MU

Micron Technology, Inc. 10-K Summary (Fiscal Year Ended August 30, 2001)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended August 30, 2001. Micron Technology, Inc. is a leading global designer, developer, manufacturer, and marketer of semiconductor memory products, primarily Dynamic Random Access Memory (DRAM). The reporting period was significantly impacted by a severe downturn in the semiconductor memory market, characterized by a precipitous decline in average selling prices (ASPs) and weak industry demand. The Company also completed the disposition of its PC Operations (discontinued operations) and the Interland Merger, which reduced its ownership interest in Interland, Inc. to 43% before contributing those shares to the Micron Technology Foundation.

Key Financial Metrics

Segment Performance: Semiconductor Operations generated $3,882.6 million in sales but incurred an operating loss of $920.8 million. Web-hosting Operations (Interland) contributed $53.0 million in sales with an operating loss of $56.1 million.

Material Changes vs. Prior Period

• Revenue Collapse: Net sales declined 38% year-over-year. While megabit shipments increased by approximately 50%, average selling prices for semiconductor memory products fell by approximately 60% for the full year and 85% in the fourth quarter compared to the prior year.
• Inventory Write-Downs: Due to ASPs falling below manufacturing costs, the Company recorded significant charges to write down work-in-process and finished goods inventories. Charges totaled $466 million in Q4 2001 and $261 million in Q3 2001.
• Discontinued Operations: The Company disposed of its PC Operations in May 2001. The net loss from discontinued operations was $103.8 million in 2001, compared to $43.5 million in 2000.
• Interland Merger and Contribution: Following the merger of Micron Electronics, Inc. (MEI) with Interland, Inc., the Company contributed its remaining 43% equity interest in Interland to the Micron Technology Foundation. This resulted in a $94.1 million charge in SG&A and a $92.4 million non-operating charge to write down the investment to market value.
• Debt Reduction: Long-term debt decreased significantly due to the conversion of $740 million in 6.5% convertible subordinated notes into equity in Q1 2001.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Guidance: Management states that average selling prices are currently below manufacturing costs. If prices do not improve to exceed costs, the Company expects to continue recording significant losses. The Company anticipates capital spending of approximately $1 billion in 2002. If market conditions do not improve and external financing is unavailable, the Company may be required to adopt cash conservation measures, including workforce reductions and capital spending cuts.

Key Risks:

• Pricing Volatility: The semiconductor memory industry is highly competitive with volatile pricing. Increased worldwide supply and the transition to 300mm wafers by competitors could further depress prices.
• Legal Proceedings: The Company is engaged in significant litigation with Rambus, Inc. regarding patent infringement and antitrust violations in the U.S., Germany, France, the U.K., and Italy. An adverse outcome could result in significant liability or require material changes to products.
• Liquidity: Liquidity is highly dependent on ASPs. The Company relies on cash flow from operations and external financing (including a $480 million warrant issuance in Q4 2001) to fund operations and capital expenditures.
• Joint Venture Risk: The Company relies on TECH Semiconductor Singapore for approximately 25% of its megabit production. TECH requires external financing to continue operations; failure to secure this could interrupt supply.

Unusual Items: The financial results include non-recurring charges related to the Interland contribution ($186.5 million total impact), inventory write-downs ($726.9 million total), and write-offs related to the Lehi facility ($44.2 million).

Investor Verification Checklist

• Inventory Valuation: Verify the adequacy of the $726.9 million inventory write-down and the remaining carrying value of $491.1 million in light of continuing price declines.
• Liquidity Position: Assess the sufficiency of the $1.68 billion cash and liquid investment balance against the $1 billion expected capital spending for 2002 and ongoing operating losses.
• Rambus Litigation: Monitor the status of the multi-jurisdictional patent litigation with Rambus, Inc., as a loss could impose significant royalties or injunctions.
• TECH Joint Venture: Confirm the financial stability of TECH Semiconductor Singapore and its ability to secure necessary financing to maintain supply.
• Discontinued Operations: Review the final settlement of the PC Operations disposal and any remaining contingent liabilities.