MU

Micron Technology Inc. 10-K Summary (Fiscal Year Ended Aug 29, 2002)

Business Context and Reporting Period

This Annual Report on Form 10-K covers the fiscal year ended August 29, 2002. Micron Technology, Inc. is a leading global designer, developer, manufacturer, and marketer of semiconductor products, primarily Dynamic Random Access Memory (DRAM). DRAM sales represented approximately 95% of net sales in 2002. The company operates manufacturing facilities in the U.S., Italy, Japan, Singapore, and Scotland. A significant event during the period was the acquisition of Toshiba Corporation's DRAM operations in Virginia for $328 million on April 22, 2002.

Key Financial Metrics

Liquidity: Net cash provided by operating activities was $578.1 million in 2002, heavily influenced by $547 million in income tax refunds. Capital expenditures totaled $760 million.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 34% to $2.59 billion, driven primarily by a 53% decline in average selling prices (ASP) for semiconductor products, despite a 45% increase in total megabits sold.
• Profitability Collapse: The company recorded a negative gross margin of $(110.6) million, compared to a positive $110.7 million in 2001. This was caused by ASPs falling below manufacturing costs and significant inventory write-downs.
• Inventory Write-downs: Charges to cost of goods sold for inventory write-downs totaled $376 million in 2002 (compared to $727 million in 2001). Approximately $174 million of this occurred in the fourth quarter.
• Tax Provision: A $348 million charge was recorded to establish a valuation allowance against U.S. deferred tax assets due to recent losses.
• Acquisition: The company acquired Toshiba's DRAM assets, adding capacity but incurring integration costs and higher per-megabit costs in the short term.

Guidance, Outlook, Risks, and Contingencies

Outlook and Guidance: Management expects capital spending in 2003 to range between $800 million and $1.2 billion. The company anticipates transitioning to .13-micron and .11-micron process technologies in 2003 and expects DDR SDRAMs to be its primary product type. Gross margins on products from the TECH joint venture are expected to be higher than wholly-owned facilities in Q1 2003 due to pricing dynamics.

Key Risks and Contingencies:

• Antitrust Investigation: The company received a grand jury subpoena from the DOJ regarding possible antitrust violations in the DRAM industry. Subsequent class-action lawsuits alleging price-fixing have been filed, seeking treble damages.
• Intellectual Property Litigation: Ongoing litigation with Rambus, Inc. in the U.S. and Europe regarding patent infringement. An adverse ruling could result in significant liability or require product changes.
• Joint Venture Financing: The TECH joint venture's credit facility expires in December 2003. Failure to secure financing could disrupt supply, as TECH provides approximately 20% of Micron's memory production.
• Market Volatility: The semiconductor memory industry is characterized by volatile pricing. If ASPs remain below manufacturing costs, the company expects to continue incurring losses.

Investor Verification Checklist

• Inventory Valuation: Verify the remaining inventory write-downs estimated at $240 million as of August 29, 2002, and the assumption that 50% will remain in inventory by Q1 2003.
• Antitrust Exposure: Monitor the status of the DOJ investigation and the consolidation of class-action lawsuits for potential liability estimates.
• TECH Joint Venture: Confirm the status of TECH's external financing efforts required before December 2003 to ensure supply continuity.
• Tax Asset Realizability: Assess the likelihood of utilizing the $1.3 billion in U.S. net operating loss carryforwards to reverse the valuation allowance.
• Product Transition: Track the ramp-up of the newly acquired Virginia facility and the transition to DDR SDRAMs to ensure cost parity with other facilities.