 2008
increased by 24% from the third quarter of 2007 primarily due to increased units
sales of products with 2-megapixel or higher resolution, partially
offset by declines in average selling prices and reduced sales of lower
resolution products. Imaging sales for the first nine months of 2008
decreased by 12% as compared to the first nine months of 2007 primarily due to
significant declines in average selling prices and decreases in unit sales of
products with 1-megapixel or lower resolution, mitigated by increases in units
sales of products with 2-megapixel or higher resolution. Imaging
sales were approximately 10% of the Company’s total net sales for the third and
second quarters of 2008 and third quarter of 2007.
Gross
Margin
The Company’s overall gross margin
percentage improved to 3% for the third quarter of 2008 from negative 3% for the
second quarter of 2008 due to improvements in the gross margin percentages for
Memory and Imaging. The Company’s overall gross margin percentage was
8% for the third quarter of 2007. The Company’s overall gross margin
percentage declined from 21% for the first nine months of 2007 to breakeven for
the first nine months of 2008. The declines in gross margin for the third
quarter and first nine months of 2008 from the corresponding periods of 2007
primarily reflect decreases in the gross margin percentage for
Memory.
Memory: The
Company’s gross margin percentage for Memory products for the third quarter of
2008 improved to negative 1% from negative 6% for the second quarter of 2008
primarily due to an improvement in the margin for DRAM products and to a lesser
extent an improvement in the margin for NAND Flash products. Gross
margins for DRAM and NAND Flash products for the third quarter of 2008 benefited
from cost reductions but were adversely affected by declines in average selling
prices.
The gross margin percentage for DRAM
products for the third quarter of 2008 improved from the second quarter of 2008,
primarily due to a reduction of approximately 15% in costs per gigabit offset by
the decline of approximately 5% in average selling prices. The
Company achieved cost reductions for DRAM products through transitions to
higher-density, advanced-geometry devices.
The Company’s gross margin percentage
on NAND Flash products for the third quarter of 2008 improved slightly from the
second quarter of 2008 primarily due to a reduction of approximately 25% in
costs per gigabit, partially offset by the decline of approximately 20% in
average selling prices. Cost reductions in the third quarter of 2008
reflect lower manufacturing costs and lower costs of NAND Flash products
purchased for sale under the Company’s Lexar brand. The Company
achieved manufacturing cost reductions for NAND Flash products primarily through
increased production of higher-density, advanced-geometry devices at the
Company’s 300mm fabrication facilities. 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 $280 million for the
third quarter of 2008, $241 million for the second quarter of 2008, $160 million
for the third quarter of 2007, $744 million for the first nine months of 2008,
$327 million for the first nine months of 2007 and $497 million for
2007.
For the second and first quarters of
2008 and fourth quarter of 2007, the Company’s gross margins for Memory were
impacted by inventory write-downs of $15 million, $62 million and $20 million,
respectively, as a result of the significant decreases in average selling prices
for both DRAM and NAND Flash products. The Company did not write-down
inventories in the third quarter of 2008 based on estimated selling
prices. In future periods the Company would record additional
inventory write-downs if estimated average selling prices of products held in
finished goods and work in process inventories at a quarter-end date are below
the manufacturing cost of these products.
The Company’s gross margin percentage
for Memory products declined to negative 1% for the third quarter of 2008 from
6% for the third quarter of 2007 and to negative 3% for the first nine months of
2008 from 19% for the first nine months of 2007, primarily due lower gross
margins on sales of DRAM products and a shift in product mix to NAND Flash
products, which realized significantly lower gross margins than DRAM
products. Declines in gross margins on sales of DRAM products for the
third quarter and first nine months of 2008 as compared to the corresponding
periods of 2008 were primarily due to the reductions in average selling prices
mitigated by per gigabit cost reductions of approximately 40% for both
periods. Gross margins on NAND Flash products for the third quarter
and first nine months of 2008 improved slightly as compared to the corresponding
periods of 2007 despite the significant declines in average selling prices due
to per gigabit cost reductions of approximately 70% for both
periods.
In the third quarter of 2008, the
Company’s TECH Semiconductor Singapore Pte. Ltd. (“TECH”) joint venture
accounted for approximately 12% of the Company’s total wafer
production. TECH primarily produced DDR and DDR2 products in the
first nine months of 2008 and 2007. Since TECH utilizes the Company’s
product designs and process technology and has a similar manufacturing cost
structure, the gross margin on sales of TECH products approximates gross margins
on sales of similar products manufactured by the Company’s wholly-owned
operations. (See “Item 1. Financial Statements – Notes to
Consolidated Financial Statements – Joint Ventures – TECH Semiconductor
Singapore Pte. Ltd.”)
Imaging: The
Company’s gross margin percentage for Imaging for the third quarter of 2008
improved to 35% from 24% for the second quarter of 2008 primarily due to cost
reductions and a shift in product mix to higher resolution products, which
realized better gross margins. The Company’s gross margin for Imaging
products for the third quarter of 2008 improved to 35% from 28% for third
quarter of 2007, primarily due to a shift to higher resolution products with
better margins and cost reductions partially offset by declines in average
selling prices. The Company’s gross margin for Imaging products
decreased to 29% for the first nine months of 2008 from 36% for the first nine
months of 2007, primarily due to declines in average selling prices mitigated by
cost reductions and a shift to higher resolution products.
Selling,
General and Administrative
Selling, general and administrative
(“SG&A”) expenses for the third quarter of 2008 decreased 3% from the second
quarter of 2008 primarily due to lower legal expenses. SG&A
expenses for the third quarter of 2008 decreased 13% from the third quarter of
2007 primarily due to lower payroll expenses and other costs as a result of the
Company’s restructure initiatives. SG&A expenses for the first
nine months of 2008 decreased 25% from the first nine months of 2007 primarily
due to lower legal expenses and lower payroll expenses and other costs as a
result of the Company’s restructure initiatives. In the first quarter
of 2007, the Company recorded a $31 million charge to SG&A as a result of
the settlement of certain antitrust class action (direct purchaser)
lawsuits. Future SG&A expense is expected to vary, potentially
significantly, depending on, among other things, the number of legal matters
that are resolved relatively early in their life-cycle and the number of matters
that progress to trial.
For the Company’s Memory segment,
SG&A expenses as a percentage of sales were 7% for the third quarter of
2008, 8% for the second quarter of 2008, 10% for the third quarter of 2007, 8%
for the first nine months of 2008 and 11% for the first nine months of
2007. For the Imaging segment, SG&A expenses as a percentage of
sales were 11% for the third quarter of 2008, 13% for the second quarter of
2008, 10% for the third quarter of 2007, 11% for the first nine months of 2008
and 12% for the first nine months of 2007.
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 the third quarter
of 2008 decreased 6% from the second quarter of 2008 primarily due to decreases
in development wafers processed. R&D expenses for the third
quarter of 2008 decreased 13% from the third quarter of 2007, primarily due to
decreases in development wafers processed and lower payroll costs as a result of
the Company’s restructure initiatives. R&D expenses for the first
nine months of 2008 decreased 17% from the first nine months of 2007, primarily
due to decreases in development wafers processed and lower payroll
costs. As a result of reimbursements received from Intel Corporation
under a NAND Flash R&D cost-sharing arrangement, R&D expenses were
reduced by $34 million for the third quarter of 2008, $29 million for the second
quarter of 2008, $43 million for the third quarter of 2007, $116 million for the
first nine months of 2008 and $173 million for the first nine months of
2007.
For the Company’s Memory segment,
R&D expenses as a percentage of sales were 10% for the third quarter of
2008, 12% for the second quarter of 2008, 13% for the third quarter of 2007, 10%
for the first nine months of 2008 and 14% for the first nine months of
2007. For the Imaging segment, R&D expenses as a percentage of
sales were 20% for the third quarter of 2008, 27% for the second quarter of
2008, 31% for the third quarter of 2007, 23% for the first nine months of 2008
and 22% for the first nine months of 2007.
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.
Goodwill
Impairment
In the second quarter of 2008, the
Company performed an assessment of impairment for goodwill. In the
first and second quarters of 2008, the Company experienced a sustained,
significant decline in its stock price. As a result of the decline in
stock price, the Company’s market capitalization fell significantly below the
recorded value of its consolidated net assets for most of the second quarter of
2008. The reduced market capitalization reflected, in part, the
Memory segment’s lower average selling prices and expected continued weakness in
pricing for the Company’s Memory products.
Based on the results of the Company’s
assessment of goodwill for impairment, it was determined that the carrying value
of the Memory segment exceeded its estimated fair value. Therefore,
the Company performed a preliminary second step of the impairment test to
determine the implied fair value of goodwill. Specifically, the
Company allocated the estimated fair value of the Memory segment as determined
in the first step to recognized and unrecognized net assets, including
allocations to intangible assets such as intellectual property, customer
relationships and brand and trade names. The result of the
preliminary analysis indicated that there would be no remaining implied value
attributable to goodwill in the Memory segment and accordingly, the Company
wrote off all $463 million of goodwill associated with its Memory segment as of
February 28, 2008. In the third quarter of 2008, the Company finalized the
second step of the impairment analysis and the results confirmed that there was
no implied value attributable to goodwill in the Memory segment as of February
28, 2008. The Company’s assessment of goodwill impairment indicated
that as of February 28, 2008, the fair value of the Imaging segment exceeded its
carrying value and therefore goodwill in the segment was not
impaired. (See “Item 1. Financial Statements – Notes to Consolidated
Financial Statements – Supplemental Balance Sheet Information –
Goodwill.”)
Restructure
In an effort to increase its
competitiveness and efficiency, in the fourth quarter of 2007, the Company began
pursuing a number of initiatives to reduce costs across its
operations. These initiatives included workforce reductions in
certain areas of the Company as its business was
realigned. Additional initiatives included establishing certain
operations closer in location to the Company’s global customers and evaluating
functions more efficiently performed through partnerships or other outside
relationships. In addition, the Company continues to focus on
reducing overhead costs to meet or exceed industry benchmarks.
In the third quarter, second quarter
and first nine months of 2008, the Company recorded charges of $8 million, $8
million and $29 million, respectively, primarily within its Memory segment, for
employee severance and related costs, a write-down of certain facilities to
their fair values, and relocation and retention bonuses. Since the
beginning of the fourth quarter of 2007, the Company has incurred $48 million
due to the restructuring initiatives.
Other
Operating (Income) Expense, Net
Other operating (income) expense for
the third quarter and first nine months of 2008 included gains of $13 million
and $70 million, respectively, on disposals of semiconductor
equipment. Other operating (income) expense for the first nine months
of 2008 included a gain of $38 million for receipts from the U.S. government in
connection with anti-dumping tariffs and losses of $33 million from changes in
currency exchange rates. Other operating (income) expense for the
second quarter of 2008 included gains of $47 million on disposals of
semiconductor equipment and losses of $6 million from changes in currency
exchange rates. Other operating (income) expense for the third
quarter of 2007 included $15 million from gains on disposals of semiconductor
equipment and $7 million in grants received in connection with the Company’s
operations in China. Other operating income for the first nine months
of 2007 included $25 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.
Income
Taxes
Income taxes for 2008 and 2007
primarily reflect taxes on the Company’s non-U.S. operations and U.S.
alternative minimum tax. The Company has a valuation allowance for
its net deferred tax asset associated with its U.S. operations. The
benefit for taxes on U.S. operations in 2008 and 2007 was substantially offset
by changes in the valuation allowance. Due to certain foreign
statutes of limitations, which expired on December 31, 2007, the Company
recognized approximately $15 million of previously unrecognized tax benefits in
the second quarter of 2008.
Noncontrolling
Interests in Net (Income) Loss
Noncontrolling interests for 2008 and
2007 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 1. Financial Statements – Notes to
Consolidated Financial Statements – Joint Ventures – TECH Semiconductor
Singapore Pte. Ltd.”)
Stock-Based
Compensation
Total compensation cost for the
Company’s equity plans for the third quarter of 2008, the second quarter of
2008, and third quarter of 2007 was $14 million, $13 million and $10 million,
respectively. Total compensation cost for the Company’s equity plans
for the first nine months of 2008 and 2007, was $40 million and $30 million,
respectively. As of May 29, 2008, $3 million of stock-based
compensation expense was capitalized and remained in inventory. As of
May 29, 2008, $120 million of total unrecognized compensation cost related to
non-vested awards was expected to be recognized through the third quarter of
2012. In 2005, the Company accelerated the vesting of substantially
all of its unvested stock options then outstanding which reduced stock
compensation recognized in subsequent periods.
Liquidity
and Capital Resources
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 May 29, 2008, the Company had cash and equivalents and
short-term investments totaling $1.6 billion compared to $2.6 billion as of
August 30, 2007. The balance as of May 29, 2008, included an
aggregate of $439 million held at, and anticipated to be used in the near term
by, IM Flash and TECH and are not anticipated to be made available to finance
the Company’s other operations.
Operating
Activities: The Company generated $775 million of cash from
operating activities in the first nine months of 2008, which primarily reflects
the Company’s $1,275 million of net loss adjusted by $1,528 million for noncash
depreciation and amortization expense and a $463 million noncash goodwill
write-down.
Investing
Activities: Net cash used by investing activities was $1,289
million in the first nine months of 2008, which included cash expenditures for
property, plant and equipment of $1,809 million partially offset by the net
effect of purchases, sales and maturities of investment securities of $294
million and $175 million in proceeds from sales of equipment. A
significant portion of the capital expenditures relate to the ramp of IM Flash
facilities and 300mm conversion of manufacturing operations at
TECH. The Company believes that to develop new product and process
technologies, support future growth, achieve operating efficiencies and maintain
product quality, it must continue to invest in manufacturing technologies,
facilities and capital equipment and research and development. The
Company estimates capital spending to approximate between $2.5 billion to $3.0
billion for 2008, primarily for expenditures on 300mm fabrication
facilities. The Company expects 2009 capital spending to approximate
$1.5 billion to $2.0 billion, of which approximately $300 million is expected to
be funded by contributions by joint venture partners. As of May 29,
2008, the Company had commitments of approximately $950 million for the
acquisition of property, plant and equipment, nearly all of which are expected
to be paid within one year.
Financing
Activities: Net cash used for financing activities was $204
million in the first nine months of 2008, which primarily reflects an aggregate
of $1,001 million in debt payments and payments on equipment purchase contracts
partially offset by $507 million in proceeds from borrowings and $203 million in
cash contributions received (net of distributions paid) from joint venture
partners.
During the second quarter of 2008, the
Company’s TECH subsidiary borrowed $240 million against a credit facility at
Singapore Interbank Offered Rate ("SIBOR") plus 2.5%. On March 31,
2008, TECH entered into a new credit facility enabling it to borrow up to $600
million at SIBOR plus 2.5%. The facility is available for drawdown
through December 31, 2008. During the third quarter of 2008, TECH
drew $270 million under the new credit facility and retired the previous credit
facility by paying off the $240 million outstanding. The new credit
facility is collateralized by substantially all of the assets of TECH
(approximately $1,526 million as of May 29, 2008) and contains certain covenants
that, among other requirements, establish certain liquidity, debt service
coverage and leverage ratios, and restrict TECH’s ability to incur indebtedness,
create liens and acquire or dispose of assets. Payments under the new
facility are due in approximately equal installments over 13 quarters commencing
in May 2009. Beginning March 2009, TECH will be required to maintain
$30 million in restricted cash and this restricted cash requirement will
increase to $60 million in September 2009. The Company has guaranteed
approximately 73% of the outstanding amount of the facility, with the Company’s
obligation increasing to 100% of the outstanding amount of the facility upon the
occurrence of certain conditions. As a condition to granting the
guarantee, the Company has a second position priority interest in all of the
assets of TECH behind the lenders. (See “Item 1. Financial Statements – Notes to
Consolidated Financial Statements – Supplemental Balance Sheet Information –
Debt.”)
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 May 29, 2008, IM Flash had $293 million of
cash and marketable investment securities. The Company plans to make
cash contributions to IM Flash, net of distributions received, of approximately
$350 million through the end of 2009, with similar contributions to be made by
Intel. Timing of these contributions, however, is subject to market
conditions and approval of the partners. The Company anticipates
additional investments as appropriate to support the growth of IM Flash’s
operations. (See “Item 1. Financial Statements – Notes to
Consolidated Financial Statements – Joint Ventures – NAND Flash Joint Ventures
with Intel.”)
On June 8, 2008, the Company and Nanya
formed a joint venture corporation ("MeiYa") that will manufacture stack DRAM
products and sell such products exclusively to the Company and
Nanya. The Company and Nanya each contributed $40 million in cash to
MeiYa at the closing of the joint venture transaction and have each committed to
contribute an additional $510 million on or prior to December 31,
2009. (See “Overview – MeiYa DRAM Joint Venture with Nanya Technology
Corporation.”)
Contractual
Obligations: As of May 29, 2008, contractual obligations for
notes payable, capital lease obligations and operating leases were as
follows:
|
|
Total
|
|
|
Remainder
of 2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
and
thereafter
|
|
(amounts
in millions)
|
|
Notes payable (including
interest)
|
|
$ |
1,938 |
|
|
$ |
15 |
|
|
$ |
143 |
|
|
$ |
376 |
|
|
$ |
29 |
|
|
$ |
24 |
|
|
$ |
1,351 |
|
Capital lease
obligations
|
|
|
795 |
|
|
|
53 |
|
|
|
209 |
|
|
|
142 |
|
|
|
255 |
|
|
|
40 |
|
|
|
96 |
|
Operating leases
|
|
|
98 |
|
|
|
5 |
|
|
|
17 |
|
|
|
14 |
|
|
|
13 |
|
|
|
11 |
|
|
|
38 |
|
Recently
Issued Accounting Standards
In May 2008, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements that are presented in conformity with
generally accepted accounting principles. SFAS No. 162 becomes
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” The
Company does not expect that the adoption of SFAS No. 162 will have a material
impact on its financial statements.
In May 2008, the FASB issued FASB Staff
Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” FSP No. APB 14-1 requires that issuers of convertible
debt instruments that may be settled in cash upon conversion separately account
for the liability and equity components in a manner that will reflect the
entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. The Company is required to adopt FSP No. APB 14-1
retrospectively, effective at the beginning of 2010. The Company is
evaluating the impact that the adoption of FSP No. APB 14-1 will have on its
financial statements.
In April 2008, the FASB issued FSP No.
FAS 142-3, “Determination of the Useful Life of Intangible
Assets.” FSP No. FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and
Other Intangible Assets.” The Company is required to adopt FSP No.
FAS 142-3 effective at the beginning of 2010. The Company is
evaluating the impact that the adoption of FSP No. FAS 142-3 will have on its
financial statements.
In March 2008, the FASB issued
SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an amendment of FASB Statement No. 133.” SFAS No. 161
requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. The Company is required
to adopt SFAS No. 161 effective for the second quarter of 2009. The
Company is evaluating the impact that the adoption of SFAS No. 161 will have on
its financial statements.
In December 2007, the FASB
ratified Emerging Issues Task Force (“EITF”) Issue No. 07-1, “Accounting for
Collaborative Arrangements,” which defines collaborative arrangements and
establishes reporting and disclosure requirements for transactions between
participants in a collaborative arrangement and between participants in the
arrangements and third parties. The Company is required to adopt EITF
No. 07-1 effective at the beginning of 2010. The Company is
evaluating the impact that the adoption of EITF No. 07-1 will have on its
financial statements.
In December 2007, the FASB issued
SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS No. 141(R)”), which establishes the principles and
requirements for how an acquirer in a business combination (1) recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interests in the acquiree,
(2) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and (3) determines what
information to disclose. The Company is required to adopt SFAS No.
141(R) effective at the beginning of 2010. The impact of the adoption
of SFAS No. 141(R) will depend on the nature and extent of business combinations
occurring on or after the beginning of 2010.
In December 2007, the FASB issued SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 requires that (1)
noncontrolling interests be reported as a separate component of equity, (2) net
income attributable to the parent and to the non-controlling interest be
separately identified in the income statement, (3) changes in a parent’s
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, and (4) any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. The Company is required to adopt SFAS No. 160 effective
at the beginning of 2010. The Company is evaluating the impact that
the adoption of SFAS No. 160 will have on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115.” Under SFAS No.
159, the Company may elect to measure many financial instruments and certain
other items at fair value on an instrument by instrument basis, subject to
certain restrictions. The Company is required to adopt SFAS No. 159
effective at the beginning of 2009. The impact of the adoption of
SFAS No. 159 on the Company’s financial statements will depend on the extent to
which the Company elects to measure eligible items at fair value.
In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements. In
February 2008, the FASB issued FSP No. FAS 157-1, “Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13,” which amends SFAS No. 157 to exclude accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS No. 13. In February 2008,
the FASB also issued FSP No. FAS 157-2, “Effective Date of FASB Statement
No. 157,” which delays the effective date of SFAS No. 157 until
the beginning of 2010 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least
annually). The Company is required to adopt SFAS No. 157 for
financial assets and liabilities effective at the beginning of
2009. The Company is evaluating the impact that the adoption of SFAS
No. 157 will have on its financial statements.
In June 2006, the FASB issued
Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109.” FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement. The Company adopted FIN 48 on August 31,
2007. The adoption of FIN 48 did not have a significant impact on the
Company’s results of operations or financial position. The Company
did not change its policy of recognizing accrued interest and penalties related
to unrecognized tax benefits within the income tax provision with the adoption
of FIN 48. (See “Income Taxes” note.)
In February 2006, the FASB issued SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS
No. 155 permits fair value remeasurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require
bifurcation. The Company adopted SFAS No. 155 as of the beginning of
2008. The adoption of SFAS No. 155 did not have a significant impact
on the Company’s results of operations or financial condition.
Critical
Accounting Estimates
The preparation of financial statements
and related disclosures in conformity with U.S. GAAP requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. Estimates and judgments
are based on historical experience, forecasted future events and various other
assumptions that the Company believes to be reasonable under the
circumstances. Estimates and judgments may vary under different
assumptions or conditions. The Company evaluates its estimates and
judgments on an ongoing basis. Management believes the accounting
policies below are critical in the portrayal of the Company’s financial
condition and results of operations and requires management’s most difficult,
subjective or complex judgments.
Acquisitions and
consolidations: Determination and the allocation of the
purchase price of acquired operations significantly influences the period in
which costs are recognized. Accounting for acquisitions and
consolidations requires the Company to estimate the fair value of the individual
assets and liabilities acquired as well as various forms of consideration given,
which involves a number of judgments, assumptions and estimates that could
materially affect the amount and timing of costs recognized. The
Company typically obtains independent third party valuation studies to assist in
determining fair values, including assistance in determining future cash flows,
appropriate discount rates and comparable market values.
Contingencies: The
Company is subject to the possibility of losses from various
contingencies. Considerable judgment is necessary to estimate the
probability and amount of any loss from such contingencies. An
accrual is made when it is probable that a liability has been incurred or an
asset has been impaired and the amount of loss can be reasonably
estimated. The Company accrues a liability and charges operations for
the estimated costs of adjudication or settlement of asserted and unasserted
claims existing as of the balance sheet date.
Goodwill and
intangible assets: In the second quarter of 2008, the Company
recorded a goodwill impairment charge of $463 million. The Company
tests goodwill for impairment annually and whenever events or circumstances make
it more likely than not that an impairment may have occurred, such as a
significant adverse change in the business climate (including declines in
selling prices for products) or a decision to sell or dispose of a reporting
unit. Goodwill is tested for impairment using a two-step
process. In the first step, the fair value of each reporting unit is
compared to the carrying value of the net assets assigned to the
unit. If the fair value of the reporting unit exceeds its carrying
value, goodwill is considered not impaired. If the carrying value of
the reporting unit exceeds its fair value, then the second step of the
impairment test must be performed in order to determine the implied fair value
of the reporting unit’s goodwill. Determining the implied fair value
of goodwill requires valuation of all of the Company’s tangible and intangible
asset and liabilities. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then the Company would record an
impairment loss equal to the difference.
Determining when to test for
impairment, the Company’s reporting units, the fair value of a reporting unit
and the fair value of assets and liabilities within a reporting unit, requires
judgment and involves the use of significant estimates and assumptions. These
estimates and assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions and determination of appropriate market
comparables. The Company bases fair value estimates on assumptions it
believes to be reasonable but that are unpredictable and inherently
uncertain. Actual future results may differ from those
estimates. In addition, judgments and assumptions are required to
allocate assets and liabilities to reporting units.
The Company tests other identified
intangible assets with definite useful lives and subject to amortization when
events and circumstances indicate the carrying value may not be recoverable by
comparing the carrying amount to the sum of undiscounted cash flows expected to
be generated by the asset. The Company tests intangible assets with
indefinite lives annually for impairment using a fair value method such as
discounted cash flows. Estimating fair values involves significant
assumptions, especially regarding future sales prices, sales volumes, costs and
discount rates.
Income
taxes: The Company is required to estimate its provision for
income taxes and amounts ultimately payable or recoverable in numerous tax
jurisdictions around the world. Estimates involve interpretations of
regulations and are inherently complex. Resolution of income tax
treatments in individual jurisdictions may not be known for many years after
completion of any fiscal year. The Company is also required to
evaluate the realizability of its deferred tax assets on an ongoing basis in
accordance with U.S. GAAP, which requires the assessment of the Company’s
performance and other relevant factors when determining the need for a valuation
allowance with respect to these deferred tax assets. Realization of
deferred tax assets is dependent on the Company’s ability to generate future
taxable income. The Company adopted FIN 48 effective at the beginning
of 2008.
Inventories: Inventories
are stated at the lower of average cost or market value. 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 $90
million at May 29, 2008. Due to the volatile nature of the
semiconductor memory industry, actual selling prices and volumes often vary
significantly from projected prices and volumes and, as a result, the timing of
when product costs are charged to operations can vary
significantly.
U.S. GAAP provides for products to be
grouped into categories in order to compare costs to market
values. The amount of any inventory write-down can vary significantly
depending on the determination of inventory categories. The Company’s
inventories have been categorized as Memory products or Imaging
products. The major characteristics the Company considers in
determining inventory categories are product type and markets.
Product and
process technology: Costs incurred to acquire product and process
technology or to patent technology developed by the Company are capitalized and
amortized on a straight-line basis over periods currently ranging up to 10
years. The Company capitalizes a portion of costs incurred based on
its analysis of historical and projected patents issued as a percent of patents
filed. Capitalized product and process technology costs are amortized
over the shorter of (i) the estimated useful life of the technology, (ii) the
patent term or (iii) the term of the technology agreement.
Research and
development: Costs related to the conceptual formulation and
design of products and processes are expensed as research and development when
incurred. Determining when product development is complete requires
judgment by the Company. The Company deems development of a product
complete once the product has been thoroughly reviewed and tested for
performance and reliability.
Stock-based
compensation: Under the provisions of SFAS No. 123(R),
stock-based compensation cost is estimated at the grant date based on the
fair-value of the award and is recognized as expense ratably over the requisite
service period of the award. For stock based compensation awards with
graded vesting that were granted after 2005, the Company recognizes compensation
expense using the straight-line amortization method. For
performance-based stock awards, the expense recognized is dependent on the
probability of the performance measure being achieved. The Company
utilizes forecasts of future performance to assess these probabilities and this
assessment requires considerable judgment.
Determining the appropriate fair-value
model and calculating the fair value of stock-based awards at the grant date
requires considerable judgment, including estimating stock price volatility,
expected option life and forfeiture rates. The Company develops its
estimates based on historical data and market information which can change
significantly over time. A small change in the estimates used can
result in a relatively large change in the estimated valuation. The
Company uses the Black-Scholes option valuation model to value employee stock
awards. The Company estimates stock price volatility based on an
average of its historical volatility and the implied volatility derived from
traded options on the Company’s stock.
Item
3. Quantitative and
Qualitative Disclosures about Market Risk
Interest
Rate Risk
As of May 29, 2008, $2,084 million of
the Company’s $2,421 million of debt was at fixed interest rates. As
a result, the fair value of the debt fluctuates based on changes in market
interest rates. The estimated fair market value of the Company’s debt
was $2,185 million as of May 29, 2008 and was $2,411 million as of August 30,
2007. The Company estimates that as of May 29, 2008, a 1% decrease in
market interest rates would change the fair value of the fixed-rate debt by
approximately $80 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. $489 million as of May 29, 2008 and U.S. $448 million as of August 30,
2007. The Company also had aggregate foreign currency liabilities
valued at U.S. $657 million as of May 29, 2008 and U.S. $979 million as of
August 30, 2007. Significant components of the Company’s assets and
liabilities denominated in foreign currencies were as follows (in U.S. dollar
equivalents):
|
|
May
29, 2008
|
|
|
August
30, 2007
|
|
|
|
Singapore
Dollars
|
|
|
Yen
|
|
|
Euro
|
|
|
Singapore
Dollars
|
|
|
Yen
|
|
|
Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
110 |
|
|
$ |
151 |
|
|
$ |
21 |
|
|
$ |
58 |
|
|
$ |
180 |
|
|
$ |
11 |
|
Net
deferred tax assets
|
|
|
-- |
|
|
|
85 |
|
|
|
2 |
|
|
|
-- |
|
|
|
76 |
|
|
|
2 |
|
Debt
|
|
|
(51 |
) |
|
|
(113 |
) |
|
|
(5 |
) |
|
|
(258 |
) |
|
|
(165 |
) |
|
|
(5 |
) |
Accounts
payable and accrued expenses
|
|
|
(141 |
) |
|
|
(116 |
) |
|
|
(89 |
) |
|
|
(116 |
) |
|
|
(168 |
) |
|
|
(137 |
) |
The Company estimates that, based on
its assets and liabilities denominated in currencies other than the U.S. dollar
as of May 29, 2008, a 1% change in the exchange rate versus the U.S. dollar
would result in foreign currency gains or losses of approximately U.S. $1
million for the euro and the Singapore dollar.
Item
4. 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
recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms and that such information is accumulated and
communicated to the Company’s management, including the principal executive
officer and principal financial officer, to allow timely decision regarding
disclosure.
During the quarterly period covered by
this report, 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.
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
Patent
Matters
On August 28, 2000, the Company filed a
complaint against Rambus, Inc. (“Rambus”) in the U.S. District Court for the
District of Delaware seeking monetary damages and declaratory and injunctive
relief. Among other things, the Company’s complaint (as amended)
alleges violation of federal antitrust laws, breach of contract, fraud,
deceptive trade practices, and negligent misrepresentation. The
complaint also seeks a declaratory judgment (a) that certain Rambus patents are
not infringed by the Company, are invalid, and/or are unenforceable, (b) that
the Company has an implied license to those patents, and (c) that Rambus is
estopped from enforcing those patents against the Company. On
February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying
that the Company is entitled to relief, alleging infringement of the eight
Rambus patents named in the Company’s declaratory judgment claim, and seeking
monetary damages and injunctive relief. In the Delaware action, the
Company subsequently added claims and defenses based on Rambus’s alleged
spoliation of evidence and litigation misconduct. The spoliation and
litigation misconduct claims and defenses were heard in a bench trial before
Judge Robinson in October 2007. Post-trial briefing is underway for
this phase of the litigation.
A number of other suits involving
Rambus are currently pending in Europe alleging that certain of the Company’s
SDRAM and DDR SDRAM products infringe various of Rambus’ country counterparts to
its European patent 525 068, including: on September 1, 2000, Rambus filed suit
against Micron Semiconductor (Deutschland) GmbH in the District Court of
Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against the
Company and Reptronic (a distributor of the Company’s products) in the Court of
First Instance of Paris, France; on September 29, 2000, the Company filed suit
against Rambus in the Civil Court of Milan, Italy, alleging invalidity and
non-infringement. In addition, on December 29, 2000, the Company
filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging
invalidity and non-infringement of the Italian counterpart to European patent 1
004 956. Additionally, on August 14, 2001, Rambus filed suit against
Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim,
Germany alleging that certain of the Company’s DDR SDRAM products infringe
Rambus’ country counterparts to its European patent 1 022 642. In the
European suits against the Company, Rambus is seeking monetary damages and
injunctive relief. Subsequent to the filing of the various European
suits, the European Patent Office (the “EPO”) declared Rambus’ 525 068 and 1 004
956 European patents invalid and revoked the patents. The declaration
of invalidity with respect to the '068 patent was upheld on
appeal. The original claims of the '956 patent also were declared
invalid on appeal, but the EPO ultimately granted a Rambus request to amend the
claims by adding a number of limitations.
On January 13, 2006, Rambus filed a
lawsuit against the Company in the U.S. District Court for the Northern District
of California alleging infringement of eighteen Rambus patents. On
June 2, 2006, the Company filed an answer and counterclaim against Rambus
alleging among other things, antitrust and fraud claims. The Northern
District of California Court subsequently consolidated the antitrust and fraud
claims and certain equitable defenses of the Company and other parties against
Rambus in a jury trial that began on January 29, 2008. On March 26,
2008, a jury returned a verdict in favor of Rambus on the Company’s antitrust
and fraud claims.
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 appealed that decision to the U.S. Court of
Appeals for the Federal Circuit. On February 29, 2008, the U.S. Court
of Appeals for the Federal Circuit issued an order reversing the dismissal of
the Company’s declaratory judgment action filed in the U.S. District Court for
the Northern District of California and remanding the suit to that
Court.
Among other things, the above lawsuits
pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM,
RLDRAM and image sensor products, which account for a significant portion of 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.
Antitrust
Matters
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 has cooperated fully and actively with the DOJ
in its investigation. The Company has cooperated 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 January 29, 2008,
the Northern District of California Court granted in part and denied in part the
Company’s motion to dismiss plaintiff’s second amended consolidated
complaint. Plaintiffs subsequently filed a motion seeking
certification for interlocutory appeal of the decision. On February
27, 2008, plaintiffs filed a third amended complaint. On June 26,
2008, the United States Court of Appeals for the Ninth Circuit accepted
plaintiffs’ interlocutory appeal.
Additionally, three cases have been
filed in the following Canadian courts: Superior Court, District of
Montreal, Province of Quebec; Ontario Superior Court of Justice, Ontario; and
Supreme Court of British Columbia, Vancouver Registry, British
Columbia. The substantive allegations in these cases are similar to
those asserted in the cases filed in the United States. In May and
June 2008 respectively, plaintiffs’ motion for class certification was denied in
the British Columbia and Quebec cases. In the British Columbia case,
plaintiffs have filed an appeal of that decision.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Three states, Ohio, New Hampshire, and Texas, subsequently
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware, and
Vermont subsequently voluntarily dismissed their claims. The amended
complaint alleges, among other things, violations of the Sherman Act, Cartwright
Act, and certain other states’ consumer protection and antitrust laws and seeks
damages, and injunctive and other relief. Additionally, on July 13,
2006, the State of New York filed a similar suit in the U.S. District Court for
the Southern District of New York. That case was subsequently
transferred to the U.S. District Court for the Northern District of California
for pre-trial purposes. The State of New York filed an amended
complaint on October 1, 2007.
On 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.
Three purported class action SRAM
lawsuits also have been filed in Canada, on behalf of direct and indirect
purchasers, alleging violations of the Canadian Competition Act. The
substantive allegations in these cases are similar to those asserted in the SRAM
cases filed in the United States.
In 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 February 8, 2008, the plaintiffs filed a consolidated
amended complaint that did not name the Company as a defendant.
Three purported class action Flash
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
Flash cases filed in the United States.
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.
Securities
Matters
On February 24, 2006, a putative class
action complaint was filed against the Company and certain of its officers in
the U.S. District Court for the District of Idaho alleging claims under Section
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct or the Company’s operations and
financial results. The complaint seeks unspecified damages, interest,
attorneys’ fees, costs, and expenses. On December 19, 2007, the Court
issued an order certifying the class but reducing the class period to purchasers
of the Company’s stock during the period from February 24, 2001 to September 18,
2002.
In addition, on March 23, 2006 a
shareholder derivative action was filed in the Fourth District Court for the
State of Idaho (Ada County), allegedly on behalf of and for the benefit of the
Company, against certain of the Company’s current and former officers and
directors. The Company also was named as a nominal
defendant. An amended complaint was filed on August 23, 2006 and was
subsequently dismissed by the Court. Another amended complaint was
filed on September 6, 2007. The amended complaint is based on the
same allegations of fact as in the securities class actions filed in the U.S.
District Court for the District of Idaho and alleges breach of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment, and insider trading. The amended complaint seeks
unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys’ fees, costs, and expenses. The amended
complaint is derivative in nature and does not seek monetary damages from the
Company. However, the Company may be required, throughout the
pendency of the action, to advance payment of legal fees and costs incurred by
the defendants. On January 25, 2008, the Court granted the Company’s
motion to dismiss the second amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Court of Appeals.
The Company is unable to predict the
outcome of these cases. A court determination in any of these actions
against the Company could result in significant liability and could have a
material adverse effect on the Company’s business, results of operations or
financial condition.
Lexar
Matters
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 named the Company as a defendant. The complaints
alleged 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
sought, 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. On November 16,
2007, the Court granted Lexar’s and the Company’s renewed motion to dismiss the
case as to all parties with prejudice. On December 18, 2007, the
Court entered an order holding that the plaintiffs had waived any right to
appeal the final judgment.
(See
“Item 1A. Risk Factors.”)
Item
1A. Risk
Factors
In addition to the factors discussed
elsewhere in this Form 10-Q, the following are important factors which could
cause actual results or events to differ materially from those contained in any
forward-looking statements made by or on behalf of the Company.
We
have experienced dramatic declines in average selling prices for our
semiconductor memory products which have adversely affected our
business.
For the third quarter of 2008 average
selling prices of DRAM products and NAND Flash products decreased approximately
5% and 20%, respectively, as compared to the second quarter of
2008. For the first nine months of 2008 average selling prices of
DRAM products and NAND Flash products decreased approximately 55% and 70%,
respectively, as compared to the first nine months of 2007. For 2007,
average selling prices of DRAM products and NAND Flash products decreased 23%
and 56%, respectively, as compared to 2006. In other recent years, we
also have experienced significant annual decreases in per gigabit average
selling prices for our memory products including: 34% in 2006, 24% in 2005, 17%
in 2003, 53% in 2002 and 60% in 2001. At times, average selling
prices for our memory products have been below our costs. We recorded
inventory write-downs of $15 million in the second quarter of 2008, $62 million
in the first quarter of 2008 and $20 million in the fourth quarter of 2007 as a
result of significant decreases in average selling prices for our semiconductor
memory products. If the estimated market values of products held in
finished goods and work in process inventories at a quarter end date are below
the manufacturing cost of these products, we recognize charges to cost of goods
sold to write down the carrying value of our inventories to market
value. Future charges for inventory write-downs could be
significantly larger than the amount recorded in the first and second quarters
of 2008. If average selling prices for our memory products remain
depressed or decrease faster than we can decrease per gigabit costs, as they
recently have, our business, results of operations or financial condition could
be materially adversely affected.
We
may be unable to reduce our per gigabit manufacturing costs at the rate average
selling prices decline.
Our gross margins are dependent upon
continuing decreases in per gigabit manufacturing costs achieved through
improvements in our manufacturing processes, including reducing the die size of
our existing products. In future periods, we may be unable to reduce
our per unit manufacturing costs at sufficient levels to increase gross margins
due to factors, including, but not limited to, strategic product diversification
decisions affecting product mix, the increasing complexity of manufacturing
processes, changes in process technologies or products that inherently may
require relatively larger die sizes. Per unit manufacturing costs may
also be affected by the relatively smaller production quantities and shorter
product lifecycles of certain specialty memory products.
The
semiconductor memory industry is highly competitive.
We face intense competition in the
semiconductor memory market from a number of companies, including Elpida Memory,
Inc.; Hynix Semiconductor Inc.; Qimonda AG 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.
Our
plans to significantly increase our NAND Flash memory production and sales have
numerous risks.
We plan to increase our NAND Flash
production and sales in future periods. As part of this plan, we have
formed 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
estimate our capital spending to approximate between $2.5 and $3.0 billion for
2008 and to be between $1.5 billion to $2.0 billion for 2009, with a significant
portion 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 also a 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:
·
|
competing
against companies with greater scale and potentially greater
resources;
|
·
|
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
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.
Our
joint ventures and strategic partnerships involve numerous
risks.
We have entered into partnering
arrangements to manufacture products and develop new manufacturing process
technologies and products. These arrangements include our IM Flash
NAND flash joint ventures with Intel, our MeiYa DRAM joint venture with Nanya,
and our TECH DRAM joint venture. These strategic partnerships and
joint ventures are subject to various risks that could adversely affect the
value of our investments and our results of operations. These risks
include the following:
·
|
our
interests could diverge from our partners in the future or we may not be
able to agree with partners on the amount, timing or nature of further
investments in our joint venture;
|
·
|
the
terms of our arrangements may turn out to be
unfavorable;
|
·
|
cash
flows may be inadequate to fund increased capital
requirements;
|
·
|
we
may experience difficulties in transferring technology to joint
ventures;
|
·
|
we
may experience difficulties and delays in ramping production from joint
ventures; and
|
·
|
political
or economic instability may occur in the countries where our joint
ventures and/or partners are
located.
|
If our joint ventures and strategic
partnerships are unsuccessful our business, results of operations or financial
condition may be adversely affected.
We
may be unable to generate sufficient cash flows or obtain access to external
financing necessary to fund our operations and make adequate capital
investments.
Our cash flows from operations depend
primarily on the volume of semiconductor memory sold, average selling prices and
per unit manufacturing costs. To develop new product and process
technologies, support future growth, achieve operating efficiencies and maintain
product quality, we must make significant capital investments in manufacturing
technology, facilities and capital equipment, research and development, and
product and process technology. We currently estimate our capital
spending to approximate between $2.5 and $3.0 billion for 2008 and to be between
$1.5 billion to $2.0 billion for 2009, with a significant portion of the
expenditures being made to support our NAND operations. 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 to remain competitive in terms of
technology developments and cost efficiency; or access capital markets on
acceptable terms. Our inability to do the foregoing could have a
material adverse effect on our business and results of operations.
New
product development may be unsuccessful.
We are developing new products that
complement our traditional memory products or leverage their underlying design
or process technology. We have made significant investments in
product and process technologies and anticipate expending significant resources
for new semiconductor product development over the next several
years. The process to develop NAND Flash, Imaging and certain
specialty memory products requires us to demonstrate advanced functionality and
performance, many times well in advance of a planned ramp of production, in
order to secure design wins with our customers. There can be no
assurance that our product development efforts will be successful, that we will
be able to cost-effectively manufacture these new products, that we will be able
to successfully market these products or that margins generated from sales of
these products will recover costs of development efforts.
The
future success of our Imaging business will be dependent on continued market
acceptance of our products and the development, introduction and marketing of
new Imaging products.
We face competition in the image sensor
market from a number of suppliers of CMOS image sensors including 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.
In 2007, our Imaging net sales and
gross margins decreased and we faced increased competition. There can
be no assurance that we will be able to grow or maintain our market share or
gross margins for Imaging products in the future. The success of our
Imaging business will depend on a number of factors, including:
·
|
development
of products that maintain a technological advantage over the products of
our competitors;
|
·
|
accurate
prediction of market requirements and evolving standards, including pixel
resolution, output interface standards, power requirements, optical lens
size, input standards and other
requirements;
|
·
|
timely
completion and introduction of new Imaging products that satisfy customer
requirements;
|
·
|
timely
achievement of design wins with prospective customers, as manufacturers
may be reluctant to change their source of components due to the
significant costs, time, effort and risk associated with qualifying a new
supplier; and
|
·
|
efficient,
cost-effective manufacturing as we transition to new products and higher
volumes.
|
Our
efforts to restructure our Imaging business may be unsuccessful.
We are exploring business model
alternatives for our 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
expect to make future acquisitions and alliances, which involve numerous
risks.
Acquisitions and the formation of
alliances such as joint ventures and other partnering arrangements, involve
numerous risks including the following:
·
|
difficulties
in integrating the operations, technologies and products of acquired or
newly formed entities;
|
·
|
increasing
capital expenditures to upgrade and maintain
facilities;
|
·
|
increasing
debt to finance any acquisition or formation of a new
business;
|
·
|
difficulties
in protecting our intellectual property as we enter into a greater number
of licensing arrangements;
|
·
|
diverting
management’s attention from normal daily
operations;
|
·
|
managing
larger or more complex operations and facilities and employees in separate
geographic areas, and
|
·
|
hiring
and retaining key employees.
|
Acquisitions of, or alliances with,
high-technology companies are inherently risky, and any future transactions may
not be successful and may materially adversely affect our business, results of
operations or financial condition.
We
may incur additional restructure charges or not realize the expected benefits of
new initiatives to reduce costs across our operations.
In 2008 we pursued a number of
initiatives to reduce costs across our operations. These initiatives include
workforce reductions in certain areas as we realigned our
business. Additional initiatives included establishing certain
operations closer in location to our global customers and evaluating functions
more efficiently performed through partnerships or other outside
relationships. In addition, we continue to focus on reducing our
overhead costs to meet or exceed industry benchmarks. In the third
quarter and first nine months of 2008, we recorded charges of $8 million and $29
million, respectively, primarily to the Memory segment, for employee severance
and related costs, a write-down of certain facilities to their fair values, and
relocation and retention bonuses. We may not realize the expected
benefits of these new initiatives. As a result of these initiatives,
we expect to incur restructuring or other infrequent charges and we may
experience disruptions in our operations, loss of key personnel and difficulties
in delivering products timely.
Our
net operating loss and tax credit carryforwards may be limited.
We have significant net operating loss
and tax credit carryforwards. We have provided significant valuation
allowances against the tax benefit of such losses as well as certain tax credit
carryforwards. Utilization of these net operating losses and credit
carryforwards is dependent upon us achieving sustained
profitability. As a consequence of prior business acquisitions,
utilization of the tax benefits for some of the tax carryforwards is subject to
limitations imposed by Section 382 of the Internal Revenue Code and some portion
or all of these carryforwards may not be available to offset any future taxable
income. The determination of the limitations is complex and requires
significant judgment and analysis of past transactions.
Changes
in foreign currency exchange rates could materially adversely affect our
business, results of operations or financial condition.
Our financial statements are prepared
in accordance with U.S. GAAP and are reported in U.S. dollars. Across
our multi-national operations, there are transactions and balances denominated
in other currencies, primarily the euro, yen and Singapore dollar. We
recorded a net loss of $33 million from changes in currency exchange rates for
the first nine months of 2008. We estimate that, based on its assets
and liabilities denominated in currencies other than the U.S. dollar as of May
29, 2008, a 1% change in the exchange rate versus the U.S. dollar would result
in foreign currency gains or losses of approximately U.S. $1 million for the
euro and Singapore dollar. 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.
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. In the
Delaware action, we subsequently added claims and defenses based on Rambus’s
alleged spoliation of evidence and litigation misconduct. The
spoliation and litigation misconduct claims and defenses were heard in a bench
trial before Judge Robinson in October 2007. Post-trial briefing is
underway for this phase of the litigation.
A number of other suits involving
Rambus are currently 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, on August 14, 2001, Rambus filed suit against
Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim,
Germany alleging that certain of our DDR SDRAM products infringe Rambus' country
counterparts to its European patent 1 022 642. 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 (the “EPO”) declared Rambus' 525 068 and 1 004 956
European patents invalid and revoked the patents. The declaration of
invalidity with respect to the ‘068 patent has been upheld on
appeal. The original claims of the '956 patent also were declared
invalid on appeal, but the EPO ultimately granted a Rambus request to amend the
claims by adding a number of limitations.
On January 13, 2006, Rambus filed a
lawsuit against us in the U.S. District Court for the Northern District of
California alleging infringement of eighteen Rambus patents. On June
2, 2006, we filed an answer and counterclaim against Rambus alleging amongst
other thins, antitrust and fraud claims. The Northern District of
California Court subsequently consolidated the antitrust and fraud claims and
certain equitable defenses of ours and other parties against Rambus in a jury
trial that began on January 29, 2008. On March 26, 2008, a jury
returned a verdict in favor of Rambus on our antitrust and fraud
claims. We are also engaged in litigation with Mosaid Technologies,
Inc. ("Mosaid"). On July 24, 2006, we filed a declaratory judgment
action against Mosaid in the U.S. District Court for the Northern District of
California seeking, among other things, a court determination that fourteen
Mosaid patents are invalid, not enforceable, and/or not infringed. On
July 25, 2006, Mosaid filed a lawsuit against us and others in the U.S. District
Court for the Eastern District of Texas alleging infringement of nine Mosaid
patents. On August 31, 2006, Mosaid filed an amended complaint adding
two additional Mosaid patents. On October 23, 2006, the California
Court dismissed our declaratory judgment suit based on lack of
jurisdiction. We appealed that decision to the U.S. Court of Appeals
for the Federal Circuit. On February 29, 2008, the U.S. Court of
Appeals for the Federal Circuit issued an order reversing the dismissal of our
declaratory
judgment action filed in the U.S. District Court for the Northern District of
California and remanding the suit to that Court.
Among other things, the above lawsuits
pertain to certain of our SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 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 have cooperated fully and actively with the DOJ in its
investigation of the DRAM industry. We have cooperated 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 January 29, 2008, the Northern District
of California Court granted in part and denied in part our motion to dismiss the
plaintiff’s second amended consolidated complaint. Plaintiffs have
filed a motion seeking certification for interlocutory appeal of this decision
and on February 27, 2008, filed a third 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 May and June 2008 respectively,
plaintiffs’ motion for class certification was denied in the British Columbia
and Quebec cases. In the British Columbia case, plaintiffs have filed
an appeal of that decision.
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 Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska, Arizona,
Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois,
Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North
Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia,
Wisconsin
and the Commonwealth of the Northern Mariana Islands. 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. Six states, Alaska, Delaware, Ohio, New
Hampshire, Texas, and Vermont, 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.
Three purported class action SRAM
lawsuits also have been filed in Canada, on behalf of direct and indirect
purchasers, alleging violations of the Canadian Competition Act. The
substantive allegations in these cases are similar to those asserted in the SRAM
cases filed in the United States.
In 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 February 8, 2008, the plaintiffs filed a consolidated
amended complaint on February 8, 2008 that did not name us as a
defendant.
Three purported class action Flash
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
Flash cases filed in the United States.
On May 5, 2004, Rambus filed a
complaint in the Superior Court of the State of California (San Francisco
County) against us and other DRAM suppliers. The complaint alleges
various causes of action under California state law including conspiracy to
restrict output and fix prices on Rambus DRAM ("RDRAM"), and unfair
competition. The complaint seeks treble damages, punitive damages,
attorneys' fees, costs, and a permanent injunction enjoining the defendants from
the conduct alleged in the complaints.
We are unable to predict the outcome of
these lawsuits and investigations. The final resolution of these
alleged violations of antitrust laws could result in significant liability and
could have a material adverse effect on our business, results of operations or
financial condition.
Allegations
of violations of securities laws.
On February 24, 2006, a putative class
action complaint was filed against us and certain of our officers in the U.S.
District Court for the District of Idaho alleging claims under Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of our stock during the period
February 24, 2001 to February 13, 2003. The five lawsuits have been
consolidated and a consolidated amended class action complaint was filed on July
24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys' fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of our stock during the
period from February 24, 2001 to September 18, 2002.
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 and was subsequently dismissed by the Court. Another
amended complaint was filed on September 6, 2007. The amended
complaint is based on the same allegations of fact as in the securities class
actions filed in the U.S. District Court for the District of Idaho and alleges
breach of fiduciary duty, abuse of control, gross mismanagement, waste of
corporate assets, unjust enrichment, and insider trading. The amended
complaint seeks unspecified damages, restitution, disgorgement of profits,
equitable and injunctive relief, attorneys' fees, costs, and
expenses. The amended complaint is derivative in nature and does not
seek monetary damages from 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 January 25, 2008, the Court
granted our motion to dismiss seconded amended complaint without leave to
amend. On March 10, 2008, plaintiffs filed a notice of appeal to the
Idaho Court of Appeals.
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.
Economic
conditions may harm our business.
Economic and business conditions,
including a downturn in the semiconductor memory industry or the overall economy
could adversely affect our business. Adverse conditions may affect
consumer demand for devices that incorporate our products such as mobile phones,
personal computers, Flash memory cards and USB devices. Reduced
demand for our products could result in market oversupply and significant
decreases in our selling prices. As a result, our business, results
of operations or financial condition could be materially adversely
affected.
We
face risks associated with our international sales and operations that could
materially adversely affect our business, results of operations or financial
condition.
Sales to customers outside the United
States approximated 72% of our consolidated net sales for the third quarter of
2008. In addition, we have manufacturing operations in China, Italy,
Japan, Puerto Rico and Singapore. Our international sales and
operations are subject to a variety of risks, including:
·
|
currency
exchange rate fluctuations;
|
·
|
export
and import duties, changes to import and export regulations, and
restrictions on the transfer of
funds;
|
·
|
political
and economic instability;
|
·
|
problems
with the transportation or delivery of our
products;
|
·
|
issues
arising from cultural or language differences and labor
unrest;
|
·
|
longer
payment cycles and greater difficulty in collecting accounts receivable,
and
|
·
|
compliance
with trade and other laws in a variety of
jurisdictions.
|
These factors may materially adversely
affect our business, results of operations or financial condition.
If
our manufacturing process is disrupted, our business, results of operations or
financial condition could be materially adversely affected.
We manufacture products using highly
complex processes that require technologically advanced equipment and continuous
modification to improve yields and performance. Difficulties in the
manufacturing process or the effects from a shift in product mix can reduce
yields or disrupt production and may increase our per gigabit manufacturing
costs. Additionally, our control over operations at our IM Flash,
TECH and MP Mask joint ventures may be limited by our agreements with our
partners. From time to time, we have experienced minor disruptions in
our manufacturing process as a result of power outages, improperly functioning
equipment and equipment failures. If production at a fabrication
facility is disrupted for any reason, manufacturing yields may be adversely
affected or we may be unable to meet our customers' requirements and they may
purchase products from other suppliers. This could result in a
significant increase in manufacturing costs or loss of revenues or damage to
customer relationships, which could materially adversely affect our business,
results of operations or financial condition.
Disruptions
in our supply of raw materials could materially adversely affect our business,
results of operations or financial condition.
Our operations require raw materials
that meet exacting standards. We generally have multiple sources of
supply for our raw materials. However, only a limited number of
suppliers are capable of delivering certain raw materials that meet our
standards. Various factors could reduce the availability of raw
materials such as silicon wafers, photomasks, chemicals, gases, lead frames and
molding compound.
Shortages may occur from time to time
in the future. In addition, disruptions in transportation lines could
delay our receipt of raw materials. Lead times for the supply of raw
materials have been extended in the past. If our supply of raw
materials is disrupted or our lead times extended, our business, results of
operations or financial condition could be materially adversely
affected.
Products
that fail to meet specifications, are defective or that are otherwise
incompatible with end uses could impose significant costs on us.
Products that do not meet
specifications or that contain, or are perceived by our customers to contain,
defects or that are otherwise incompatible with end uses could impose
significant costs on us or otherwise materially adversely affect our business,
results of operations or financial condition.
Because the design and production
process for semiconductor memory is highly complex, it is possible that we may
produce products that do not comply with customer specifications, contain
defects or are otherwise incompatible with end uses. If, despite
design review, quality control and product qualification procedures, problems
with nonconforming, defective or incompatible products occur after we have
shipped such products, we could be adversely affected in several ways, including
the following:
·
|
we
may replace product or otherwise compensate customers for costs incurred
or damages caused by defective or incompatible product,
and
|
·
|
we
may encounter adverse publicity, which could cause a decrease in sales of
our products.
|
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
During the third quarter of 2008, the
Company acquired, as payment of withholding taxes in connection with the vesting
of restricted stock and restricted stock unit awards, 5,709 shares of its common
stock at an average price per share of $6.85. In the third quarter of
2008, the Company retired the 5,709 shares acquired in the third quarter of
2008.
Period
|
|
(a)
Total number of shares purchased
|
|
|
(b)
Average price paid per share
|
|
|
(c)
Total number of shares (or units) purchased as part of publicly announced
plans or programs
|
|
|
(d)
Maximum number (or approximate dollar value) of shares (or units) that may
yet be purchased under the plans or programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
29, 2008 – April 3, 2008
|
|
|
2,770 |
|
|
$ |
5.61 |
|
|
|
N/A |
|
|
|
N/A |
|
April
4, 2008 – May 1, 2008
|
|
|
369 |
|
|
|
6.76 |
|
|
|
N/A |
|
|
|
N/A |
|
May
2, 2008 – May 29, 2008
|
|
|
2,570 |
|
|
|
8.20 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
5,709 |
|
|
|
6.85 |
|
|
|
|
|
|
|
|
|
Item
6. Exhibits
|
Exhibit
|
|
|
|
Number
|
|
Description
of Exhibit
|
|
|
|
|
|
3.1
|
|
Restated
Certificate of Incorporation of the Registrant (1)
|
|
3.2
|
|
Bylaws
of the Registrant, as amended (2)
|
|
10.51
|
|
Master
Agreement, dated as of April 21, 2008, by and between Nanya Technology
Corporation and Micron Technology, Inc.*
|
|
10.52
|
|
Joint
Venture Agreement, dated as of April 21, 2008, by and between Micron
Semiconductor B.V. and Nanya Technology Corporation*
|
|
10.53
|
|
Supply
Agreement, dated as of June 6, 2008, by and among Micron Technology, Inc.,
Nanya Technology Corporation and MeiYa Technology
Corporation*
|
|
10.54
|
|
Joint
Development Program Agreement, dated as of April 21, 2008, by and between
Nanya Technology Corporation and Micron Technology,
Inc.*
|
|
10.55
|
|
Technology
Transfer and License Agreement for 68-50nm Process Nodes, dated as of
April 21, 2008, by and between Micron Technology, Inc. and Nanya
Technology Corporation*
|
|
10.56
|
|
Technology
Transfer and License Agreement, dated as of April 21, 2008, by and between
Micron Technology, Inc. and Nanya Technology
Corporation*
|
|
10.57
|
|
Technology
Transfer Agreement for 68-50nm Process Nodes, dated as of May 13, 2008, by
and between Micron Technology, Inc. and MeiYa
Corporation*
|
|
10.58
|
|
Technology
Transfer Agreement, dated as of May 13, 2008, by and among Nanya
Technology Corporation, Micron Technology, Inc. and MeiYa Technology
Corporation*
|
|
10.59
|
|
Services
Agreement, dated as of June 6, 2008, by and between Nanya Technology
Corporation and MeiYa Technology Corporation
|
|
10.60
|
|
Micron
Guaranty Agreement, dated April 21, 2008, by and between Nanya Technology
Corporation and Micron Semiconductor B.V.
|
|
10.61
|
|
TECH
Facility Agreement, dated March 31, 2008, among TECH Semiconductor
Singapore Pte. Ltd. and ABN Amro Bank N.V., Citibank, N.A., Singapore
Branch, Citigroup Global Markets Singapore Pte Ltd., DBS Bank Ltd and
Oversea-Chinese Banking Corporation Limited, as Original Mandated Lead
Arrangers
|
|
10.62
|
|
Guarantee,
dated March 31, 2008, by Micron Technology, Inc. as Guarantor in favor of
ABN Amro Bank N.V., Singapore Branch acting as Security
Trustee
|
|
31.1
|
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
31.2
|
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350
|
|
|