UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K
(Mark One) 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 28, 2008September 3, 2009

OR

oTRANSITION 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)

Delaware75-1618004
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
  
8000 S. Federal Way, Boise, Idaho83716-9632
(Address of principal executive offices)(Zip Code)
  
Registrant’s telephone number, including area code(208) 368-4000
  
Securities registered pursuant to Section 12(b) of the Act:
  
Title of each className of each exchange on which registered
Common Stock, par value $.10 per shareNew York Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x   No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ¨   No  x

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨   No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨x

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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  ¨   No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of such stock on February 28, 2008,March 5, 2009, as reported by the New York Stock Exchange, was approximately $3.6$1.4 billion.  Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of outstanding shares of the registrant’s common stock as of October 17, 2008,20, 2009, was 763,759,118.849,823,817.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for registrant’s 20082009 Annual Meeting of Shareholders to be held on December 11, 2008,10, 2009, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


PART I

Item 1.  Business

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 the costs and impact of restructure plans, the Company’s DRAM development costs relative to Nanya, royalty payments from Inotera production, capital commitments forNanya, Inotera’s transition to the Company’s joint venturesstack process technology and gross margins from the Company’s imaging wafer supply agreement with Nanya Technology Corporation, the supply of DRAM wafers from Inotera Memories, Inc. and manufacturing plans for CMOS image sensors;Aptina; in “Products” regarding new product offerings in 2009, increased sales of DDR3 DRAM products and growth in demand for NAND Flash products and solid-state drives, and market growth for CMOS image sensors;drives; and in “Manufacturing” regarding the transition to smaller line-width process technologies and Inotera’s transition to the supply of DRAM wafers from Inotera Memories, Inc .Company’s stack process technology.  The Company’s actual results could differ materially from the Company’s historical results and those discussed in the forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Item 1A. Risk Factors.” All period references are to the Company’s fiscal periods unless otherwise indicated.


Corporate Information

Micron Technology, Inc., and its consolidated subsidiaries (hereinafter referred to collectively as the “Company”), a Delaware corporation, was incorporated in 1978.  The Company’s executive offices are located at 8000 South Federal Way, Boise, Idaho 83716-9632 and its telephone number is (208) 368-4000.  Information about the Company is available on the internet at www.micron.com.  Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to these reports, are available through the Company’s website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).  Materials filed by the Company with the SEC are also available at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.  Information on the operation of the Public Reference Room is available by calling 1-800-SEC-0330.  Also available on the Company’s website are its:  Corporate Governance Guidelines, Governance Committee Charter, Compensation Committee Charter, Audit Committee Charter and Code of Business Conduct and Ethics.  Any amendments or waivers of the Company’s Code of Business Conduct and Ethics will also be posted on the Company’s website at www.micron.com within four business days of the amendment or waiver.  Copies of these documents are available to shareholders upon request.  Information contained or referenced on the Company’s website is not incorporated by reference and does not form a part of this Annual Report on Form 10-K.  In January 2008,2009, the Company’s Chief Executive Officer certified to the New York Stock Exchange that he was not aware of any violation by the Company of the NYSE’s Corporate Governance Listing Standards.


Overview

The Company is a global manufacturer and marketer of semiconductor devices, principally DRAM and NAND Flash memory andmemory.  In addition, the Company manufactures CMOS image sensors.sensor products under a wafer foundry arrangement.  The Company’s products are offered in a wide variety of package and configuration options, architectures and performance characteristics tailored to meet application and customer needs.  Individual devices take advantage ofleverage the Company’s advanced semiconductor processing technology and manufacturing expertise.  The Company aims to continually introduce new generations of products that offer lower costs per unit and improved performance characteristics.  The Company operates in two reportable segments, Memory and Imaging.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Segment Information.”)

In 2009, 2008 and 2007, the semiconductor memory industry experienced a severe downturn due to a significant oversupply of products.  The downturn was exacerbated by global economic conditions which adversely affected demand for semiconductor memory products.  Average selling prices per gigabit for the Company’s DRAM products and NAND Flash products indeclined 52% and 56%, respectively, for 2009 as compared to 2008 were down approximately 50%after declining 51% and 65%67%, respectively, for 2008 as compared to 2007 and down approximately 65%declining 23% and 85%56%, respectively, for 2007 as compared to 2006.  These declines significantly outpaced the long-term historical pricing trend.  As a result of these market conditions, the Company and other semiconductor memory manufacturers have reported negative gross margins and substantial losses in recent periods.  In 2008,2009, the Company reported a net loss of $1.8 billion after reporting net losses of $1.6 billion for 2008 and many of its competitors reported negative cash flows from operations.  In response to these market conditions, on October 9, 2008 the Company announced a plan to restructure its memory operations.  The Company’s IM Flash joint venture with Intel Corporation (“Intel”) will discontinue its production of 200mm wafer NAND flash memory products at Micron’s Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  In addition, the Company and Intel agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication plant.  As part of this restructuring, the Company plans to reduce its global workforce by approximately 15 percent during 2009 and 2010.  Cash costs$320 million for restructuring and other related expenses2007.

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incurred in connection with this restructuring are anticipated to be approximately $60 million, and the benefit to the Company’s cash operating results for 2009 is expected to exceed $175 million.

The effects of the worsening global economy and the tightening credit market are also making it increasingly difficult for semiconductor memory manufacturers to obtain external sources of financing to fund their operations.  Although the Company believes that it is better positioned than some of its peers, it faces challenges in the current and near term that require it to continue to make significant improvements in its competitiveness.  The Company is pursuing financing alternatives, delaying capital expenditures and implementing further cost-cutting initiatives.

Memory:  The Memory segment’s primary products are DRAM and NAND Flash, which are key memory components used in a broad array of electronic applications, including personal computers, workstations, network servers, mobile phones, Flash memory cards, USB storage devices, MP3/4 players and other consumer electronics products.  The Company sells primarily to original equipment manufacturers, distributors and retailers located around the world.

The Company is focused on improving its Memory segment’s competitiveness by developing new products, advancing its technology and reducing costs.

In response to adverse market conditions, the Company initiated restructure plans in 2009, primarily within the Company’s Memory segment.  In the first quarter of 2009, IM Flash, a joint venture between the Company and Intel Corporation (“Intel”), terminated its agreement with the Company to obtain NAND Flash memory supply from the Company’s Boise facility, reducing the Company’s NAND Flash production by approximately 35,000 200mm wafers per month.  The Company and Intel also agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication facility.  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 300mmphased out all remaining 200mm DRAM wafer fabrication.manufacturing operations in Boise, Idaho in the second half of 2009.

In the third quarter of 2008, the Company andestablished a partnering arrangement with Nanya Technology Corporation (“Nanya”) formed MeiYa, a joint venturepursuant to manufacture stack DRAM products and sell those products exclusively towhich the Company and Nanya.  As part of this transaction, the Company transferred and licensed certain intellectual property to Nanya and licensed certain intellectual property from Nanya.  The Company and Nanya also agreed to jointly develop process technology and designs to manufacture stack DRAM products with eachproducts.  Each party bearinggenerally bears its own development costs until such time thatcosts.  In addition, the development costs exceedCompany has deployed and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya.  As a specified amount, following which such costs would be shared.  The Company’s development costs are expected to exceed Nanya’s development costs by a significant amount.  Under this arrangement,result, the Company is to receive an aggregate of $232$207 million from Nanya and MeiYa through 2010, for licensing and technology transfer fees, of which the Company realized $40recognized license revenue of $105 million of revenueand $37 million in 2008.  The2009 and 2008, respectively.  In addition, the Company will alsoexpects to receive royalties in future periods from Nanya on the salefor sales of stack DRAM products manufactured by or for Nanya.

On October 12, 2008,In the first quarter of 2009, the Company announced that it had entered into an agreement to acquire Qimonda AG’s 35.6%acquired a 35.5% ownership stakeinterest in Inotera Memories, Inc. (“Inotera”), a Taiwanesepublicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for $398 million.  In August 2009, the Company’s ownership interest in Inotera was reduced to 29.8% as a result of Inotera’s issuance of common stock in a public offering for approximately $310 million.  In connection with the acquisition of the shares in Inotera, the Company and Nanya also entered into a supply agreement with Inotera (the “Inotera Supply Agreement”) pursuant to which Inotera will sell trench and stack DRAM memory manufacturer, for $400 million in cash.products to the Company and Nanya.  The Company received commitmentshas rights and obligations to purchase up to 50% of Inotera’s wafer production capacity.  Inotera’s actual wafer production will vary from time to time based on market and other conditions.   Inotera charges the Company and Nanya for $285 milliona portion of term loans to fund this acquisition in part.  Inoterathe costs associated with its underutilized capacity, if any.  Inotera’s trench production is expected to implementtransition to the Company’s stack DRAM process technology, and it is anticipated thattechnology.  The cost to the Company will receive royaltiesof wafers purchased under the Inotera Supply Agreement is based on Inotera’s production that is delivered to Nanya, a 35.6% stakeholder in Inotera.  The Company will eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s output.   In connection with this acquisition,margin sharing formula among the Company, expectsNanya and Inotera.  Under such formula, all parties’ manufacturing costs related to enter into a serieswafers supplied by Inotera, as well as the Company’s and Nanya’s selling prices for the resale of agreements with Nanya to restructure MeiYa.  It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources toproducts from wafers supplied by Inotera, are considered in determining costs for wafers from Inotera.   (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesSupplemental Balance Sheet Information – Equity Method Investments – DRAM Joint Venturesjoint ventures with Nanya Technology Corporation.”Nanya”)

Imaging:  On July 10, 2009, the Company sold a 65% interest in Aptina Imaging Corporation (“Aptina”), previously a wholly-owned subsidiary of the Company and a significant component of the Company’s Imaging segment, to Riverwood Capital and TPG Capital.  In connection with the transaction, the Company received approximately $35 million in cash and retained a 35% minority interest in Aptina.  The Company also retained all cash held by Aptina and its subsidiaries.  The Company accounts for its remaining interest in Aptina under the equity method.  The Company’s Imaging segment operatescontinues to manufacture products for Aptina under a wafer supply agreement.  The Company anticipates that pricing under the Aptina brand name.  Imaging’s primarywafer supply agreement will generally result in lower gross margins than historically realized on sales of Imaging products are CMOS image sensors, which are key components used in a broad array of electronic applications, including mobile phones, digital still cameras, webcams and other consumer, security and automotive applications.  The Company’s primary customers are camera module integrators located around the world.  The Company is exploring partnering arrangements with outside parties regarding the separation of its Aptina imaging business to an independent entity in which the Company would retain a significant minority ownership interest.  To that end the Company began operating its Imaging business as a separate wholly-owned subsidiary in October 2008.  Under the arrangements being considered, the Company expects that it will continuecustomers.  (See “Item 8. Financial Statements – Notes to manufacture CMOS image sensors for some period of time.Consolidated Financial Statements – Supplemental Balance Sheet Information – Equity Method Investments - Aptina”)


Products

Memory:  The Company’s Memory segment has two primary product types:  DRAM and NAND Flash.  Sales of Memory products were 89%, 88%89% and 86%88% of the Company’s total net sales in 2009, 2008 and 2007, and 2006, respectively.


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Dynamic Random Access Memory (“DRAM”):  DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage and retrieval.  DRAM products were 54%50%, 65%54% and 76%65% of the Company’s total net sales in 2009, 2008 2007 and 2006,2007, respectively.  The Company offers DRAM products with a variety of performance, pricing and other characteristics including high-volume DDR2 and DDR3 products as well as specialty DRAM memory products including DDR, SDRAM, Mobile DRAM, PSRAM and PSRAM.RLDRAM.

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DDR2 and DDR3:  DDR2 and DDR3 are standardized, high-density, high-volume DRAM products that are sold primarily for use as main system memory in computers and servers.  DDR2 and DDR3 products offer high speed and high bandwidth at a relatively low cost compared to other DRAM products.  DDR2 products were the highest volume parts in the DRAM market in 20082009 and were 28%22%, 32%28% and 25%32% of the Company’s total net sales in 2009, 2008 and 2007, and 2006, respectively.  The Company began volume production of  DDR3 products were 7% of total net sales in 20082009 and the Company expects that sales of theseDDR3 products will increase significantly in 2009.2010.

The Company offers DDR2 products in 256 megabit (“Mb”), 512 Mb, 1 Gbgigabit (“Gb”) and 2 Gb densities.  The Company offers DDR3 products in 1 Gb and 2 Gb densities.  The Company expects that these densities will be necessary to meet future customer demands for a broad array of products.  The Company also offers its DDR2 and DDR3 products in multiple configurations, speeds and package types.  In connection with the Company’s acquisition of Inotera in 2009, the Company currently also offers DDR2 and DDR3 DRAM products manufactured by Inotera using a trench DRAM technology as Inotera transitions to the Company’s stack DRAM technology.

DDR:Other DRAM products:  In 2008,The Company also offers specialty DRAM memory products including DDR, wasSDRAM, Mobile DRAM, Pseudo-static RAM (“PSRAM”) and Reduced Latency DRAM (“RLDRAM”), which are used primarily used in networking devices, servers, consumer electronics, communications equipment and computer peripherals as well as memory upgrades to legacy computers.  SalesAggregate sales of DDRthese products were 9%21%, 15%25% and 26%33% of the Company’s total net sales in 2009, 2008 and 2007, and 2006, respectively.  DDR sales have declined as personal computer manufacturers have transitioned to DDR2 and DDR3 products.  The Company offers 128 Mb, 256 Mb and 512 Mb and 1 Gb DDR products.

Synchronous DRAM (“SDRAM”):  In 2008, 2007 and 2006, SDRAM was primarily used in networking devices, servers, consumer electronics, communications equipment and computer peripherals as well as memory upgrades to legacy computers.  Sales of SDRAM products were 9%, 11% and 16% of the Company’s total net sales in 2008, 2007 and 2006, respectively.  SDRAM sales have declined as personal computer manufacturers have transitioned to DDR and DDR2 products.  The decline has been partially offset by increased usage of SDRAMthese products in other applications.  The Company offersdensities ranging from 64 Mb 128 Mb, 256 Mb and 512 Mb SDRAM products.

Other Specialty DRAM Memory Products:  The Company also offers other specialty memory products including Mobile DRAM, Pseudo-static RAM (“PSRAM”) and Reduced Latency DRAM (“RLDRAM”).  Mobile DRAM products are specialty DRAM memory devices designed for applications that demand minimal power consumption, such as personal digital assistants (PDAs), smart phones, GPS devices, digital still cameras and other handheld electronic devices.  The Company sells SDRAM and DDR mobile memory products in 64 Mb, 128 Mb, 256 Mb, 512 Mb and 1Gb densities.  The Company’s mobile DRAM products feature its proprietary Endur-IC™ technology, which the Company believes provides distinct advantages to its customers in terms of low power, high quality and high reliability.  PSRAM products, marketed by the Company under the proprietary brand name CellularRAM™, are DRAM products with an SRAM-like interface.  PSRAM combines the minimal power consumption of SRAM with a much lower cost-per-bit to provide an economical alternative to SRAM.  PSRAM products are used primarily in cellular phone applications.  RLDRAM products are low-latency DRAM memory devices with high clock rates targeted at network applications.1Gb.

NAND Flash Memorymemory (“NAND”):  NAND products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off.  NAND sales were 35%39%, 23%35% and 6%23% of the Company’s total net sales in 2009, 2008 2007 and 2006,2007, respectively.  NAND is ideal for mass-storage devices due to its fasterfast erase and write times, higherhigh density, and lowerlow cost per bit than NOR Flash, which is the primary competing Flash architecture.relative to other solid-state memory.  The market for NAND products has grown rapidly and the Company expects it to continue to grow due to demand for removable and embedded storage devices.  Removable storage devices such as USB and Flash memory cards are used with applications such as personal computers, digital still cameras, MP3/4 players and mobile phones.  Embedded NAND-based storage devices are utilized in MP3/4 players, mobile phones, computers and other personal and consumer applications.


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NAND and DRAM share common manufacturing processes, enabling the Company to leverage its product and process technologies and manufacturing infrastructure across these two product lines.  The Company’s NAND designs feature a small cell structure that allows for higher densities for demanding applications.  The Company offers Single-Level Cell (“SLC”) products and Multi-Level Cell (“MLC”) NAND products, which have doubletwo or more times the bit density of SLC products.  In 2008,2009, the Company offered SLC NAND products in 1 Gb, 2 Gb, 4 Gb and 48 Gb densities.  In 2008,2009, the Company offered 8 Gb, 16 Gb and 1632 Gb 2-bit-per-cell MLC NAND products and began sampling 3-bit-per-cell 32 Gb MLC NAND products.  In 2008, the Company began sampling2009, 32 Gb MLC NAND products manufactured using industry-leading 34 nanometer (“nm”) process technology.  In 2008,technology were 14% of the Company’s total net sales.  The Company announced development of newoffers high-speed NAND products that can reachdeliver transfer speeds up to 200 megabytes per second (MB/s) for reading data and 100 MB/s for writing data as compared to 40 MB/s for reading data and less than 20 MB/s for writing data conventional SLC NAND.  The highThese higher speeds are achieved by leveraging the newan ONFI 2.0 specification and a four-plane architecture with higher clock speeds.  In 2008, the

The Company introducedoffers next-generation RealSSD™ solid-state drives for enterprise server and notebook applications which offer higher performance, reduced power consumption and enhanced reliability as compared to typical hard disk drives.  Using Micron's SLC and MLC NAND process technology, the solid-state drives will beare offered in 2.5-inch and 1.8-inch form factors, with densities up to 256 gigabytes for the 2.5 inch form factor and from 32 gigabytesas embedded USB devices with densities up to 128 gigabytes in the 1.8-inch form factor.8 gigabytes.  The Company expects that demand for solid-state drives will increase significantly over the next few years.  The Company also offers NAND Flash in multichip packages (“MCP’s”) that incorporate NAND Flash with other memory products manufactured by the Company to create a single package that simplifies design while improving performance and functionality.


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The Company’s Lexar subsidiary sells high-performance digital media products and other flash-based storage products through retail and original equipment manufacturing (OEM) channels.  The Company’s digital media products include a variety of Flash memory cards with a range of speeds, capacities and value-added features.  The Company’s digital media products also include its JumpDrive™ products, which are high-speed, portable USB flash drives for consumer applications that serve a variety of uses, including floppy disk replacement and digital media accessories such as card readers and image rescue software.  The Company offers Flash memory cards in all major media formats currently used by digital cameras and other electronic host devices, including:  CompactFlash, Memory Stick and Secure Digital Cards.  Many of CompactFlash, Memory Stick and Memory Stick PRO products sold by the Company incorporate its patented controller technology.  Other products, including Secure Digital Card Flash memory cards and some JumpDrive products, incorporate third party controllers.  The Company also resells Flash memory products that are purchased from suppliers.  The Company offers Flash memory cards in a variety of speeds and capacities.  The Company sells products under its Lexar™ brand and also manufactures products that are sold under other brand names.  The Company has a multi-yearan agreement with Eastman Kodak to sell digital media products under the Kodak brand name.

Imaging:  Complementary Metal-Oxide Semiconductor (“CMOS”) image sensors are the primary product of the Company’s Imaging segment.  CMOS image sensors are semiconductor devices that capture and process images into pictures or video for a variety of consumer and industrial applications.  The Company’s CMOS image sensors are used in products such as cellular phone cameras, digital still cameras, pill cameras for medical use, and in automotive and other emerging applications.  The Company offers image sensors in a range of pixel resolutions from its VGA (video graphics array) products to its higher resolution 9-megapixel products.  The Company manufactures a number of CMOS image sensors featuring an advanced pixel size of 1.4 square microns that enables a smaller form factor product.  Image sensors are sold either as individual components or combined with integrated circuitry to create complete camera system-on-a-chip (“SOC”) solutions.

The Company’s CMOS image sensors incorporate its DigitalClarity™ technology, featuring “active pixels” that enable better sensor performance that produces higher-quality images at faster frame rates.  The Company’s CMOS image sensors’ active-pixel design architecture enabled the Company to achieve CMOS image sensor performance thatproducts for Aptina under a wafer supply agreement entered into at the time the Company agreed to sell a 65% interest in 2008 was comparableAptina on July 10, 2009.  Imaging sales are dependent on Aptina’s ability to high-end CCD sensors.  The Company’ssuccessfully design and market CMOS image sensors consume substantially less power than CCD devices, providing an advantage in battery-dependent portable device applications where most image sensors are used.  By combining all camera functions on a single chip, from the capture of photonssensor products to the output of digital bits, CMOS image sensors reduce the part-count of a digital camera system, which in turn increases reliability, eases miniaturization, and enables on-chip programming of frame size, windowing, exposure and other camera parameters.  The Company’s CMOS image sensors are also capable of producing high-quality images in low-light conditions.  The Company’s low-leakage DRAM processes are particularly well-suited for the manufacture of CMOS image sensors.end customers.

The Company conducts its Imaging operations under the Aptina brand name.  Sales of Imaging products were 11%, 12% and 14% of the Company’s total net sales in 2008, 2007 and 2006, respectively.  The overall market for image sensors is expected to increase over the next several years due to the growth forecasted for applications such as phone cameras and digital still cameras.  CMOS image sensors are also expected to capture an increasing percentage of the overall image sensor market.



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Manufacturing

The Company’s manufacturing facilities are located in the United States, China, Italy, Japan, Puerto Rico and Singapore.  The Company’s Inotera joint venture also has a wafer fabrication facility in Taiwan.  The Company’s manufacturing facilities generally operate 24 hours per day, 7 days per week.  Semiconductor manufacturing is extremely capital intensive, requiring large investments in sophisticated facilities and equipment.  Most semiconductor equipment must be replaced every three to five years with increasingly advanced equipment.

The Company’s process for manufacturing semiconductor products is complex, involving a number of precise steps, including wafer fabrication, assembly and test.  Efficient production of semiconductor products requires utilization of advanced semiconductor manufacturing techniques and effective deployment of these techniques across multiple facilities.  The primary determinants of manufacturing cost are die size, number of mask layers, number of fabrication steps and number of good die produced on each wafer.  Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type and cleanliness of the manufacturing environment.  The Company is continuously enhancing its production processes, reducing die sizes and transitioning to higher density products.  In 2008, theThe Company manufacturedwas transitioning its DRAM production to 50nm line-width process technology in 2009 and expects that most of its DRAM products will be manufactured using its 78nm and 68nm line-width process technology and began transferring its DRAM production to 58nm line-width process technology.  The Company expects to continue to transfer more of its DRAM production to 58nm50nm line-width process technology in 2009.the second half of 2010.  In 2008,2009, the Company manufactured mostthe majority of its NAND Flash memory products using its 50nm line-width process technology and began transferring its NAND production to 34nm line-width process technology.  The Company expects that in 2009 the majority of its NAND Flash memory products will be manufactured using its 34nm line-width process technology.  In 2008 and 2007,2010, the Company significantly increasedexpects to transition to a lower line-width process technology for its manufacture of NAND Flash memory products.  In 2009, the Company manufactured substantially all of its high-volume Memory products on 300mm wafer production as IM Flash ramped production at two 300mm wafer fabrication facilitieswafers.  The Company manufactured some specialty DRAM and the Company’s TECH joint venture converted its DRAM production to 300mmImaging products using 200mm wafers.

Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield- and quality-limiting contaminants.  Despite stringent manufacturing controls, dust particles, equipment errors, minute impurities in materials, defects in photomasks and circuit design marginalities or defects can lead to wafers being scrapped and individual circuits being nonfunctional.  Success of the Company’s manufacturing operations depends largely on minimizing defects to maximize yield of high-quality circuits.  In this regard, the Company employs rigorous quality controls throughout the manufacturing, screening and testing processes.  The Company is able to recover many nonstandard devices by testing and grading them to their highest level of functionality.

After fabrication, silicon wafers are separated into individual die.  The Company sells semiconductor products in both packaged and unpackaged (i.e. “bare die”) forms.  For packaged products, functional die are sorted, connected to external leads and encapsulated in plastic packages.  The Company assembles products in a variety of packages, including TSOP (thin small outline package), TQFP (thin quad flat package) and FBGA (fine pitch ball grid array).  Bare die products address customer requirements for smaller form factors and higher memory densities and provide superior flexibility.  Bare die products are used in packaging technologies such as systems-in-a-package (SIPs) and multi-chip packages (MCPs), which reduce the board area required.

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The Company tests its products at various stages in the manufacturing process, performs high temperature burn-in on finished products and conducts numerous quality control inspections throughout the entire production flow.  In addition, the Company uses its proprietary AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of DRAM die during the burn-in process, capturing quality and reliability data and reducing testing time and cost.

The Company assembles a significant portion of its memory products into memory modules.  Memory modules consist of an array of memory components attached to printed circuit boards (“PCBs”) that insert directly into computer systems or other electronic devices.  The Company’s Lexar subsidiary contracts with an independent foundryfoundries and assembly and testing organizations to manufacture flash media products such as memory cards and USB devices.

The Company is pursuing alternativesutilizes subcontractors to reduceperform a significant portion of its assembly, test and module assembly services.  Outsourcing these services enables the Company to reduce costs including relocation of current operations to lower cost locations and outsourcing.  These alternatives could affect the Company’s manufacturing processes in future periods.minimize its capital investment.

In recent years, the Company has produced an increasingly broad portfolio of products, which enhances the Company’s ability to allocate resources to its most profitable products but also increases the complexity of its manufacturing process.  Although newthe Company’s product lines such as NAND Flash, CMOS image sensors and specialty memorygenerally use similar manufacturing processes, the Company’s overall cost efficiency can be manufactured using processes that are very similar to the processes for the Company’s predominant DRAM products,affected by frequent conversions to new products andproducts; the allocation of manufacturing capacity to more complex, smaller-volume parts can affectparts; and the Company’s cost efficiency.reallocation of manufacturing capacity across various product lines.

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NAND Flash Joint Venturesjoint ventures with Intel Corporation:  The Company has formed two joint ventures with Intel to manufacture NAND Flash memory products for the exclusive benefit of the partners:  IM Flash Technologies, LLC and IM Flash Singapore LLP (collectively, “IM Flash”).  IM Flash manufactures NAND Flash memory products pursuant tousing NAND Flash designs developed by the Company and Intel and licensed to the Company.Intel.  The parties share the output of IM Flash generally in proportion to their investment in IM Flash.  The Company owned a 51% interest in IM Flash at August 28, 2008.September 3, 2009.  IM Flash’s financial results are included in the consolidated financial statements of the Company.

On October 9, 2008, the Company announced that IM Flash will discontinue production of 200mm wafer NAND flash memory products at Micron’s Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  The Company will continue to manufacture a significantly reduced level of NAND Flash at the Boise facility outside of the IM Flash joint venture.  In the first quarter of 2009, IM Flash substantially completed construction of a new 300mm wafer fabrication facility structure in Singapore.  The Singapore facility has not been equipped and in October 20092008 the Company and Intel agreed to suspend tooling and the ramp of NAND Flash production at the facility.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesConsolidated Variable Interest Entities – NAND Flash Joint Ventures with Intel.”)

TECH Semiconductor Singapore Pte. Ltd. (“TECH”):  TECH is a DRAM memory manufacturing joint venture in Singapore among Micron Technology, Inc., Canon Inc. and Hewlett-Packard Company.  The Company owned an approximate 73%85% interest in TECH at August 28, 2008.September 3, 2009.  TECH’s semiconductor manufacturing facilities use the Company’s product and process technology.  Subject to specific terms and conditions, the Company has agreed to purchase all of the products manufactured by TECH.  In 2008,2009, TECH accounted for approximately 12%20% of the Company’s total wafer production.  The shareholders’ agreement for the TECH completed its conversionjoint venture expires in April 2011.  In the first quarter of its manufacturing production2010, TECH received a notice from 200mmHP that it does not intend to 300mm wafers in 2008.  TECH’s financial results were included inextend the consolidated financial statementsTECH joint venture beyond April 2011.  The Company is working with HP and Canon to reach a resolution of the Company beginning in the third quarter of 2006.matter.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)

DRAM Joint Ventures with Nanya:Inotera:  On October 12, 2008,In the first quarter of 2009, the Company announced that it hadacquired a 35.5% ownership interest in Inotera.  In August 2009, the Company’s ownership interest in Inotera was reduced to 29.8% as a result of Inotera’s issuance of common stock in a public offering for approximately $310 million.   In connection with the acquisition, the Company entered into ana supply agreement to acquire Qimonda’s 35.6% ownership stake inwith Inotera.  Inotera manufactures products using a Taiwanesetrench DRAM memory manufacturer.  Inoteraprocess technology and is expected to implementtransition to the Company’s stack DRAM process technology.  TheUnder the Inotera supply agreement, the Company will eventually gain accesshas the right to approximately 60,000obtain 50% of Inotera’s output (approximately 50,000 300mm DRAM wafers per month 50%as of Inotera’s output.September 3, 2009).  The Company began receiving trench DRAM products from Inotera in the fourth quarter of 2009.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesEquity Method Investments – DRAM Joint Ventures with Nanya Technology Corporation.Nanya.”)

Aptina Supply Agreement:  On July 10, 2009, the Company sold a 65% interest in Aptina, previously a wholly-owned subsidiary of the Company and a significant component of the Company’s Imaging segment.  Subsequent to the sale, the Company continues to manufacture Imaging products for Aptina under a wafer supply agreement.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Aptina.”)


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MP Mask Technology Center, LLC (“MP Mask”):  The Company produces photomasks for leading-edge and advanced next generation semiconductors through MP Mask, a joint venture with Photronics, Inc. (“Photronics”).  The Company and Photronics have 50.01% and 49.99% interest, respectively, in MP Mask.  The Company and Photronics also have supply arrangements wherein the Company purchases a substantial majority of the reticles produced by MP Mask.  The financial results of MP Mask are included in the consolidated financial results of the Company.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesConsolidated Variable Interest Entities – MP Mask Technology Center, LLC.”)


Availability of Raw Materials

The Company’s production processes require raw materials that meet exacting standards, including several that are customized for, or unique to, the Company.  The Company generally has multiple sources and sufficient availability of supply; however, only a limited number of suppliers are capable of delivering certain raw materials that meet the Company’s standards.  Various factors could reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases, lead frames, molding compound and other materials.  In addition, any transportation problems could delay the Company’s receipt of raw materials.  Although raw materials shortages or transportation problems have not interrupted the Company’s operations in the past, shortages may occur from time to time in the future.  Also, lead times for the supply of raw materials have been extended in the past.  If the Company’s supply of raw materials is interrupted, or lead times are extended, results of operations could be adversely affected.



6

Marketing and Customers

The Company’s products are sold into computing, consumer, networking, telecommunications, and imaging markets.  Approximately 50%30% of the Company’s net sales for 20082009 were to the computing market, including desktop PCs, servers, notebooks and workstations.  Sales to Intel, primarily for NAND Flash from the IM Flash joint ventures, were 20% of the Company’s net sales in 2009 and 19% of the Company’s net sales in 2008.  Sales to Hewlett-Packard Company were 10% of the Company’s net sales in 2007.

The Company’s Memory products are offered under the Micron, Lexar, SpecTekCrucial and CrucialSpecTek brand names and private labels.  The Company’s Imaging products are offered under the Aptina brand name.  The Company markets its semiconductor products primarily through its own direct sales force and maintains sales offices in its primary markets around the world.  The Company maintains inventory at locations in close proximity to certain key customers to facilitate rapid delivery of product shipments.products.  The Company’s Lexar subsidiaryCompany sells Lexar-branded NAND Flash memory products primarily through retail channels and OEM channels.  The Company’s Crucial Technology division sells memoryits Crucial-branded products primarily through a web-based customer direct sales channel.  The Company’s products are also offered through independent sales representatives and distributors.  Independent sales representatives obtain orders subject to final acceptance by the Company and are compensated on a commission basis.  The Company makes shipments against these orders directly to the customer.  Distributors carry the Company’s products in inventory and typically sell a variety of other semiconductor products, including competitors’ products.

The Company offers products designed to meet the diverse needs of computing, server, automotive, networking, security, commercial/industrial, consumer electronics, medical and mobile applications.  Many of the Company’s customers require a thorough review or qualification of semiconductor products, which may take several months.  As the Company further diversifies its product lines and reduces the die sizes of existing products, more products become subject to qualification which may delay volume introduction of specific devices by the Company.


Backlog

Because of volatile industry conditions, customers are reluctant to enter into long-term, fixed-price contracts.  Accordingly, new order volumes for the Company’s semiconductor products fluctuate significantly.  Orders are typically accepted with acknowledgment that the terms may be adjusted to reflect market conditions at the date of shipment.  Customers can change delivery schedules or cancel orders without significant penalty.  For these reasons, the Company does not believe that its order backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.



6

Product Warranty

Because the design and manufacturing process for semiconductor products is highly complex, it is possible that the Company may produce products that do not comply with customer specifications, contain defects or are otherwise incompatible with end uses.  In accordance with industry practice, the Company generally provides a limited warranty that its products are in compliance with Company specifications existing at the time of delivery.  Under the Company’s general terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items.  Under certain circumstances, the Company may provideprovides more extensive limited warranty coverage and general legal principles may impose more extensive liability than that provided under the Company’s general terms and conditions.


Competition

The Company faces intense competition in the semiconductor memory markets from a number of companies, including Elpida Memory, Inc.; Hynix Semiconductor Inc.; Qimonda AG; Samsung Electronics Co., Ltd; SanDisk Corporation; and Toshiba Corporation and emerging companies in Taiwan and China.Corporation.  Some of the Company’s competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which the Company competes, invest in technology and capitalize on growth opportunities.  The Company’s competitors seek to increase silicon capacity, improve yields, reduce die size and minimize mask levels in their product designs.  These factors havedesign resulting in significantly increased worldwide supply and put downward pressure on prices.


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The Company faces competition in the image sensor market from a number of suppliers of CMOS image sensors including OmniVision Technologies, Inc.; Samsung Electronics Co., Ltd; Sony Corporation; STMicroelectronics NV; Toshiba Corporation and from a number of suppliers of CCD image sensors including Matsushita Electric Industrial Co., Ltd.; Sharp Corporation and Sony Corporation.  In recent periods, a number of new companies have entered the CMOS image sensor market.  Competitors include many large domestic and international companies that may have greater presence in key markets, better access to certain customer bases, greater name recognition and more established strategic and financial relationships than the Company.


Research and Development

The Company’s process technology research and development (“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.products.  Additional process technology R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage the company’s core semiconductor expertise, and the development of new manufacturing materials.  Product design and development efforts are concentrated on the Company’s 1 Gbhigh density DDR3 and 2 Gb DDR2 and DDR3mobile products, as well as high density and mobile NAND Flash memory (including MLC technology), specialty memory products and memory systems and CMOS image sensors.systems.  The Company’s R&D expenses were $647 million, $680 million and $805 million in 2009, 2008 and $656 million in 2008, 2007, and 2006, respectively.

To compete in the semiconductor memory industry, the Company must continue to develop technologically advanced products and processes.  The Company believes that expansion of its semiconductor product offerings is necessary to meet expected market demand for specific memory and imaging solutions.  The Company has several productCompany’s process development center and largest design centers around the world, the largestcenter are located at its corporate headquarters in Boise, Idaho.  The Company has several additional product design centers in other strategic locations around the world.  In addition, the Company develops leading edge photolithography mask technology at its MP Mask joint venture facility in Boise.

R&D expenses vary primarily with the number of development wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs.  Because of the lead times necessary to manufacture its products, the Company typically begins to process wafers before completion of performance and reliability testing.  The Company deems development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability.  R&D expenses can vary significantly depending on the timing of product qualification.  The Company and Intel share R&D process and design costs for NAND Flash equally.  The Company and Nanya also jointly develop process technology and designs to manufacture 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’s development costs are expected to exceed Nanya’s development costs by a significant amount.  Product development costs are recorded as R&D expense.costs.



7

Geographic Information

Sales to customers outside the United States totaled $4.4$3.9 billion for 20082009 and included $1.4$1.2 billion in sales to China, $559$542 million in sales to Malaysia, $470 million in sales to Europe, $441$447 million in sales to JapanTaiwan, and $1.7 billion$990 million in sales to the Asia Pacific region (excluding China, Malaysia and Japan)Taiwan).  International salesSales to customers outside the United States totaled $4.4 billion for 2008 and $4.0 billion for 2007 and $3.6 billion for 2006.2007.  As of August 28, 2008,September 3, 2009, the Company had net property, plant and equipment of $6.0$4.7 billion in the United States, $2.3$2.1 billion in Singapore, $259$180 million in Italy, $171$112 million in Japan and $32$53 million in other countries.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information” and “Item 1A. Risk Factors.”)


Patents and Licenses

In recent years, the Company has been recognized as a leader in volume and quality of patents issued.  As of August 28, 2008,September 3, 2009, the Company owned approximately 17,300 U.S. patents and 2,6002,900 foreign patents.  In addition, the Company has numerous U.S. and foreign patent applications pending.  The Company’s patents have terms expiring through 2026.2028.

The Company has a number of patent and intellectual property license agreements.  Some of these license agreements require the Company to make one time or periodic payments.  The Company may need to obtain additional patent licenses or renew existing license agreements in the future.  The Company is unable to predict whether these license agreements can be obtained or renewed on acceptable terms.

8

In recent years, the Company has recovered some of its investment in technology through sales of intellectual property rights to joint venture partners and other third parties.  The Company is pursing furtherpursuing additional opportunities to recover its investment in intellectual property through additional sales of intellectual property and potential partnering arrangements.


Employees

As of August 28, 2008,September 3, 2009, the Company had approximately 22,80018,200 employees, including approximately 12,3009,300 in the United States, 5,9004,500 in Singapore, 2,1001,900 in Italy, 1,500 in Japan, 500800 in China and 300200 in the United Kingdom.  The Company’s employees include 2,300approximately 1,500 employees in its IM Flash joint ventures that are located in the United States and Singapore and 2,2002,000 employees in its TECH joint venture that are located in Singapore.  Approximately 400500 of the Company’s employees in Italy are represented by labor organizations that have entered into national and local labor contracts with the Company.  The Company’s employment levels can vary depending on market conditions and the level of the Company’s production, research and product and process development.  Many of the Company’s employees are highly skilled, and the Company’s continued success depends in part upon its ability to attract and retain such employees.  The loss of key Company personnel could have a material adverse effect on the Company’s business, results of operations or financial condition.


Environmental Compliance

Government regulations impose various environmental controls on raw materials and discharges, emissions and solid wastes from the Company’s manufacturing processes.  In 2008,2009, the Company’s wholly-owned wafer wholly-owned fabrication facilities continued to conform to the requirements of ISO 14001 certification.  To continue certification, the Company met annual requirements in environmental policy, compliance, planning, management, structure and responsibility, training, communication, document control, operational control, emergency preparedness and response, record keeping and management review.  While the Company has not experienced any materially adverse effects on its operations from environmental regulations, changes in the regulations could necessitate additional capital expenditures, modification of operations or other compliance actions.


Directors and Executive Officers of the Registrant

Officers of the Company are appointed annually by the Board of Directors.  Directors of the Company are elected annually by the shareholders of the Company.  Any directors appointed by the Board of Directors to fill vacancies on the Board serve until the next election by the shareholders.  All officers and directors serve until their successors are duly chosen or elected and qualified, except in the case of earlier death, resignation or removal.

8

As of August 28, 2008,September 3, 2009, the following executive officers and directors of the Company were subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.

NameAgePosition 
Mark W. Adams4445Vice President of Worldwide Sales
Steven R. Appleton4849Chairman and Chief Executive Officer
Kipp A. Bedard4950Vice President of Investor Relations
D. Mark Durcan4748President and Chief Operating Officer
Ronald C. Foster5758Vice President of Finance and Chief Financial Officer
Jay L. Hawkins48Vice President of Operations
Roderic W. Lewis5354Vice President of Legal Affairs, General Counsel and Corporate Secretary
Patrick T. Otte4647Vice President of Human Resources
Brian J. Shields4748Vice President of Worldwide Wafer Fabrication
Brian M. Shirley3940Vice President of Memory
Teruaki Aoki67Director
James W. Bagley6970Director
Robert L. Bailey5152Director
Mercedes Johnson5455Director
Lawrence N. Mondry4849Director
Robert E. Switz6263Director


9

Mark W. Adams joined the Company in June 2006.  From January 2006 until he joined the Company, Mr. Adams was the Chief Operating Officer of Lexar Media, Inc.  Mr. Adams served as the Vice President of Sales and Marketing for Creative Labs, Inc. from December 2002 to January 2006.  From March 2000 to September 2002, Mr. Adams was the Chief Executive Officer of Coresma, Inc.  Mr. Adams holds a BA in Economics from Boston College and an MBA from Harvard Business School.

Steven R. Appleton joined the Company in February 1983 and has served in various capacities with the Company and its subsidiaries.  Mr. Appleton first became an officer of the Company in August 1989 and has served in various officer positions with the Company since that time.  From April 1991 until July 1992 and since May 1994, Mr. Appleton has served on the Company’s Board of Directors.  From September 1994 to June 2007, Mr. Appleton served as the Chief Executive Officer, President and Chairman of the Board of Directors of the Company.  In June 2007, Mr. Appleton relinquished his position as President of the Company but retained his positions of Chief Executive Officer and Chairman of the Board.  Mr. Appleton is a member of the Board of Directors of National Semiconductor Corporation.  Mr. Appleton holds a BA in Business Management from Boise State University.

Kipp A. Bedard joined the Company in November 1983 and has served in various capacities with the Company and its subsidiaries.  Mr. Bedard first became an officer of the Company in April 1990 and has served in various officer positions since that time.  Since January 1994, Mr. Bedard has served as Vice President of Investor Relations for the Company.  Mr. Bedard holds a BBA in Accounting from Boise State University.

D. Mark Durcan joined the Company in June 1984 and has served in various technical positions with the Company and its subsidiaries since that time.  Mr. Durcan was appointed Chief Operating Officer in February 2006 and President in June 2007.  Mr. Durcan has been an officer of the Company since 1996.  Mr. Durcan holds a BS and MChE in Chemical Engineering from Rice University.

Ronald C. Foster joined the Company in April 2008 after serving as a member of the Board of Directors from June 2004 to April 2005.  From March 2005 to March 2008, he was the Chief Financial Officer for FormFactor, Inc.  Mr. Foster previously served in senior financial management positions for Hewlett-Packard, Applied Materials, Novell and JDS Uniphase.  Mr. Foster holds a BA in Economics from Whitman College and an MBA from the University of Chicago and a BA in Economics from Whitman College.

Jay L. Hawkins joined the Company in March 1984 and has served in various manufacturing positions for the Company and its subsidiaries.  Mr. Hawkins served as Vice President, Manufacturing Administration from February 1996 through June 1997, at which time he became Vice President of Operations.  Mr. Hawkins holds a BBA in Marketing from Boise State University.Chicago.

Roderic W. Lewis joined the Company in August 1991 and has served in various capacities with the Company and its subsidiaries.  Mr. Lewis has served as Vice President of Legal Affairs, General Counsel and Corporate Secretary since July 1996.  Mr. Lewis holds a BA in Economics and Asian Studies from Brigham Young University and a JD from Columbia University School of Law.


9

Patrick T. Otte has served as the Company's Vice President of Human Resources since March 2007.  Mr. Otte joined Micron in 1987 and has served in various positions of increasing responsibility, including Production Manager in several of Micron’s fabrication facilities, Operations Manager for Micron Technology Italia S.r.l. and, Site Director for the Company's facility in Manassas, Virginia. Mr. Otte holds a Bachelor of Science degree from St. Paul Bible College in Minneapolis, Minnesota.

Brian J. Shields joined the Company in November 1986 and has served in various operational positions with the Company.  Mr. Shields first became an officer of the Company in March 2003.2003 and has been Vice President of Wafer Fabrication since December 2005.

Brian M. Shirley joined the Company in August 1992 and has served in various technical positions with the Company.  Mr. Shirley became an officerVice President of the CompanyMemory in February 2006.  Mr. Shirley holds a BS in Electrical Engineering from Stanford University.


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Teruaki Aoki has served as Vice ChairmanPresident of Sony Foundation for EducationUniversity since July 2008.April 2005.  Dr. Aoki has been associated with Sony since 1970 and has held various executive positions, including Senior Executive Vice President and Executive Officer of Sony Corporation as well as President and Chief Operating Officer of Sony Electronics, a U.S. subsidiary.  Dr. Aoki holds a Ph.D. in Material Sciences from Northwestern University as well as a BS in Applied Physics from the University of Tokyo.  He was elected as an IEEE Fellow in 2003 and serves as Advisory Board Member of Kellogg School of Management of Northwestern University.  Dr. Aoki also serves on the board of Citizen Holdings Co., Ltd. Dr. Aoki is the Chairman of the Board’s GovernanceCompensation Committee.

James W. Bagley became the Executive Chairman of Lam Research Corporation (“Lam”), a supplier of semiconductor manufacturing equipment, in June 2005.  From August 1997 through June 2005, Mr. Bagley served as the Chairman and Chief Executive Officer of Lam. Mr. Bagley is a member of the Board of Directors of Teradyne, Inc.  He has served on the Company’s Board of Directors since June 1997.  Mr. Bagley holds a MS and BS in Electrical Engineering from Mississippi State University.

Robert L. Bailey washas been Chairman of the President and Chief Executive OfficerBoard of Directors of PMC-Sierra (“PMC”) from July 1997 until May 2008.  PMC is a leading provider of broadband communication and storage semiconductor solutions for the next-generation Internet.  Mr. Bailey has been a director of PMC since October 1996.  Mr. Bailey served as PMC’s President and Chief Executive Officer from July 1997 to May 2008.  He has been Chairman of PMC’s Board of Directors since 2005 and also served as PMC’s Chairman from February 2000 until February 2003.  Mr. Bailey has been a director of PMC since October 1996.  He also served as the President and Chief Executive Officer of PMC from July 1997 until May 2008.  PMC is a leading provider of broadband communication and director of PMC-Sierra, Ltd., PMC's Canadian operating subsidiary since December 1993.  Mr. Bailey was employed by AT&T-Microelectronics (now a division of LSI Logic) from August 1989 to November 1993, where he served as Vice President and General Manager, and at Texas Instruments in various management positions from June 1979 to August 1989.semiconductor storage solutions for the next-generation Internet.  Mr. Bailey holds a BS degree in Electrical Engineering from the University of Bridgeport and an MBA from the University of Dallas.

Mercedes Johnson was the Senior Vice President and Chief Financial Officer of Avago Technologies Limited, a semiconductor company,supplier of analog interface components for communications, industrial and consumer applications, from December 2005 to August 2008.  Prior to that, she served as the Senior Vice President, Finance, of Lam from June 2004 to January 2005 and as Lam’s Chief Financial Officer from May 1997 to May 2004.  Before joining Lam, Ms. Johnson spent 10 years with Applied Materials, Inc., where she served in various senior financial management positions, including Vice President and Worldwide Operations Controller.  Ms. Johnson holds a degree in Accounting from the University of Buenos Aires and currently serves on the Board of Directors for Intersil Corporation.

Lawrence N. Mondry was the President and Chief Executive Officer of CSK Auto Corporation (“CSK”), a specialty retailer of automotive aftermarket parts, from June 2006August 2007 to July 2008.  Prior to his appointment at CSK, Mr. Mondry served as the Chief Executive Officer of CompUSA Inc. from November 2003 to May 2006.  Mr. Mondry joined CompUSA in 1990.  Mr. Mondry currently serves on the Board of Directors of CSK. Mr. Mondry is the Chairman of the Board’s Compensation Committee.Governance Committee and Lead Director.

Robert E. Switz is currently Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc., (“ADC”), a supplier of network infrastructure products and services.  Mr. Switz has been President and Chief Executive officer of ADC since August 2003 and Chairman since August 2008.  He has been with ADC since 1994 and prior to his current position, served ADC as Executive Vice President and Chief Financial Officer.  Mr. Switz holds an MBA from the University of Bridgeport as well as a degree in Marketing/Economics from Quinnipiac University.  Mr. Switz also serves on the Board of Directors for ADC and Broadcom Corporation.  Mr. Switz is the Chairman of the Board’s Audit Committee.

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


 
1110
 

Item 1A.  Risk Factors

In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company.

We have experienced dramatic declines in average selling prices for our semiconductor memory products which have adversely affected our business.

For 2009, average selling prices of DRAM and NAND Flash products decreased 52% and 56%, respectively, as compared to 2008.  For 2008, average selling prices of DRAM products and NAND Flash products decreased approximately 50%51% and 65%67%, respectively, as compared to 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,some prior periods, average selling prices for our memory products have been below our costs.  We recorded inventory write-downs of $282 million in 2008 and $20 million in 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 2008 and 2007.costs.  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 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 approximatebe between $1.0 billion to $1.3 billion$750 million and $850 million for 2009.  Cash2010.  As of September 3, 2009, we had cash and equivalents and short-term investments totaling $1,485 million, of which $302 million consisted of cash and investments of IM Flash and TECH arethat would generally not be available to finance our other operations.  In the past we have utilized external sources of financing when needed and access to capital markets has historically been very important to us.  As a result of the severe downturn in the semiconductor memory market, the downturn in general economic conditions, and the adverse conditions in the credit markets, it may be difficult to obtain financing instruments thaton terms acceptable to us.  We significantly reduced our actual capital expenditures for 2009 and planned capital expenditures for 2010.  In addition, we have used in the past are currently not availableconsidering further financing alternatives, continuing to uslimit capital expenditures and may not be available to us for extended periods.implementing further cost-cutting initiatives.  There can be no assurance that we will be able to generate sufficient cash flows or find other sources of financing to fund our operations; make adequate capital investments to remain competitive in terms of technology development and cost efficiency; or access capital markets.  Our inability to do the foregoing could have a material adverse effect on our business and results of operations.

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 gigabit manufacturing costs at sufficient levels to increaseimprove or maintain gross margins duemargins.  Factors that many limit our ability to factors, including,reduce costs include, but are 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 gigabit manufacturing costs may also be affected by the relatively smaller production quantities and shorter product lifecycles of certain specialty memory products.

Consolidation of industry participants and governmental assistance to some of our competitors may contribute to uncertainty in the semiconductor market and negatively impact our ability to compete.

In recent periods manufacturing supply has significantly exceeded customer demand resulting in significant declines in average selling prices of DRAM and NAND Flash products and substantial operating losses by the Company and its competitors.  The operating losses as well as limited access to sources of financing have led to the deterioration in the financial condition of a number of industry participants.  Some of our competitors may try to enhance their capacity and lower their cost structure through consolidation.  Consolidation of industry competitors could put us at a competitive disadvantage.  In addition, some governments have provided, or are considering, significant financial assistance for some of our competitors.

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The recent economic downturn in the worldwide economy and the semiconductor industry may harm our business.

The downturn in the worldwide economy, including a continuing downturn in the semiconductor memory industry, had an adverse effect on our business.  Adverse economic conditions affect consumer demand for devices that incorporate our products, such as personal computers, mobile phones, Flash memory cards and USB devices.  Reduced demand for our products could result in continued market oversupply and significant decreases in our average selling prices.  A continuation of current negative conditions in worldwide credit markets would limit our ability to obtain external financing to fund our operations and capital expenditures.  In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties.  Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults.  As a result, our business, results of operations or financial condition could be materially adversely affected.

The semiconductor memory industry is highly competitive.

We face intense competition in the semiconductor memory market from a number of companies, including Elpida Memory, Inc.; Hynix Semiconductor Inc.; Qimonda AG; Samsung Electronics Co., Ltd.; SanDisk Corporation; and Toshiba Corporation and from emerging companies in Taiwan and China, who have significantly expanded the scale of their operations.Corporation.  Some of our competitors are large corporations or conglomerates that may have greater resources or greater access to resources, including governmental resources, to withstand downturns in the semiconductor markets in which we compete, invest in technology and capitalize on growth opportunities.


12

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.memory.  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 NAND Flash memory operations involve numerous risks.

As a result of severe oversupply in the NAND Flash market, our average selling prices of NAND Flash products for 2008 decreased approximately 65% as compared to 2007 after decreasing 56% for 2007 as compared to 2006.  As a result, we experienced negative gross margins on sales of our NAND Flash products in 2008.  In October 2008, we announced that our IM Flash joint venture with Intel Corporation will discontinue production of 200mm wafer NAND flash memory at Micron’s Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  In addition, we and Intel agreed to suspend tooling and the ramp of production NAND Flash at IM Flash’s Singapore wafer fabrication plant.  A continuation of the challenging conditions in the NAND Flash market will materially adversely affect our business, results of operations and 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 flashFlash joint ventures with Intel, our Inotera DRAM joint venturesventure with Nanya, our TECH DRAM joint venture, and our MP Mask joint venture with Photronics.Photronics and our CMOS image sensor wafer supply agreement with Aptina.  These joint ventures and 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 ongoing manufacturing and operational activities, or on the amount, timing or nature of further investments in our joint venture;

·  recognition of our share of potential Inotera and Aptina losses in our results of operation;

·  due to financial constraints, our partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;

·  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 fromat joint ventures;

·  these operations may be less cost-efficient as a result of underutilized capacity; 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.

Economic conditions may harm our business.

Economic and business conditions, including a continuing 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.  A continuation of conditions in credit markets would limit our ability to obtain external financing to fund our operations and capital expenditures.  In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties.  Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults.  As a result, our business, results of operations or financial condition could be materially adversely affected.

 
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We may incur additional restructure charges or not realize the expected benefits of new initiatives to reduce costs across our operations.

On October 9, 2008 we announced a plan to restructure our memory operations including IM Flash’s shutdown of 200mm wafer NAND flash memory production at our Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  In addition, we and Intel agreed to suspend tooling and the ramp of production at IM Flash’s Singapore wafer fabrication plant.  As part of this restructuring, we plan to reduce our global workforce by approximately 15 percent during 2009 and 2010.  Cash costs for restructuring and other related expenses incurred in connection with this restructuring are anticipated to be approximately $60 million, and the benefit to our cash operating results for 2009 is expected to exceed $175 million.  We may incur additional restructure costs or not realize the expected benefits of these new initiatives.  As a result of these initiatives, we expect to lose production output, 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 acquisition of a 35.6%ownership interest in Inotera Memories, Inc. involves numerous risks.

On October 12, 2008,In the first quarter of 2009, we announced that we had entered into an agreement to acquire Qimonda AG’s 35.6%acquired a 35.5% ownership stakeinterest in Inotera Memories, Inc., a publicly traded Taiwanese DRAM memory manufacturer, from Qimonda, AG.  In August 2009, our ownership interest in Inotera was reduced to 29.8% as a result of Inotera’s issuance of common stock in a public offering for $400 millionapproximately $310 million.  In connection with our interest in cash.  We received commitments of $285 million of term loansInotera, we also have rights and obligations to fund this acquisition in part.  Inotera is expectedpurchase up to implement the Company’s stack process technology.  We expect to eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s output.the wafer production of Inotera.  Our acquisition of an interest in Inotera involves numerous risks including the following:

·  Inotera’s ability to meet its ongoing obligations;

·  costs associated with manufacturing inefficiencies resulting from underutilized capacity;

·  difficulties in converting Inotera production from Qimonda’s trench technology to our stack technology;

·  difficulties in obtaining financing for capital expenditures necessary to convert Inotera production to our stack technology;

·  increasing our debt to finance the acquisition;acquisition of Inotera shares;

·  uncertainties around the timing and amount of wafer supply received;we will receive under the supply agreement;

·  risks relating to actions that may be taken or initiated by Qimonda’s bankruptcy administrator relating to Qimonda’s transfer to the Company of its Inotera shares and to the possible rejection of or failure to perform under certain patent and technology license agreements between the Company and Qimonda;
·  obligations during the technology transition period to procure product based on a competitor’s technology which may be difficult to sell and to provide product support for duesuch product, with respect to ourwhich we have limited understanding of the technology;

·  uncertainties relating to Qimonda’s purchase of certain agreed quantities of products made using Qimonda’s trench technology during the technology transition period;

·  uncertainties relating to Qimonda’s financial stability prior to and after the final closing of the transaction;technological understanding; and

·  the inabilityeffect on our margins associated with our obligation to reach satisfactory joint venture agreements.purchase product utilizing Qimonda’s trench technology at a relatively higher cost than other products manufactured by us and selling them potentially at a lower price than other products produced by us.

Pursuant to our obligations under a supply agreement with Inotera, we recorded $95 million of charges in cost of goods sold in 2009 related to underutilized capacity and purchased $46 million of trench DRAM products from Inotera.

We may incur additional restructure charges in future periods.

In response to a severe downturn in the semiconductor memory industry and global economic conditions, we implemented restructure initiatives in 2009, 2008 and 2007 that resulted in net charges of $70 million, $33 million and $19 million, respectively.  The restructure initiatives included shutting down our 200mm wafer fabrication facility in Boise, suspending the production ramp of a new fabrication facility in Singapore and other personnel cost reductions.  Depending on market conditions, in future periods we may implement further restructure initiatives.  As a result of these risks,initiatives, we may be unable to complete the Inotera acquisition or achievecould incur restructure charges, lose production output, lose key personnel and experience disruptions in our objectives for the acquisition, which may materially adversely affect our business, results of operations or financial condition.and difficulties in delivering products timely.


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An adverse result indetermination that our litigation mattersproducts or manufacturing processes infringe the intellectual property rights of others could materially adversely affect our business, results of operations or financial condition.

On January 13, 2006, Rambus, Inc. (“Rambus”) filed a lawsuit against us in the U.S. District Court for the Northern District of California. Rambus alleges that certain of our DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as eighteenfourteen Rambus patents and seeks monetary damages, treble damages, and injunctive relief. The accused products account for a significant portion of our net sales. On June 2, 2006, we filed an answer and counterclaim against Rambus alleging, among other things, antitrust and fraud claims.  TrialOn January 9, 2009, in another lawsuit involving the Company and Rambus and involving allegations by Rambus of patent infringement against us in the U.S. District Court for the District of Delaware, Judge Robinson entered an opinion in favor of us holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against the Company.  Rambus subsequently appealed the Delaware Court’s decision to the U.S. Court of Appeals for the Federal Circuit.  Subsequently, the Northern District of California Court stayed a trial of on the patent phase of thatthe Northern District of California case is currently scheduled to begin January 19, 2009.


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On May 5, 2004, Rambus filed a lawsuit inpending the Superior Courtoutcome of the Stateappeal of the Delaware Court’s spoliation decision or further order of the 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 complaint.  Trial is currently scheduled to begin in March 2009.Court.  (See “Item 3. Legal Proceedings” for additional details on these casesthis lawsuit and other Rambus matters pending in Europethe U.S. and Delaware.Europe.)

We are unable to predictOn March 6, 2009, Panavision Imaging LLC filed suit against the outcomeCompany and Aptina Imaging Corporation, then a wholly-owned subsidiary of these lawsuits.  The adverse resolution of these lawsuits could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.

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.

We are engaged in patent litigation with Mosaid Technologies, Inc. ("Mosaid")Company, in the U.S. District Court for the NorthernCentral District of California.  MosaidThe complaint alleges that certain of our DRAMthe Company and CMOSAptina’s image sensor products infringe up to twelve Mosaidfour Panavision Imaging U.S. patents and seeks monetaryinjunctive relief, damages, trebleattorneys’ fees, and costs.

On March 24, 2009, Accolade Systems LLC filed suit against the Company and Aptina in the U.S. District Court for the Eastern District of Texas alleging that certain of the Company and Aptina’s image sensor products infringe one Accolade Systems U.S. patent.  The complaint seeks injunctive relief, damages, attorneys’ fees, and injunctive relief.  The accused products account forcosts.  Accolade Systems never served the complaint, and on October 15, 2009, filed a significant portion of our net sales.  Trial is currently scheduled for June 5, 2009.  (See “Item 3.  Legal Proceedings” for additional details.)motion to dismiss the complaint against the Company and Aptina without prejudice.

We are unable to predict the outcome of assertions of infringement made against us.  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.  Any of the foregoing results 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.

AllegationsAn adverse outcome relating to allegations of anticompetitive conduct.conduct could materially adversely affect our business, results of operations or financial condition.

A number of purported class action price-fixing lawsuits have been filed against us and other DRAM suppliers.  Numerous cases have been filed in various state and federal courts 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 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 monetaryjoint and several damages, trebled, 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 pre-trial 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.  The District Court subsequently certified the decision for interlocutory appeal.  On February 27, 2008, plaintiffs filed a third amended complaint.  On June 26, 2008, the United States Court of Appeals for the Ninth Circuit acceptedagreed to consider plaintiffs’ interlocutory appeal.  (See “Item 3.  Legal Proceedings” for additional details on these cases and related matters.)

Various states, through their Attorneys General, have filed suit against us and other DRAM manufacturers alleging violations of state and federal competition laws.  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.  On October 3, 2008, the California Attorney General filed a similar lawsuit in California Superior Court, purportedly on behalf of local California government entities, alleging, among other things, violations of the Cartwright Act and state unfair competition law.  (See “Item 3.  Legal Proceedings” for additional details on these cases and related matters.)

A number of purported class action lawsuits have been filed against us and other SRAM suppliers asserting claims on behalf of a purported class of individuals and entities that purchased SRAM directly or indirectly from various SRAM suppliers.  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.  The first trial in these cases is currently scheduled for September 2010.  (See “Item 3.  Legal Proceedings” for additional details on these cases and related matters.)


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Three purported class action lawsuits alleging price-fixing of Flash products have been filed against us in Canada asserting violations of the Canadian Competition Act.  These cases assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly and indirectly from various Flash memory suppliers.  (See “Item 3.  Legal Proceedings” for additional details on these cases and related matters.)

On May 5, 2004, Rambus filed a lawsuit 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 of Rambus DRAM ("RDRAM"), and unfair competition.  The complaint seeks joint and several damages, trebled, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the complaint.  Trial is currently scheduled to begin in January 2010.  (See “Item 3.  Legal Proceedings” for additional details on this case and other Rambus matters pending in the U.S. and Europe.)

We are unable to predict the outcome of these lawsuits.  An adverse court determination in any of these lawsuits alleging 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.

AllegationsAn adverse outcome relating to allegations of violations of securities laws.laws could materially adversely affect our business, results of operations or financial condition.

On February 24, 2006, a number of purported class action complaints were 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.  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.  (See “Item 3.  Legal Proceedings” for additional details on these cases and related matters.)

We are unable to predict the outcome of these cases.  An adverse court determination in any of the class action lawsuits against us could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.

Covenants in our debt instruments may obligate us to repay debt, increase contributions to our TECH joint venture and limit our ability to obtain financing.

Our ability to comply with the financial and other covenants contained in our debt may be affected by economic or business conditions or other events.  As of August 28, 2008, the Company had notes payable of $108 million, denominated in Japanese yen, that were subject to covenants, including the ratio of debt to equity.  As a result of financing that we are pursuing for our acquisition of a 35.6% interest in Inotera, we may prepay all of this yen-denominated debt in the first quarter of 2009 to avoid defaulting on these covenants.  In addition, as of August 28, 2008, our 73% owned TECH Semiconductor Singapore Pte. Ltd., (“TECH”) subsidiary, had $600 million outstanding under a credit facility with covenants that, among other requirements, establish certain liquidity, debt service coverage and leverage ratios for TECH and restrict TECH’s ability to incur indebtedness, create liens and acquire or dispose of assets.  If TECH does not comply with these debt covenants and restrictions, this debt may be deemed to be in default and the debt declared payable.  Additionally, if TECH is unable to repay its borrowings when due, the lenders under TECH’s credit facility could proceed against substantially all of TECH’s assets.   We have guaranteed approximately 73% of the outstanding amount of TECH’s credit facility, and our obligation increases to 100% of the outstanding amount of the facility upon the occurrence of certain conditions.  If TECH’s debt is accelerated, we may not have sufficient assets to repay amounts due.  Existing covenant restrictions may limit our ability to obtain additional debt financing and to avoid covenant defaults we may have to pay off debt obligations and make additional contributions to TECH, which could adversely affect our liquidity and financial condition.

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:

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·  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.

Our debt level is higher than compared to historical periods.

We currently have a higher level of debt compared to historical periods.  As of August 28, 2008,September 3, 2009 we had $2.7$3.1 billion of debt, and we will incur an additional $285 million of debt in connection with our acquisition of a 35.6% interest in Inotera.debt. We may need to incur additional debt in the future. Our debt level could have a negativeadversely impact on us.  For example it could:

·  make it more difficult for us to make payments on our debt;

·  require us to dedicate a substantial portion of our cash flow from operations and other capital resources to debt service;

·  limit our future ability to raise funds for capital expenditures, acquisitions, research and development and other general corporate requirements;

·  increase our vulnerability to adverse economic and semiconductor memory industry conditions;

·  expose us to fluctuations in interest rates with respect to that portion of our debt which is at a variable rate of interest; and

·  require us to make additional investments in joint ventures to maintain compliance with financial covenants.

New product developmentSeveral of our credit facilities, one of which was modified during 2009, have covenants which require us to maintain minimum levels of tangible net worth and cash and investments.  As of September 3, 2009, we were in compliance with our debt covenants.  If we are unable to continue to be in compliance with our debt covenants, or obtain waivers, an event of default could be triggered, which, if not cured, could cause the maturity of other borrowings to be accelerated and become due and currently payable.

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Covenants in our debt instruments may be unsuccessful.obligate us to repay debt, increase contributions to our TECH joint venture and limit our ability to obtain financing.

We are developing new productsOur ability to comply with the financial and other covenants contained in our debt may be affected by economic or business conditions or other events.  As of September 3, 2009, our 85% owned TECH Semiconductor Singapore Pte. Ltd., (“TECH”) subsidiary, had $548 million outstanding under a credit facility with covenants that, complement our traditional memory productsamong other requirements, establish certain liquidity, debt service coverage and leverage ratios for TECH and restrict TECH’s ability to incur indebtedness, create liens and acquire or leverage their underlying design or process technology.  We have made significant investmentsdispose of assets.  If TECH does not comply with these debt covenants and restrictions, this debt may be deemed to be in productdefault 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.debt declared payable.  There can be no assurance that our product development efforts will be successful, that weTECH will be able to cost-effectively manufacture these new products, thatcomply with its covenants.  Additionally, if TECH is unable to repay its borrowings when due, the lenders under TECH’s credit facility could proceed against substantially all of TECH’s assets.  In the first quarter of 2010, TECH modified its debt covenants.  In connection with the modification, our guarantee of TECH’s debt increased from approximately 73% to approximately 85% of the outstanding amount borrowed under TECH’s credit facility.  Our guarantee could increase up to 100% of the outstanding amount borrowed under the facility based on further increases in our ownership interest in TECH and other conditions.  If TECH’s debt is accelerated, we willmay not have sufficient assets to repay amounts due.  Existing covenant restrictions may limit our ability to obtain additional debt financing.  To avoid covenant defaults we may be ablerequired to successfully market these products repay debt obligations and/or that margins generated from salesmake additional contributions to TECH, all of these products will recover costs of development efforts.

The future success ofwhich could adversely affect 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 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 strategicliquidity and financial relationships than the Company.

In recent years, 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;

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·  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 partnering arrangements with outside parties regarding the separation of our Aptina Imaging business to an independent entity in which we would retain a significant minority ownership interest.  To that end, we began operating our Imaging business as a separate, wholly-owned, subsidiary in October 2008.  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.  In addition, we may lose key personnel.  If our efforts to restructure the Imaging business are unsuccessful, our business, results of operations or financial condition could be materially adversely affected.condition.

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.

Our net operating loss and tax credit carryforwardsNew product development may be limited.unsuccessful.

We have significant net operating loss and tax credit carryforwards.are developing new products that complement our traditional memory products or leverage their underlying design or process technology.  We have providedmade significant valuation allowances againstinvestments in product and process technologies and anticipate expending significant resources for new semiconductor product development over the tax benefitnext several years.  The process to develop DRAM, NAND Flash and certain specialty memory products requires us to demonstrate advanced functionality and performance, many times well in advance of such losses as well as certain tax credit carryforwards.  Utilizationa 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 new products, that we will be able to successfully market these products or that margins generated from sales of these net operating losses and credit carryforwards is dependent upon us achieving sustained profitability.  As a consequenceproducts will recover costs 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.development efforts.

The future success of our Imaging foundry business is dependent on Aptina’s market success and customer demand.

In recent quarters, Aptina’s net sales and gross margins decreased due to declining demand and increased competition.  There can be no assurance that Aptina will be able to grow or maintain its market share or gross margins.  Any reduction in Aptina’s market share could adversely affect the operating results of our Imaging foundry business.  Aptina’s success depends on a number of factors, including:

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·  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; and

·  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.

Depressed pricing for semiconductor memory products may lead to future losses and inventory write-downs.

As a result of the significant decreases in average selling prices for our semiconductor memory products, we recorded charges of $603 million in aggregate for 2009, $282 million in aggregate for 2008 and $20 million in 2007 to write down inventories to their estimated market value.  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 market value of our semiconductor memory inventory by approximately $75 million at September 3, 2009.  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 will recognize charges to cost of goods sold to write down the carrying value of our inventories to market value.

The inability to reach an acceptable agreement with our TECH joint venture partners regarding the future of TECH after its shareholders’ agreement expires in April 2011 could have a significant adverse effect on our DRAM production and results of operation.

Since 1998, we have participated in TECH, a semiconductor memory manufacturing joint venture in Singapore among the Company, Canon Inc. (“Canon”) and Hewlett-Packard Company (“HP”).  As of September 3, 2009, the ownership of TECH was held approximately 85% by us, approximately 11% by Canon and approximately 4% by HP.  The financial results of TECH are included in our consolidated financial statements.  In 2009, TECH accounted for 20% of our total DRAM gigabit production.  The shareholders’ agreement for TECH expires in April 2011.  In the first quarter of 2010, TECH received a notice from HP that it does not intend to extend the TECH joint venture beyond April 2011.  We are working with HP and Canon to reach a resolution of the matter.  The parties’ inability to reach a resolution of this matter prior to April 2011 could result in the dissolution of TECH and have a significant adverse impact on our DRAM production and results of operation.

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 be required to 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.


 
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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 Singapore dollar, euro yen and Singapore dollar.yen.  We recorded a net loss of $25 millionlosses from changes in currency exchange rates of $30 million for 2009 and of $25 million for 2008.  We estimate that, based on its assets and liabilities denominated in currencies other than the U.S. dollar as of August 28, 2008,September 3, 2009, a 1% change in the exchange rate versus the U.S. dollar would result in foreign currency gains or losses of approximately U.S. $3 million for the Singapore dollar and $1 million for the euro and yen.  In the event that the U.S. dollar weakens significantly compared to the euro, yen or Singapore dollar, euro and yen, our results of operations or financial condition will be 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 75%81% of our consolidated net sales for 2008.2009.  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, technical standards and other laws in a variety of jurisdictions.jurisdictions;

·  changes in economic policies of foreign governments; and

·  difficulties in staffing and managing international operations.

These factors may materially adversely affect our business, results of operations or financial condition.

Our net operating loss and tax credit carryforwards may be limited.

We have a valuation allowance against substantially all of our U.S. net deferred tax assets.  As of September 3, 2009, we had aggregate U.S. tax net operating loss carryforwards of $4.2 billion and unused U.S. tax credit carryforwards of $212 million.  We also had unused state tax net operating loss carryforwards of $2.6 billion and unused state tax credits of $198 million.  Substantially all of the net operating loss carryforwards expire in 2022 to 2029 and substantially all of the tax credit carryforwards expire in 2013 to 2029.  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.


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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, Inotera MeiYa 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.


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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.



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Item 1B.  Unresolved Staff Comments

None.


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Item 2.  Properties

The Company’s corporate headquarters are located in Boise, Idaho.  The following is a summary of the Company’s principal facilities:facilities owned by the Company:

LocationPrincipal Operations
  
Boise, IdahoWaferR&D including wafer fabrication test and assembly, reticle manufacturing and R&D
Lehi, UtahWafer fabrication
Manassas, VirginiaWafer fabrication
SingaporeTwo wafer fabrication facilities and a test, assembly and module assembly facility
Nishiwaki City, JapanWafer fabrication
Avezzano, ItalyWafer fabrication
Nampa, IdahoTest
Aguadilla, Puerto RicoModule assembly and test
Xi’an, ChinaTest

The Company also owns and leases a number of other facilities in locations throughout the world that are used for design, research and development, and sales and marketing activities.  The Company’s facility in Lehi is owned and operated by its IM Flash joint venture with Intel.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesConsolidated Variable Interest Entities – NAND Flash Joint Ventures with Intel.”)  One of the Company’s wafer fabrication facilities in Singapore is owned by its TECH joint venture and collateralizes, in part, TECH’s $600$548 million credit facility.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)  The Company’s other wafer fabrication facility in Singapore is owned by its IM Flash Singapore joint venture.  The IM Flash Singapore facility was substantially completed in the first quarter of 2009 but has not been equipped.  In October 2008, the Company and Intel agreed to suspend tooling and the ramp of production at IM Flash’s Singapore wafer fabrication plant.  On October 9, 2008,Utilization of the facility is dependent on market conditions.

In the first quarter of 2009, the Company announced that its IM Flash joint venture with Intel Corporation will discontinueacquired a 35.5% ownership interest in Inotera.  As a result of this acquisition, the Company has rights and obligations to purchase up to 50% of the wafer production of 200mm wafer NAND flash memory at Micron’s Boise facility.Inotera.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Equity Method Investments – DRAM joint ventures with Nanya .”)

The Company believes that its existing facilities are suitable and adequate for its present purposes.  The Company does not identify or allocate assets by operating segment.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information.”)



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Item 3. 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 (later amended to add four additional 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 briefingOn January 9, 2009, Judge Robinson entered an opinion in favor of the Company holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against the Company.  Rambus subsequently appealed the decision to the U.S. Court of Appeals for the Federal Circuit.  That appeal is complete, and a decision on this phase is now pending.

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
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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‘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, Inc. (“Rambus”) filed a lawsuit against the Company in the U.S. District Court for the Northern District of California. The complaintRambus alleges that certain of the Company’s DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as eighteenfourteen Rambus patents and seeks monetary damages, treble damages, and injunctive relief. The accused products account for a significant portion of the Company's net sales. 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 ofOn January 9, 2009, in another lawsuit involving the Company and other partiesRambus and involving allegations by Rambus of patent infringement 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.  Trial on the patent phase of that case is currently scheduled to begin January 19, 2009.

On July 24, 2006, the Company filed a declaratory judgment action against Mosaid Technologies, Inc. (“Mosaid”) in the U.S. District Court for the District of Delaware, Judge Robinson entered an opinion in favor of the Company holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against the Company.  Rambus subsequently appealed the Delaware Court’s decision to the U.S. Court of Appeals for the Federal Circuit.  Subsequently, the Northern District of California seeking, among other things,Court stayed a court determination that fourteen Mosaid patents are invalid, not enforceable, and/trial of the patent phase of the Northern District of California case pending the outcome of the appeal of the Delaware Court’s spoliation decision or not infringed.  further order of the California Court.

On July 25, 2006, MosaidMarch 6, 2009, Panavision Imaging, LLC filed a lawsuitsuit against the Company and othersAptina Imaging Corporation, then a wholly-owned subsidiary of the Company (“Aptina”), in the U.S. District Court for the Central District of California.  The complaint alleges that certain of the Company and Aptina’s image sensor products infringe four Panavision Imaging U.S. patents and seeks injunctive relief, damages, attorneys’ fees, and costs.

On March 24, 2009, Accolade Systems LLC filed suit against the Company and Aptina 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 three 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.   The Texas action was subsequently transferred to the Northern District of California.  Mosaid alleges that certain of the Company’s DRAMCompany and CMOSAptina’s image sensor products infringe upone Accolade Systems U.S. patent.  The complaint seeks injunctive relief, damages, attorneys’ fees, and costs.  Accolade Systems never served the complaint, and on October 15, 2009, filed a motion to twelve Mosaid patentsdismiss the complaint against the Company and seeks monetary damages, treble damages, and injunctive relief.  The accused products account for a significant portion of our net sales.  Trial is currently scheduled for June 5, 2009.Aptina without prejudice.

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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

A number of purported class action price-fixing 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 monetaryjoint and several damages, trebled, as well as 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 pre-trial 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 acceptedagreed to consider plaintiffs’ interlocutory appeal.


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Additionally, three cases have been filed against the Company 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 DRAM antitrust cases filed in the United States.  In May and June 2008 respectively, plaintiffs’Plaintiffs’ motion for class certification was denied in the British Columbia and Quebec cases.cases in May and June 2008, respectively.  Plaintiffs have filed an appeal of each of those decisions.  Those appeals are pending.

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.  ThreeThereafter, 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, Kentucky, 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 joint and several damages, andtrebled, as well as 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 October 3, 2008, the California Attorney General filed a similar lawsuit in California Superior Court, purportedly on behalf of local California government entities, alleging, among other things, violations of the Cartwright Act and state unfair competition law.

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 joint and several damages, trebled, as well as restitution, attorneys’ fees, costs, and injunctive relief, and other remedies.relief.

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On October 11, 2006, the Company received a grand jury subpoena from the U.S. District Court for the Northern DistrictThree purported class action lawsuits alleging price-fixing 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 casesproducts  have been filed in Canada, asserting violations of the U.S. District Court for the Northern District of California assertingCanadian Competition Act.  These cases assert claims on behalf of a purported class of individuals and entities that purchased SRAM products directly or indirectly from various SRAM suppliers during the period from November 1, 1996 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 November 1, 1996 through December 31, 2006.  In September 2008, a class of direct purchasers was certified, and plaintiffs were granted leave to amend their complaint to cover Pseudo-Static RAM or “PSRAM” products as well.   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.suppliers.

In addition, three purported class action lawsuits alleging price-fixing of Flash products have been filed in Canada, asserting violations of the Canadian Competition Act.  These cases assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly and indirectly from various Flash memory suppliers.

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 onof Rambus DRAM (“RDRAM”) and unfair competition.  Trial is currently scheduled to begin in March 2009.January 2010.  The complaint seeks treblejoint and several damages, trebled, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the complaints.complaint.


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The Company is unable to predict the outcome of these lawsuits and investigations.lawsuits.  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 iswas 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 allegesalleged breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and insider trading.  The amended complaint seekssought unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief, attorneys’ fees, costs, and expenses.  The amended complaint iswas derivative in nature and doesdid 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 Supreme Court.  On July 16, 2009, the Idaho Supreme Court issued an opinion upholding the lower court’s dismissal of Appeals.the complaint.

The Company is unable to predict the outcome of these cases.  A court determination in any of these actions against the Company could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition.

(See “Item 1A. Risk Factors.”)


Item 4.  Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of 2008.


 
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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

The Company’s common stock is listed on the New York Stock Exchange and is traded under the symbol “MU.”  The following table represents the high and low closing sales prices for the Company’s common stock for each quarter of 20082009 and 2007,2008, as reported by Bloomberg L.P.

 High  Low  High  Low 
            
2009:      
4th quarter
 $7.56  $4.70 
3rd quarter
  5.50   2.58 
2nd quarter
  4.32   1.85 
1st quarter
  5.13   1.69 
2008:              
4th quarter
 $8.53  $4.24  $8.53  $4.24 
3rd quarter
  8.84   5.46   8.84   5.46 
2nd quarter
  9.26   5.75   9.26   5.75 
1st quarter
  11.79   7.94   11.79   7.94 
2007:        
4th quarter
 $13.98  $10.60 
3rd quarter
  12.36   10.95 
2nd quarter
  14.93   11.86 
1st quarter
  18.57   13.57 

Holders of Record

As of October 17, 2008,20, 2009, there were 3,2123,147 shareholders of record of the Company’s common stock.

Dividends

The Company has not declared or paid cash dividends since 1996 and does not intend to pay cash dividends on its common stock for the foreseeable future.

Equity Compensation Plan Information

The information required by this item is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.

Issuer Sales of Unregistered Securities

On August 11, 2009, the Company issued 1.8 million unregistered shares of common stock to DT FLCO, Inc. as noncash consideration of $12 million paid for a business acquired for cash and stock.  These shares were exempt from registration under Section 4(2) of the Securities Act of 1933.

Issuer Purchases of Equity Securities

During the fourth quarter of 2008,2009, the Company acquired, as payment of withholding taxes in connection with the vesting of restricted stock and restricted stock unit awards, 26,21826,177 shares of its common stock at an average price of $6.17$6.12 per share.  In the fourth quarter of 2008,2009, the Company retired the 26,21826,177 shares acquired in the fourth quarter of 2008.2009.

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 
             
May 30, 2008 – July 3, 2008  15,607  $7.23   N/A   N/A 
July 4, 2008 – July 31, 2008  9   5.45   N/A   N/A 
August 1, 2008 – August 28, 2008  10,602   4.61   N/A   N/A 
   26,218   6.17         


 
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Period (a) Total number of shares purchased  (b) Average price paid per share  (c) Total number of shares (or units) purchased as part of publicly announced plans or programs  (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs 
             
June 5, 2009          –      July 9, 2009  14,622  $5.43   N/A   N/A 
July 10, 2009         –      August 6, 2009  939   5.21   N/A   N/A 
August 7, 2009     –      September 3, 2009  10,616   7.15   N/A   N/A 
   26,177   6.12         


Performance Graph

The following graph illustrates a five-year comparison of cumulative total returns for the Company’s Common Stock, the S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX) from August 28, 2003,31, 2004, through August 28, 2008.31, 2009.

Note:  Management cautions that the stock price performance information shown in the graph below is provided as of fiscal year-end and may not be indicative of current stock price levels or future stock price performance.


The Company operates on a 52 or 53 week fiscal year which ends on the Thursday closest to August 31.  Accordingly, the last day of the Company’s fiscal year varies.  For consistent presentation and comparison to the industry indices shown herein, the Company has calculated its stock performance graph assuming an August 31 year end.  The performance graph assumes $100 invested on August 31, 20032004 in Common Stock of Micron Technology, Inc., the S&P 500 Composite Index and the Philadelphia Semiconductor Index (SOX).  Any dividends paid during the period presented are assumed to be reinvested.  The performance was plotted using the following data:

Performance Graph Data

 2003  2004  2005  2006  2007  2008  2004  2005  2006  2007  2008  2009 
                                    
Micron Technology, Inc. $100  $80  $83  $120  $80  $30  $100  $103  $150  $99  $37  $64 
S&P 500 Composite Index 100  111  125  137  157  140   100   113   123   141   125   102 
Philadelphia Semiconductor Index (SOX) 100  82  105  100  112  80   100   128   122   137   98   87 


 
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Item 6.  Selected Financial Data

  2008  2007  2006  2005  2004 
  (in millions except per share amounts) 
                
Net sales $5,841  $5,688  $5,272  $4,880  $4,404 
Gross margin  (55)  1,078   1,200   1,146   1,314 
Operating income (loss)  (1,595)  (280)  350   217   250 
Net income (loss)  (1,619)  (320)  408   188   157 
Diluted earnings (loss) per share  (2.10)  (0.42)  0.57   0.29   0.24 
                     
Cash and short-term investments  1,362   2,616   3,079   1,290   1,231 
Total current assets  3,779   5,234   5,101   2,926   2,639 
Property, plant and equipment, net  8,811   8,279   5,888   4,684   4,713 
Total assets  13,430   14,818   12,221   8,006   7,760 
Total current liabilities  1,598   2,026   1,661   979   972 
Long-term debt  2,451   1,987   405   1,020   1,028 
Noncontrolling interests in subsidiaries  2,865   2,607   1,568   --   -- 
Total shareholders’ equity  6,178   7,752   8,114   5,847   5,615 

In 2008, the Company recorded a charge of $463 million to write off all the goodwill associated with the Company’s memory segment.
  2009  2008  2007  2006  2005 
  (in millions) 
                
Net sales $4,803  $5,841  $5,688  $5,272  $4,880 
Gross margin  (439)  (55)  1,078   1,200   1,146 
Operating income (loss)  (1,675)  (1,595)  (280)  350   217 
Net income (loss)  (1,835)  (1,619)  (320)  408   188 
Diluted earnings (loss) per share  (2.29)  (2.10)  (0.42)  0.57   0.29 
                     
Cash and short-term investments  1,485   1,362   2,616   3,079   1,290 
Total current assets  3,344   3,779   5,234   5,101   2,926 
Property, plant and equipment, net  7,081   8,811   8,279   5,888   4,684 
Total assets  11,455   13,430   14,818   12,221   8,006 
Total current liabilities  1,892   1,598   2,026   1,661   979 
Long-term debt  2,674   2,451   1,987   405   1,020 
Noncontrolling interests in subsidiaries  1,986   2,865   2,607   1,568   -- 
Total shareholders’ equity  4,654   6,178   7,752   8,114   5,847 

In the thirdfirst quarter of 2008,2009, the Company and Nanya Technology Corporation (“Nanya”) formed MeiYa,acquired a joint venture to manufacture stack DRAM and sell those products exclusively to the Company and Nanya.  As part of this transaction, 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.  The Company and Nanya also agreed to jointly develop process technology and designs to manufacture 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.  Under this arrangement, the Company is to receive an aggregate of $232 million from Nanya and MeiYa through 2010 for licensing and technology transfer fees, of which the Company realized $40 million of revenue in 2008.  The Company will also receive royalties from Nanya on the sale of stack DRAM products manufactured by or for Nanya.  On October 12, 2008, the Company announced that it had entered into an agreement to acquire Qimonda AG’s 35.6%35.5% ownership stakeinterest in Inotera Memories, Inc. (“Inotera”), a Taiwanesepublicly-traded DRAM memory manufacturer for $400 million in cash.  The Company received commitments for $285 million of term loans to fund this acquisition in part.  Inotera is expected to implement the Company’s stack process technology, and it is anticipated that the Company will receive royalties on Inotera’s production that flows to Nanya, a 35.6% stakeholder in Inotera.  The Company will eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s output.Taiwan.  In connection with thisthe acquisition of the shares in Inotera, the Company expects to enterand Nanya entered into a series of agreementssupply agreement with Inotera pursuant to which Inotera sells trench and stack DRAM products to the Company and the Company’s DRAM joint venture partner, Nanya Technology Corporation.  On August 3, 2009, Inotera issued shares in a public offering, decreasing the Company’s interest in Inotera to restructure MeiYa.  It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources to Inotera.29.8%.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesEquity Method Investments – DRAM Joint Venturesjoint ventures with Nanya Technology Corporation.Nanya.”)

On July 10, 2009, the Company sold a 65% interest in Aptina Imaging Corporation (“Aptina”), a wholly-owned subsidiary of the Company.  The Company continues to manufacture products for Aptina under a wafer supply agreement.  The Company accounts for its remaining interest in Aptina under the equity method.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Aptina.”)

The Company has formed two joint ventures IM Flash,(collectively “IM Flash”) with Intel Corporation (“Intel”) to manufacture NAND Flash memory products for the exclusive benefit of the partners:  IM Flash Technologies, LLC, which began operations in the second quarter of 2006, and IM Flash Singapore LLP, which began operations in the third quarter of 2007.  The Company owns 51% and Intel owns 49% of IM Flash.  The financial results of IM Flash are included in the consolidated financial statements of the Company.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesConsolidated Variable Interest Entities – NAND Flash Joint Venturejoint venture with Intel.”)

The Company began consolidating the financial results of its TECH Semiconductor joint venture (“TECH”) as of the beginning of the third quarter of 2006.  In the third quarter of 2007, the Company acquired all of the shares of TECH common stock held by Singapore Economic Development Board, which increased the Company’s ownership interest in TECH from approximately 43% to approximately 73%.  As a result of the purchases of TECH shares in 2009, the Company’s ownership interest in TECH was increased from to approximately 73% as of August 28, 2008 to approximately 85% in August 2009.   (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)

In the fourth quarter of 2006, the Company acquired Lexar Media, Inc., a designer, developer, manufacturer and marketer of Flash memory products, in a stock-for-stock merger.


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In the third quarter of 2006, the Company formed a joint venture, MP Mask Technology Center, LLC (“MP Mask”), with Photronics, Inc. to produce photomasks for leading-edge and advanced next generation semiconductors.  The Company owns 50.01% and Photronics, Inc. owns 49.99% of MP Mask.  The financial results of MP Mask are included in the consolidated financial results of the Company.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – MP Mask Technology Center, LLC.”)

(See “Item 1A. Risk Factors” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements.”)


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

The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in “Overview” regarding Inotera's transition to the costsCompany's stack process technology and impact of restructure plans, the Company’s DRAM development costs relative to Nanya, royalty payments from Inotera production, capital commitmentsanticipated margins and operating expenses for the Company’s joint ventures with Nanya Technology Corporation, the supply of DRAM wafers from Inotera Memories, Inc. and manufacturing plans for CMOS image sensors;Imaging segment in future periods; in “Net Sales” regarding DRAM production received from Inotera in 2010, future increases in NAND Flash memory production;production, and future Imaging revenue under an imaging wafer supply agreement with Aptina; in “Gross Margin” regarding future charges from Inotera for underutilized capacity, future charges for inventory write-downs;write-downs, gross margins from the Company’s imaging wafer supply agreement with Aptina; in “Selling, General and Administrative” regarding future legal expenses;in “Research and Development” regarding reductions of future research and development expenses in connection with the sale of a majority interest in Aptina; in “Restructure” regarding the costs and impactfuture levels of restructure plans;employees; in “Stock-based Compensation” regarding future stock-based compensation costs;costs to be recognized; in “Liquidity and Capital Resources” regarding capital spending in 2009, plans to pay off certain debt,2010, future distributions from IM Flash to Intel and futurecapital contributions to joint ventures;TECH; and in “Recently Issued Accounting Standards” regarding the impact from the adoption of new accounting standards. The Company’s actual results could differ materially from the Company’s historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Item 1A.  Risk Factors.” This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes for the year ended August 28, 2008.September 3, 2009.  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 tabular dollar amounts are in millions.  The Company’s fiscal 2009, which ended on September 3, 2009, contained 53 weeks and its fiscal 2008 and fiscal 2007 both contained 52 weeks.  All production data reflectsincludes production of the Company and its consolidated joint ventures.ventures and the Company’s supply from Inotera.


Overview

The Company is a global manufacturer and marketer of semiconductor devices, principally semiconductor memory products (including DRAM and NAND Flash) andFlash memory.  In addition the Company manufactures CMOS image sensors.sensor products under a wafer foundry arrangement.  The Company operates in two reportable 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.

In 2008 and 2007 the semiconductor memory industry experienced a severe downturn due to a significant oversupply of products.  Average selling prices per gigabit for the Company’s DRAM products and NAND Flash products in 2008 were down approximately 50% and 65%, respectively, as compared to 2007 and down approximately 65% and 85%, respectively, as compared to 2006.  As a result of these market conditions, the Company and other semiconductor memory manufacturers have reported negative gross margins and substantial losses in recent periods.  In 2008, the Company reported a net loss $1.6 billion and many of its competitors reported negative cash flows from operations.  In response to these market conditions, on October 9, 2008 the Company announced a plan to restructure its memory operations.  The Company’s IM Flash joint venture with Intel Corporation will discontinue production of 200mm wafer NAND flash memory at Micron’s Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  In addition, the Company and Intel agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication plant.  As part of the restructuring, the Company plans to reduce its global workforce by approximately 15 percent during 2009 and 2010.  Cash costs for restructuring and other related expenses incurred in connection with this restructuring are anticipated to be approximately $60 million, and the benefit to the Company’s cash operating results for 2009 is expected to exceed $175 million.

The effects of the worsening global economy and the tightening credit market are also making it increasingly difficult for semiconductor memory manufacturers to obtain external sources of financing to fund their operations.  Although the Company believes that it is better positioned than some of its peers, it faces challenges in the current and near term that require it to continue to make significant improvements in its competitiveness.  Additionally, the Company is pursuing financing alternatives, delaying capital expenditures and implementing further cost-cutting initiatives.

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.


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The Company makeshas made significant ongoing investments to develop proprietary product and process technology that is implemented in its worldwide manufacturing facilities and through its joint ventures to enable the production of semiconductor products with increasing functionality and performance at lower costs.  The Company generally reduces the manufacturing cost of each generation of product through advancements in product and process technology such as its leading-edge line widthline-width process technology and innovative array architecture.  The Company continues to introduce new generations of products that offer improved performance characteristics, such as higher data transfer rates, reduced package size, lower power consumption and increased memory density and megapixel count.density.  To leverage its significant investments in research and development, the Company has formed various strategic joint ventures under which the costs of developing memory product and process technologies are shared with its joint venture partners.  In addition, from time to time, the Company has also sold and/or licensed technology to thirdother parties.  The Company is pursuing furtheradditional opportunities to recover its investment in intellectual property through partnering and other arrangements.

The semiconductor memory industry is experiencing a severe downturn due to a significant oversupply of products.  The downturn has been exacerbated by global economic conditions which have adversely affected demand for semiconductor memory products.  Average selling prices per gigabit for the Company’s DRAM Joint Venturesand NAND Flash products declined 52% and 56%, respectively, for 2009 as compared to 2008, after declining 51% and 67%, respectively, for 2008 as compared to 2007, and declining 23% and 56%, respectively, for 2007 as compared to 2006.  These declines significantly outpaced the long-term historical pricing trend.  As a result of these market conditions, the Company and other semiconductor memory manufacturers reported substantial losses in recent periods.  The Company reported a net loss of $1.8 billion for 2009 after reporting net losses of $1.6 billion for 2008 and $320 million for 2007.

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In response to adverse market conditions, the Company initiated restructure plans in 2009, primarily within the Company’s Memory segment.  In the first quarter of 2009, IM Flash, a joint venture between the Company and Intel Corporation, terminated its agreement with the Company to obtain NAND Flash memory supply from the Company’s Boise facility, reducing the Company’s NAND Flash production by approximately 35,000 200mm wafers per month.  The Company and Intel also agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication facility.  In addition, the Company phased out all remaining 200mm DRAM wafer manufacturing operations at its Boise, Idaho, facility in the second half of 2009.

Inotera Memories, Inc. (“Inotera”):  In the first quarter of 2009, the Company acquired a 35.5% ownership interest in Inotera, a publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for $398 million.  The interest in Inotera was acquired for cash, a portion of which was funded from loan proceeds of $200 million received from Nan Ya Plastics Corporation and $85 million received from Inotera.  Nan Ya Plastics is an affiliate of Nanya Technology Corporation (“Nanya”):  In, a then 35.6% shareholder in Inotera. The loans were recorded at their fair values which reflect an aggregate discount of $31 million from their face amounts.  This aggregate discount was recorded as a reduction of the thirdCompany’s basis in its investment in Inotera.  The Company also capitalized $10 million of costs and other fees incurred in connection with the acquisition.  As a result of the above transactions, the initial carrying value of the Company’s investment in Inotera was $377 million.  On August 3, 2009, Inotera issued shares in a public offering for approximately $310 million that reduced the Company and Nanya’s ownership in Inotera to 29.8% and 29.9%, respectively.  As a result of Inotera’s public offering, the Company will recognize a gain of $59 million in the first quarter of 2008,2010.

In connection with the acquisition of the shares in Inotera, the Company and Nanya formed MeiYa,entered into a joint venturesupply agreement with Inotera (the “Inotera Supply Agreement”) pursuant to manufacturewhich Inotera will sell trench and stack DRAM and sell those products exclusively to the Company and Nanya.  As partThe Company has rights and obligations to purchase up to 50% of this transaction, the Company transferredInotera’s wafer production capacity.  Inotera’s actual wafer production will vary from time to time based on market and licensed certain intellectual property relatedother conditions.  Inotera’s trench production is expected to transition to the manufacture ofCompany’s stack DRAM products to Nanya and licensed certain intellectual property from Nanya.  Theprocess technology.  Inotera charges the Company and Nanya also agreedfor a portion of the costs associated with its underutilized capacity, if any.  The cost to jointly develop process technologythe Company of wafers purchased under the Inotera Supply Agreement is based on a margin sharing formula among the Company, Nanya and designsInotera.  Under such formula, all parties’ manufacturing costs related to manufacture stackwafers supplied by Inotera, as well as the Company’s and Nanya’s selling prices for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers from Inotera.  Under the Inotera Supply Agreement.  The Company’s purchase obligation includes purchasing Inotera’s trench DRAM capacity (less any trench DRAM products sold to Qimonda pursuant to a separate supply agreement between Inotera and Qimonda (the “Qimonda Supply Agreement”)).  Under the Qimonda Supply Agreement, Qimonda was obligated to purchase trench DRAM products resulting from wafers started for it by Inotera through July 2009 in accordance with each party bearinga ramp down schedule specified in the Qimonda Supply Agreement.  In the second quarter of 2009, Qimonda filed for bankruptcy protection and defaulted on its own development costs until such time thatobligations to purchase products from Inotera.  Pursuant to the development costs exceed a specified amount, following which such costs would be shared.  The Company’s development costs are expected to exceed Nanya’s development costs by a significant amount.  Under this arrangement,obligations under the Inotera Supply Agreement, the Company is to receive an aggregate of $232 million from Nanya and MeiYa through 2010 for licensing and technology transfer fees, of which the Company realized $40recorded $95 million of revenuecharges to cost of goods sold in 2008.  The Company will also receive royalties from Nanya on the sale of stack DRAM products manufactured by or2009 for Nanya.underutilized capacity.

On October 12, 2008,The Company’s results of operations for 2009 also include losses of $130 million for the Company’s share of Inotera’s losses from the acquisition date through the second calendar quarter of 2009.  The Company announced that it had entered into an agreement to acquire Qimonda AG’s 35.6% ownership stakeaccounts for its interest in Inotera Memories, Inc. (“Inotera”), a Taiwanese DRAM memory manufacturer, for $400 million in cash.  The Company received commitments for $285 million of term loans to fund this acquisition in part.  Inotera is expected to implementunder the Company’s stack DRAM process technology,equity method and it is anticipated that the Company will receive royalties on the sale of Inotera’s production that is delivered to Nanya, a 35.6% stakeholder indoes not consolidate Inotera.  The Company will eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50%recognizes its share of Inotera’s output.  In connection with this acquisition,earnings or losses from Inotera for a period that lags the Company’s fiscal periods by two months.  As of September 3, 2009, the Company expectshad recorded $3 million to enter intoaccumulated other comprehensive income in the accompanying consolidated balance sheet for cumulative translation adjustments for its investment in Inotera.  During the third quarter of 2009, the Company received $50 million from Inotera pursuant to the terms of a seriestechnology transfer agreement.  As of agreements with Nanya to restructure MeiYa.  It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources to Inotera.  (SeeSeptember 3, 2009, the carrying value of the Company’s equity investment in Inotera was $229 million.

(See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint VenturesSupplemental Balance Sheet Information – Equity Method Investments – DRAM Joint Venturesjoint ventures with Nanya Technology Corporation.”Nanya”)


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Aptina Imaging Business:Corporation (“Aptina”):  On July 10, 2009, the Company sold a 65% interest in Aptina, previously a wholly-owned subsidiary of the Company and a significant component of the Company’s Imaging segment, to Riverwood Capital (“Riverwood”) and TPG Capital (“TPG”).  In connection with the transaction, the Company received approximately $35 million in cash and retained a 35% interest in Aptina.  A portion of the 65% interest held by Riverwood and TPG are convertible preferred shares and have a liquidation preference over the common shares.  As a result, the Company’s interest represents 64% of Aptina’s common stock.  The Company is exploring partnering arrangements with outside parties regarding the separation ofalso retained all cash held by Aptina and its CMOS image sensor business, operating under the name “Aptina,” to an independent entity in which the Company would retain a significant minority ownership interest.  To that end, the Company began operating its Imaging business as a separate wholly-owned subsidiary in October 2008.  Under the arrangements being considered, the Company expects that it will continue to manufacture CMOS image sensors for some period of time.

Goodwill Impairment:  In the second quarter of 2008, thesubsidiaries.  The Company recorded a noncash impairment chargeloss of $463$41 million in connection with the sale. Under the equity method, the Company will recognize its share of Aptina’s results of operations based on its 64% share of Aptina’s common stock on a two-month lag beginning in 2010.  As of September 3, 2009, the Company’s investment in Aptina was $44 million.  The Company’s Imaging segment continues to manufacture products for Aptina under a wafer supply agreement.  The Company anticipates that pricing under the goodwill recordedAptina wafer supply agreement will generally result in its Memory segment.lower gross margins than historically realized on sales of Imaging products to end customers.  The Company also anticipates that the sale of majority interest in Aptina will significantly reduce the Imaging segment’s research and development costs and other operating expenses.  (See “Item 8. Financial Statements – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Goodwill.”Equity Method Investments - Aptina”)

Inventory Write-Downs:write-downs: The Company’s results of operations for the fourth, second and first quarters of 2008 and the fourth quarter of 20072009 included charges of $205 million, $15 million, $62$234 million and $20$369 million, respectively, to write down the carrying value of work in process and finished goods inventories of Memorymemory products (both DRAM and NAND Flash) to their estimated market values.  For the fourth, second and first quarters of 2008, the Company recorded inventory charges of $205 million, $15 million and $62 million, respectively.

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Results of Operations

 2008  2007  2006   2009  2008  2007  
 (in millions and as a percent of net sales)   (in millions and as a percent of net sales)  
                                  
Net sales:
                                  
Memory
 $5,188  89 % $5,001  88 % $4,523  86 % $4,290   89 % $5,188   89 % $5,001   88 %
Imaging
  653   11 %  687   12 %  749   14 %  513   11 %  653   11 %  687   12 %
 $5,841   100 % $5,688   100 % $5,272   100 % $4,803   100 % $5,841   100 % $5,688   100 %
                                                
Gross margin
                        
Gross margin:
                        
Memory
 $(241) (5)% $845  17 % $878  19 % $(521)  (12) % $(241)  (5) % $845   17 %
Imaging
  186   28 %  233   34 %  322   43 %  82   16 %  186   28 %  233   34 %
 $(55) (1)% $1,078  19 % $1,200  23 % $(439)  (9) % $(55)  (1) % $1,078   19 %
                                                
Selling, general and administrative
 $455  8 % $610  11 % $460  9 % $354   7 % $455   8 % $610   11 %
Research and development
 680  12 % 805  14 % 656  12 %  647   13 %  680   12 %  805   14 %
Restructure
  70   1 %  33   1 %  19   0 %
Goodwill impairment
 463  8 % --  --  --  --   58   1 %  463   8 %  --   -- 
Restructure
 33  1 % 19  0 % --  -- 
Other operating (income) expense, net
 (91) (2)% (76) (1)% (266) (5)%  107   2 %  (91)  (2) %  (76)  (1) %
Net income (loss)
 (1,619) (28)% (320) (6)% 408  8 %  (1,835)  (38) %  (1,619)  (28) %  (320)  (6) %

The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31.

Net Sales

Total net sales for 2009 decreased 18% as compared to 2008 primarily due to a 17% decrease in Memory sales and a 21% decrease in Imaging sales.  Memory sales for 2009 reflect significant declines in per gigabit average selling prices partially offset by significant increases in gigabits sold as compared to 2008.  Memory sales were 89% of total net sales for 2009 and 2008 and 88% for 2007.  The 21% decrease in Imaging sales for 2009 was primarily due to lower sales volume and average sales prices.  Total net sales for 2008 increased 3% as compared to 2007 primarily due to a 4% increase in Memory sales partially offset by a 5% decrease in Imaging sales.


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In response to adverse market conditions, the Company shut down production of NAND for IM Flash at the Company’s Boise fabrication facility beginning in the second quarter of 2009 and phased out the remainder of its 200mm DRAM production at the Boise fabrication facility in the second half of 2009.  In addition, the Company implemented production slowdowns at some of its manufacturing facilities during 2009.  Production of Memory sales for 2008 reflect significant increasesand Imaging products in gigabits2009 was affected by the shutdown of the Boise fabrication facility and slowdowns at other facilities.  The Company will adjust utilization of 200mm wafer processing capacity as product demand varies.

The Company has formed partnering arrangements under which it has sold partially offset by significant declinesand/or licensed technology to other parties.  The Company’s Memory segment recognized royalty and license revenue of $135 million in per gigabit average selling prices as compared to 2007.  Memory sales were 89% of total net sales for 2008, 88% for 20072009 and 86% for 2006.  Imaging sales for 2008 decreased 5% from 2007 primarily reflecting pricing pressure.  Total net sales for 2007 increased 8% as compared to 2006 primarily due to an 11% increase$58 million in Memory sales partially offset by an 8% decline in Imaging sales.2008.

Memory:  Memory sales for 2009 decreased 17% from 2008 primarily due to a 23% decrease in sales of DRAM products and a 10% decrease in sales of NAND Flash products.

Sales of DRAM products for 2009 decreased from 2008 primarily due to a 52% decline in average selling prices mitigated by a 56% increase in gigabits sold.  Gigabit production of DRAM products increased 52% for 2009 despite the shutdown of the Boise fabrication facility and production slowdowns at other 200mm wafer fabrication facilities.  The DRAM production increase was primarily due to production efficiencies achieved primarily through transitions to higher density, advanced geometry devices.  In the fourth quarter of 2009, the Company began receiving trench DRAM products from Inotera.  The Company expects that in 2010 its DRAM production will increase as a result of increases in stack and trench DRAM production purchased from Inotera. Sales of DDR2 and DDR3 DRAM, the Company’s highest volume products, were 29% of the Company’s total net sales for 2009 and 2008 and were 32% for 2007.

The Company sells NAND Flash products in three principal channels: 1) to Intel Corporation (“Intel”) through its IM Flash consolidated joint venture at long-term negotiated prices approximating cost, 2) to original equipment manufacturers (“OEM’s”) and other resellers and 3) to retail customers.  Aggregate sales of NAND Flash products for 2009 decreased 10% from 2008 and represented 39% of the Company’s total net sales for 2009 as compared to 35% for 2008 and 23% for 2007

Sales through IM Flash to Intel were $886 million for 2009, $1,037 million for 2008 and $497 million for 2007.  For 2009, average selling prices for IM Flash sales to Intel decreased significantly due to a 61% reduction in costs per gigabit.  However, gigabit sales to Intel were 110% higher in 2009 as compared to 2008 primarily due to an 85% increase in gigabit production of NAND Flash products over the same period as a result of the Company’s continued transition to higher density 34 nanometer (nm) NAND Flash products and other improvements in product and process technologies.  The increase in NAND Flash production was achieved despite the shutdown of 200mm NAND Flash production which began in the second quarter of 2009.  The Company expects that its gigabit production of NAND Flash products will continue to increase in 2010 but at a slower rate than in 2009.

Aggregate sales of NAND Flash products to the Company’s OEM, resellers and retail customers were 4% lower for 2009 as compared to 2008 primarily due a 52% decline in average selling prices, partially offset by a 100% increase in gigabit sales.  Average selling prices to the Company’s OEM and reseller customers for 2009 decreased approximately 41% compared to 2008, while average selling prices of the Company’s Lexar brand, directed primarily at the retail market, decreased approximately 62% for 2009 compared to 2008.

Memory sales for 2008 increased 4% from 2007 primarily due to a 55% increase in sales of NAND Flash products offset by a 15% decrease in sales of DRAM products.

Sales of NAND Flash products for 2008 increased from 2007 primarily due to an increase of approximately 370% in gigabits sold as a result of production increases partially offset by a decline of approximately 65%67% in average selling prices per gigabit.  Gigabit production of NAND Flash products increased approximately 350% for 2008 as compared to 2007, 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 2008 as compared to approximately 25% for 2007 and approximately 5% for 2006.  The Company expects that its gigabit production of NAND Flash products will continue to increase in 2009 but at a slower rate than 2008.

Sales of DRAM products for 2008 decreased from 2007 primarily due to a decline of approximately 50%51% in average selling prices (which included the effects of a $50 million charge to revenue in the first quarter of 2007 as a result of a settlement agreement with a class of direct purchasers of certain DRAM products), mitigated by an increase in gigabits sold of approximately 70%.  Gigabit production of DRAM products increased approximately 70% for 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, the Company’s highest volume products, were approximately 30% of the Company’s total net sales for 2008 and 2007 and approximately 25% for 2006.


 
3130
 

MemoryImaging:  Imaging sales for 2007 increased 11%2009 decreased by 21% from 20062008 primarily due to a 287% increase indecreased unit sales of NAND Flash products offset by an 11% decrease in sales of DRAM products.  Sales of NAND Flash products for 2007 increased from 2006 primarily due to significant increases in gigabit production and the Company’s acquisition of Lexar Media, Inc. (which occurred in the fourth quarter of 2006), partially offset by a 56% declinedeclines in average selling prices per gigabit.  Gigabit production of NAND Flashprices.  Demand for Imaging products increased over 800%in 2009 was adversely impacted by weakness in the mobile phone markets.   Imaging sales for 2007 as compared to 2006, primarily due to the ramp of NAND Flash products at2009 were also negatively impacted by the Company’s 300mm fabrication facilities and transitions to higher density, advanced geometry devices.  Sales of DRAM products for 2007 decreased from 2006 primarily due to a 23% decline in average selling prices (which included the effectssale of a $50 million charge65% interest in Aptina on July 10, 2009.  After the sale of the Company’s 65% interest in Aptina, Imaging’s revenue is derived entirely from sales of Imaging wafers to Aptina under a wafer supply agreement.  The Company anticipates that pricing under the wafer supply agreement will generally result in lower revenue inthan historically realized on sales by the first quarterCompany of 2007 as a result of a settlement agreement with a class of direct purchasers of certain DRAM products), which was partially mitigated by a 16% increase in gigabits sold.  Gigabit production of DRAMImaging products increased 23% for 2007, primarily due to transitions to higher density, advanced geometry devices.

Imaging:end customers.  Imaging sales for 2008 decreased 5% from 2007 primarily due to significant declines in average selling prices by product type partially offset by a shift in product mix from products with 1-megapixel or lower resolution to products with 3-megapixel or higher resolution, which had higher average selling prices per unit.  Imaging sales were 11% of the Company’s total net sales infor 2009 and 2008 as compared toand 12% for 2007 and 14% for 2006.  Imaging sales for 2007 decreased 8% from 2006 primarily due to declines in average selling prices as a result of industry softness in mobile handset sales and pricing pressure.  Declines in average selling prices for 2007 were mitigated by increased sales of higher resolution products.2007.

Gross Margin

The Company’s overall gross margin percentage declined from negative 1% for 2008 to negative 9% for 2009 due to declines in the gross margins for both Memory and Imaging primarily as a result of severe pricing pressure mitigated by cost reductions.  The Company’s overall gross margin percentage declined from 19% for 2007 to negative 1% for 2008 primarily due to a decrease in the gross margin percentage for Memory as a result of the significant declines in per gigabit average selling prices.  TheProduction slowdowns implemented at some of the Company’s overall gross margin percentage for 2007 declined to 19% from 23% for 2006 due to a decrease in both the gross margin percentages for200mm manufacturing facilities during 2009 adversely affected per gigabit costs of Memory products and per unit costs of Imaging products.

Memory:  The Company’s gross margin percentage for Memory products declined from 17% for 2007 to negative 5% for 2008 to negative 12% for 2009 primarily due to declines in the gross margin for DRAM products partially offset by improvements in the gross margin for NAND Flash products.  Gross margins for 2009 were positively affected by significant decreases in average selling pricescost reductions for DRAM and the shift in product mix to NAND Flash products (which had a significantly lower gross margin than DRAMand the effects of selling memory products that were subject to inventory write-downs in 2008, as discussed in more detail below.  Gross margins for Memory products in 2008), mitigated2009 were adversely affected by cost reductions.$187 million of costs associated with underutilized capacity, primarily from Inotera and IM Flash’s Singapore facility.  The Company expects that underutilized capacity costs from Inotera will decrease substantially in 2010 as Inotera increases its utilization of production capacity.

The Company’s gross margins for Memory in 2009, 2008 and 2007 were reducedimpacted by a $205 million charge in the fourth quarter of 2008charges to write-downwrite down inventories to their estimated market values as a result of the significant decreases in average selling prices for both DRAM and NAND Flash Products.products.  As charges to write down inventories are recorded in advance of when inventories are sold, gross margins in subsequent reporting periods are higher than they otherwise would be.  The Company’simpact of inventory write-downs of $15 million and $62 million in the second and first quarters of 2008, respectively, did not significantly impact 2008on gross margins for all periods reflects inventory write-downs less the estimated net effect of prior period write-downs.  The effects of inventory write-downs on gross margin by period were as a substantial portion of the written-down inventory was sold in 2008.  Gross margins for 2007 were reduced by a $20 million inventory write-down in the fourth quarter of 2007.  follows:

  2009  2008  2007 
          
Inventory write-downs $(603) $(282) $(20)
Estimated effect of previous inventory write-downs  767   98   -- 
Net effect of inventory write-downs
 $164  $(184) $(20)

In future periods, the Company wouldwill be required to 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 thesethose products.

Declines in gross margins on sales of DRAM products for 2009 as compared to 2008 were primarily due to the 52% decline in average selling prices mitigated by 40% reduction in costs per gigabit.  The reduction in DRAM costs per gigabit was primarily due to production efficiencies achieved through transitions to higher-density, advanced-geometry devices.  DRAM production costs for 2009 were adversely impacted by $95 million of underutilized capacity costs from Inotera.

The Company’s gross margin on sales of NAND Flash products for 2009 improved from 2008, despite a 56% decrease in overall average selling prices per gigabit, primarily due to a 61% reduction in costs per gigabit.  The reduction in NAND Flash costs per gigabit was primarily due to lower manufacturing costs as a result of increased production of higher-density, advanced-geometry devices, in particular from the Company’s transition to 34nm process technology.  Gross margins on sales of NAND Flash products reflect sales of approximately half of IM Flash’s output to Intel at long-term negotiated prices approximating cost.

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The Company’s gross margin percentage for Memory products declined from 17% for 2007 to negative 5% for 2008 primarily due to the significant decreases in average selling prices, write-downs of inventories to their estimated market values and the shift in product mix to NAND Flash products (which had a significantly lower gross margin than DRAM products in 2008), mitigated by cost reductions.  The Company’s gross margin for DRAM products for 2008 declined from 2007, primarily due to the decrease51% decline in average selling prices per gigabit of approximately 50% mitigated by a 38% reduction in costs per gigabit.  The Company achieved cost reductions for DRAM products through transitions to higher-density, advanced-geometry devices.  Cost reductions in 2008 for DRAM products were partially offset by the inventory write-downs.  Excluding the inventory write-downs, the Company reduced its DRAM costs per gigabit by approximately 35% for 2008 as compared to 2007.

The Company’s gross margin for NAND Flash products for 2008 declined from 2007 primarily due to the decrease67% decline in average selling prices per gigabit of approximately 65% mitigated by a 64% reduction in costs per gigabit.  Cost reductions in 2008 primarily 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.   NAND Flash costs for 2008 were also reduced by a recovery of $70 million for price adjustments for NAND Flash products purchased from other suppliers in prior periods.  Cost reductions in 2008 for NAND Flash Products were partially offset by the inventory write-downs.  Excluding the inventory write-downs and the effect of pricing adjustments from other suppliers, the Company reduced its NAND Flash costs per gigabit by approximately 65%.  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 $1,037 million, $497 million and $114 million for 2008, 2007 and 2006, respectively.


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Imaging:The Company’s gross margin percentage for Memory products of 17% for 2007Imaging declined from 19%28% for 20062008 to 16% for 2009 primarily due to declines in average selling prices and costs associated with underutilized production capacity.  The decrease in the gross margin percentage for 2009 was mitigated by a shift in product mix from DRAMto products with 3-megapixels or more, which realized higher margins.  Imaging gross margins subsequent to NAND Flash products, which hadthe Company’s sale of a significantly65% interest in Aptina on July 10, 2009, are affected by the transition to a wafer foundry manufacturing model where Imaging sells all of its output to Aptina under a wafer supply agreement.  The Company anticipates that pricing under the wafer supply agreement will generally result in lower gross marginmargins than DRAM products in 2007.  This decline in gross margin percentage was mitigatedhistorically realized by improvements in the gross margin for 2007Company on sales of both DRAM and NAND FlashImaging products as compared to 2006.  The gross margin for DRAM products for 2007 improved from 2006, primarily due to a reduction in costs per gigabit of approximately 25%, partially offset by a decline in average selling prices of approximately 25%.  The Company achieved cost reductions for DRAM products through transitions to production of devices utilizing the Company’s 78nm process technologies.  The Company’s gross margin for NAND Flash products for 2007 improved slightly from 2006 primarily due to a reduction in costs per gigabit of approximately 55%, partially offset by a decline in average selling prices of approximately 55%.  Cost reductions in 2007 reflect lower manufacturing costs, lower costs of NAND Flash products purchased for sale under the Company’s Lexar brand and shifts in product mix.  The Company achieved manufacturing cost reductions for NAND Flash products primarily through increased production of higher-density, advanced-geometry devices at the Company’s 300mm fabrication facilities.

In 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 2008, 2007 and 2006.  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 8. Financial Statements – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)

Imaging:end customers.  The Company’s gross margin for Imaging declined to 28% for 2008 from 34% for 2007 primarily due to declines in average selling prices mitigated by cost reductions and a shift to higher resolution products whichthat realized better gross margins.  The Company’s gross margin for Imaging declined to 34% for 2007 from 43% for of 2006 primarily due to declines in average selling prices that were mitigated by cost reductions and shifts in product mix to higher resolution products.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses for 2009 decreased 22% from 2008, primarily due to lower payroll expenses and other costs related to the Company’s restructure initiatives and lower legal expenses.  Lower payroll expenses reflect reductions in headcount, variable pay, salary levels and employee benefits.  SG&A expenses for 2008 decreased 25% from 2007 primarily due to lower legal costs as well as lower payroll costs and other expenses driven by the Company’s restructure initiatives.  The reduction of payroll costs in 2008 was primarily the result of a decrease in employee headcount.  In 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.  SG&A expenses for 2007 increased 33% from 2006 primarily due to higher personnel costs and higher legal costs including the $31 million charge for settlement of the direct purchaser lawsuits.  Personnel costs in 2007 increased from 2006 primarily due to increased headcount resulting from the acquisition of Lexar in the fourth quarter of 2006, the formation of IM Flash in the second quarter of 2006 and subsequent ramp of its operations, and the consolidation of TECH in the third quarter of 2006.  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 by segment were as a percentage of sales were 7% in 2008, 11% in 2007 and 8% in 2006.  For the Imaging segment, SG&A expenses as a percentage of sales were 11% in 2008, 11% in 2007 and 12% in 2006.follows:

  2009  2008  2007 
          
Memory segment
 $315  $385  $532 
Imaging segment
  39   70   78 
  $354  $455  $610 

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 2009 decreased 5% from 2008 primarily due to lower payroll costs and decreases in costs of development wafers processed.  Lower payroll expenses reflect reductions in variable pay, salary levels and employee benefits.  R&D expenses were reduced by $107 million in 2009, $148 million in 2008 and $240 million in 2007 for amounts reimbursable from Intel under a NAND Flash R&D cost-sharing arrangement.  R&D expenses for 2008 decreased 16% from 2007 primarily due to decreases in development wafers processed and lower payroll costs driven by the Company’s restructure initiatives.  The Company expects that the sale of a majority interest in Aptina in the fourth quarter of 2009 will reduce R&D expenses for 2007 increased 23% from 2006 primarily due to NAND pre-production wafer processing mitigated by reimbursements received from Intel under a NAND Flash R&D cost-sharing arrangement.in future periods.  R&D expenses by segment were reduced by $148 million in 2008, $240 million in 2007 and $86 million in 2006 for amounts reimbursable from Intel under the NAND Flash R&D cost-sharing arrangement.  For the Memory segment, R&D expenses as a percentage of sales were 10% for 2008, 13% for 2007 and 13% for 2006.  For the Imaging segment, R&D expenses as a percentage of sales were 22% for 2008, 23% for 2007 and 11% for 2006.follows:


 
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  2009  2008  2007 
          
Memory segment
 $529  $536  $648 
Imaging segment
  118   144   157 
  $647  $680  $805 

The Company’s process technology research and development (“R&D&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-generationnext generation memory products and CMOS image sensors.products.  Additional process technology R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage the Company’s core semiconductor expertise, and the development of new manufacturing materials.  Product design and development efforts are concentrated on the Company’s 1 Gbhigh density DDR3 and 2 Gb DDR2 and DDR3mobile products, as well as high density and mobile NAND Flash memory (including MLC technology), specialty memory products and memory systemssystems.

Restructure

In response to a severe downturn in the semiconductor memory industry and CMOS image sensors.global economic conditions, the Company initiated restructure plans in 2009 primarily within the Company’s Memory segment.  In the first quarter of 2009, IM Flash, a joint venture between the Company and Intel, terminated its agreement with the Company to obtain NAND Flash memory supply from the Company’s Boise facility, reducing the Company’s NAND Flash production by approximately 35,000 200mm wafers per month.  In connection with the termination of the NAND Flash memory supply agreement, Intel paid the Company $208 million in 2009.  The Company and Intel also agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication facility.  In addition, the Company phased out all remaining 200mm DRAM wafer manufacturing operations in Boise, Idaho in the second half of 2009.  As a result of these restructure plans, the Company reduced employment in 2009 by approximately 4,600 employees, or approximately 20%.  Due to improvements in market conditions and the pursuit of new business opportunities, future reduction in employees may not occur.  In 2008 and 2007, to reduce costs, the Company implemented restructure initiatives including workforce reductions and relocating and outsourcing certain of its operations.  The following table summarizes restructure charges (credits) resulting from the Company’s restructure activities:

  2009  2008  2007 
          
Write-down of equipment $152  $--  $-- 
Severance and other employee costs  60   23   18 
Gain from termination of NAND Flash supply agreement  (144)  --   -- 
Other  2   10   1 
  $70  $33  $19 

Goodwill Impairment

In the second quarter of 2008,2009, the Company’s Imaging segment experienced a severe decline in sales, margins and profitability due to a significant decline in demand for products as a result of the downturn in global economic conditions.  The drop in market demand resulted in significant declines in average selling prices and unit sales.  Due to these market and economic conditions, the Company’s Imaging segment and its competitors experienced significant declines in market value.  As a result, the Company concluded that there were sufficient factual circumstances for interim impairment analyses under SFAS No. 142 and it performed an assessment of goodwill for impairment.  Based on the results of the impairment for goodwill.  analysis, the Company wrote off all $58 million of goodwill relating to its Imaging segment in the second quarter of 2009.

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.

  Due to these market and economic conditions, the Company concluded that there were sufficient factual circumstances for interim impairment analyses of its Memory segment under SFAS No. 142 and it 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 the 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 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 withrelating to its Memory segment as of February 28, 2008.  The Company’s assessment of goodwill for impairment in the second and fourth quartersquarter of 2008 indicated that the fair value of the Imaging segment exceeded its carrying value and therefore goodwill in the segment was not impaired.  (See2008.

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(See “Item 8. 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 2008, the Company recorded charges of $33 million, primarily within its Memory segment, for employee severance and related costs, relocation and retention bonuses and a write-down of certain facilities to their fair values.  Since the restructure initiatives were initiated in the fourth quarter of 2007, the Company has incurred $52 million of restructure costs.

On October 9, 2008 the Company announced a plan to restructure its Memory operations.  The Company’s IM Flash joint venture with Intel Corporation will discontinue production of 200mm wafer NAND flash memory at Micron’s Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  In addition, the Company and Intel agreed to suspend tooling and the ramp of production at IM Flash’s Singapore wafer fabrication plant.  As part of the restructuring, the Company plans to reduce its global workforce by approximately 15 percent during 2009 and 2010.  Cash costs for restructuring and other related expenses incurred in connection with this restructuring are anticipated to be approximately $60 million, and the benefit to the Company’s cash operating results for 2009 is expected to exceed $175 million.

Other Operating (Income) Expense, Net

Other operating (income) expense consisted of the following:

  2009  2008  2007 
          
(Gain) loss on disposition of property, plant and equipment $54  $(66) $(43)
Loss on sale of majority interest in Aptina  41   --   -- 
Losses from changes in currency exchange rates  30   25   14 
Other  (18)  (50)  (47)
  $107  $(91) $(76)

In the table above, “Other” for 2008 included gains of $66 million for disposals of semiconductor equipment and $38 million for receipts from the U.S. government in connection with anti-dumping tariffs.  Other operating expenses for 2008 included losses of $25 million from changes in currency exchange rates.  Other operating (income)tariffs and for 2007, included gains of $43 million from disposals of semiconductor equipment, $30 million from the sale of certain intellectual property to Toshiba Corporation and $7 million in grants received in connection with the Company’s operations in China.  Other operating expense for 2007 included losses of $14 million from changes in currency exchange rates.  Other operating (income) for 2006 included $230 million of net proceeds for the sale of the Company’s existing NAND Flash memory designs and certain related technology to Intel, net of amounts paid by the Company for a perpetual, paid-up license to use and modify such designs.  Other operating (income) for 2006 also included $23 million in additional amounts expected to be reimbursed resulting from the extension of an economic development agreement, which allows the Company to recover amounts relating to certain investments in IM Flash.


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Income Taxes

Income taxes for 2009, 2008 2007 and 20062007 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 2009, 2008 2007 and 20062007 was substantially offset by changes in the valuation allowance.  As of August 28, 2008,September 3, 2009, the Company had aggregate U.S. tax net operating loss carryforwards of $2.7$4.2 billion and unused U.S. tax credit carryforwards of $205$212 million.  The Company also had unused state tax net operating loss carryforwards of $1.8$2.6 billion and unused state tax credits of $189$198 million as of August 28, 2008.September 3, 2009.  Substantially all of the net operating loss carryforwards expire in 2022 to 20282029 and substantially all of the tax credit carryforwards expire in 2013 to 2028.2029.  Due to the expiration of certain foreign statutes of limitations, which expired on December 31, 2007, the Company recognized approximately $15 million of previously unrecognized tax benefits in 2008.

Equity in Net Losses of Equity Method Investees

In connection with its DRAM partnering arrangements with Nanya, the secondCompany has investments in two Taiwan DRAM memory companies accounted for as equity method investments:  Inotera and MeiYa.  Inotera and MeiYa each have fiscal years that end on December 31.  The Company recognizes its share of Inotera’s and MeiYa’s quarterly earnings or losses for the calendar quarter that ends within the Company’s fiscal quarter.  This results in the recognition of 2008.the Company’s share of earnings or losses from these entities for a period that lags the Company’s fiscal periods by two months.  The Company recognized losses from these equity method investments of $140 million for 2009.

As a result of its sale of a 65% interest in its Aptina subsidiary on July 10, 2009, the Company’s investment in Aptina is accounted for as an equity method investment.  The Company’s shares in Aptina constitute 35% of Aptina’s total common and preferred stock and 64% of Aptina’s common stock.  Under the equity method, the Company recognizes its share of Aptina’s results of operations based on its 64% share of Aptina’s common stock on a two-month lag beginning in 2010.

(See “Item 8. Financial Statements – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Equity Method Investments.”)

Noncontrolling Interests in Net (Income) Loss

Noncontrolling interests for 2009, 2008 2007 and 20062007 primarily reflects the share of income or losses of the Company’s TECH joint venture attributableattributed to the noncontrolling interests in TECH.  On March 30, 2007, theThe Company acquired all of the sharespurchased $99 million of TECH common stock held by the Singapore Economic Development Board, which had the effectshares on February 27, 2009, $99 million of reducing theTECH shares on June 2, 2009, and $60 million of TECH shares on August 27, 2009.  As a result, noncontrolling interests in TECH were reduced from approximately 27% as of that date from 57%August 28, 2008 to 27%.approximately 15% in August 2009.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)


Stock-Based
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Stock-based Compensation

Total compensation cost for the Company’s equity plans in 2009, 2008 and 2007 and 2006 was $44 million, $48 million and $44 million, and $26 million, respectively.  Stock compensation expenses fluctuate based on assessments of whether performance conditions will be achieved for the Company’s performance-based stock grants.  As of August 28, 2008, August 30, 2007 and August 31, 2006, $3 million, $3 million and $1 million of stock-based compensation expense was capitalized and remained in inventory.  As of August 28, 2008, $107September 3, 2009, $71 million of total unrecognized compensation cost related to non-vested awards was expected to be recognized through the fourth 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.2013.


Liquidity and Capital Resources

As of August 28, 2008,September 3, 2009, the Company had cash and equivalents and short-term investments totaling $1.4 billion$1,485 million compared to $2.6 billion$1,362 million as of August 30, 2007.28, 2008.  The balance as of August 28, 2008,September 3, 2009, included an aggregate of $508$114 million held at the Company’s IM Flash joint ventures and $188 million held at the Company’s TECH joint ventures.venture.  The Company’s ability to access funds held by the joint ventures to finance the Company’s other operations is subject to agreement by the joint venture partners.partners, debt covenants and contractual limitations.  Amounts held by TECH are not anticipated to be available to finance the Company’s other operations.

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.  Depending on conditions in the semiconductor memory market, the Company’s cash flows from operations and current holdings of cash and investments may not be adequate to meet the Company’s current and long-term needs for capital expenditures and operations.  Historically, the Company has used external sources of financing to fund these needs.  Due to conditions in the credit markets, someit may be difficult to obtain financing instruments used by the Company in the past are currently not availableon terms acceptable to the Company.  As a result,The Company significantly reduced its actual capital expenditures for 2009 and planned capital expenditures for 2010.  In addition, the Company is pursuingconsidering further financing alternatives, delayingcontinuing to limit capital expenditures and implementing further cost-cuttingcost reduction initiatives.  The Company has the ability and intent to significantly reduce capital expenditures and limit contributions to joint venture partners if necessary to meet its operating obligations.

Operating Activities:activities:  The Company generated $1.0 billion ofNet cash fromprovided by operating activities was $1,206 million in 2008,2009 which primarily reflectsreflected approximately $642 million generated from the production and sales of the Company’s $1.6 billionproducts and approximately $564 million provided from the management of net loss adjustedworking capital.  Specifically, the Company reduced the amount of working capital as of September 3, 2009 invested in inventories by $2.1 billion for noncash depreciation$304 million and amortization expense and a $463receivables by $126 million noncash goodwill impairment charge.as compared to August 28, 2008.


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Investing Activities:activities:  Net cash used byfor investing activities was $2.1 billion$674 million in 2008,2009, which included cash expenditures of $488 million for property, plant and equipment and cash expenditures of $2.5 billion$408 million for the acquisition of a 35.5% interest in Inotera, partially offset by the net effect of purchases, salesmaturities and maturitiespurchases of marketable investment securities of $288 million and $187 million in proceeds from sales of equipment.$124 million.  A significant portion of the capital expenditures relaterelated to the ramp of IM Flash facilities and 300mm conversion of manufacturing operations at TECH.TECH operations.  The Company believes that to develop new product and process technologies, support future growth, achieve operating efficiencies and maintain product quality, it must continue to invest in manufacturing technologies, facilities and capital equipment and research and development.  The Company expects 2009that capital spending will be approximately $750 million to approximate $1.0 billion to $1.3 billion.$850 million for 2010.  As of August 28, 2008,September 3, 2009, the Company had commitments of approximately $300$276 million for the acquisition of property, plant and equipment, nearly allmost of which areis expected to be paid within one year.

Financing Activities:activities:  Net cash provided byused for financing activities was $125$290 million in 2008,2009, which primarily reflects $837$705 million of distributions to joint venture partners, $429 million in debt payments and $144 million in payments on equipment purchase contracts, partially offset by $716 million in proceeds from borrowings and $268$276 million in cash contributions received (netnet proceeds from the issuance of distributions paid) from joint venture partners partially offset by $698 million in debt payments and $387 million in payments on equipment purchase contracts.common stock.

DuringOn April 15, 2009, the Company issued 69.3 million shares of common stock for $4.15 per share in a registered public offering.  The Company received net proceeds of $276 million after deducting underwriting fees and other offering costs of $12 million.

On April 15, 2009, the Company issued $230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “4.25% Senior Notes”).  Issuance costs associated with the 4.25% Senior Notes totaled $7 million. The initial conversion rate for the 4.25% Senior Notes is 196.7052 shares of common stock per $1,000 principal amount of the 4.25% Senior Notes. This is equivalent to an initial conversion price of approximately $5.08 per share of common stock. Holders of the 4.25% Senior Notes may convert their 4.25% Senior Notes at any time prior to maturity, unless previously redeemed or repurchased.  The Company may not redeem the 4.25% Senior Notes prior to April 20, 2012.  On or after April 20, 2012, the Company may redeem for cash all or part of the 4.25% Senior Notes if the closing price of its common stock has been at least 135% of the conversion price for at least 20 trading days during a 30 consecutive trading day period.

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Concurrent with the offering of the 4.25% Senior Notes, the Company also entered into capped call transactions (the “2009 Capped Calls”) that have an initial strike price of approximately $5.08 per share, subject to certain adjustments, which was set to equal the initial conversion price of the 4.25% Senior Notes.  The 2009 Capped Calls have a cap price of $6.64 per share and cover an approximate combined total of 45.2 million shares of common stock, and are subject to standard adjustments for instruments of this type.  The 2009 Capped Calls are intended to reduce the potential dilution upon conversion of the 4.25% Senior Notes.  If, however, the market value per share of the common stock, as measured under the terms of the 2009 Capped Calls, exceeds the applicable cap price of the 2009 Capped Calls, there would be dilution to the extent that the then market value per share of the common stock exceeds the cap price.  The 2009 Capped Calls expire in October and November of 2012.  The Company paid approximately $25 million to purchase the 2009 Capped Calls.

On February 23, 2009, the Company entered into a Singapore dollar-denominated term loan agreement with the Singapore Economic Development Board (“EDB”) enabling the Company to borrow up to $300 million Singapore dollars at 5.4% per annum.  The terms of the agreement require the Company to use the proceeds from any borrowings under the agreement to make equity contributions to its TECH Company’s joint venture subsidiary.  The loan agreement further required that TECH use the proceeds from the Company’s equity contributions to purchase production assets and meet certain production milestones related to the implementation of advanced process manufacturing.  The loan contains a covenant that limits the amount of indebtedness TECH can incur without approval from the EDB.  The loan is collateralized by the Company’s shares in TECH up to a maximum of 66% of TECH’s outstanding shares.  The Company drew $150 million Singapore dollars in the second quarter of 2009 and an additional $150 million Singapore dollar in the third quarter of 2009.  The aggregate $300 million Singapore dollars outstanding ($208 million U.S. dollars as of September 3, 2009) is due in February 2012 with interest payable quarterly.

In the first quarter of 2009, in connection with its purchase of its interest in Inotera, the Company entered into a two-year, variable rate term loan with Nan Ya Plastics and a six-month, variable rate term loan with Inotera.  The Company received loan proceeds of $200 million from Nan Ya Plastics and $85 million from Inotera.  The Company repaid the $85 million Inotera loan in the third quarter of 2009.  Under the terms of the Nan Ya Plastics loan agreement, interest is payable quarterly at LIBOR plus 2%.  The interest rate resets quarterly and was 2.4% per annum as of September 3, 2009.  Based on imputed interest rate of 12.1%, the Company recorded the Nan Ya Plastics loan net of a discount of $28 million, which is recognized as interest expense over the life of the loan.  The Nan Ya Plastics loan is collateralized by a first priority security interest in the Inotera shares owned by the Company (approximate carrying value of $229 million as of September 3, 2009).

In 2008, the Company’s TECH joint venture subsidiary borrowed $240drew $600 million againstunder 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 2008, TECH drew $600 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 $1,741$1,498 million as of August 28, 2008)September 3, 2009) and contains 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 facilityTECH repaid $50 million of principal amounts in 2009 and remaining payments are due in approximately equal$50 million quarterly installments over 13 quarters commencing infrom September 2009 through May 2009.  Beginning March 2009,2012.  Under the terms of the credit facility, TECH will be required to maintainheld $30 million in restricted cash and this restricted cash requirement will increaseas of September 3, 2009, which was increased to $60 million in September 2009.the first quarter of 2010.  The Company has guaranteed approximately 73%85% of the outstanding amount of theborrowed under TECH’s credit facility withand the Company’s obligation increasingguarantee could increase up to 100% of the outstanding amount ofborrowed under the facility uponbased on further increases in the occurrence of certain conditions.  As a condition to granting the guarantee, the Company has a second position priorityCompany’s ownership interest in all of the assets of TECH behind the lenders.  (Seeand other conditions.

(See “Item 8. Financial Statements – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Debt.”)

As of August 28, 2008, the Company had notes payable of $108 million, denominated in Japanese yen, that was subject to customary covenants, including the ratio of debt to equity.  As a result of financing that the Company is pursuing for its acquisition of a 35.6% interest in Inotera, the Company may prepay all of this debt in the first quarter of 2009 to avoid potential violations of these covenants.

Joint Ventures:ventures:  As of August 28, 2008,In 2009, IM Flash had $393 million of cash and marketable investment securities.  IM Flash plans to make distributions of approximately $420distributed $695 million to Intel throughand the end of 2009.Company expects that it will make additional distributions to Intel in 2010.  Timing of these distributions and any future 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.

The Company purchased $99 million of TECH shares on February 27, 2009, $99 million of TECH shares on June 2, 2009, and $60 million of TECH shares on August 27, 2009.  As a result, the Company’s ownership interest in TECH increased from approximately 73% as of August 28, 2008 TECH had $115 million of cash and marketable investment securities.to approximately 85% in August 2009. The Company expects to make additional capital contributions to TECH in 2009.2010 to support its continued transition to 50nm wafer processing.  The timing and amount of these contributions is subject to market conditions and partner participation.conditions.

In the third quarter of 2008, the Company entered into a joint venture arrangement with Nanya.  Under this arrangement, 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. On October 12, 2008, the Company announced that it had entered into an agreement to acquire Qimonda AG’s 35.6% ownership stake in Inotera, a Taiwanese DRAM memory manufacturer, for $400 million in cash.  The Company received commitments of $285 million of term loans to fund this acquisition in part.  In connection with this acquisition, the Company expects to enter into a series of agreements with Nanya (a 35.6% stakeholder in Inotera) to restructure the MeiYa joint venture between the Company and Nanya.  It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources to Inotera.  The Company and Nanya each contributed $84 million in cash to MeiYa in 2008.  (See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – DRAM Joint Ventures with Nanya Technology Corporation.”)


 
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Contractual Obligations:obligations:  The following table summarizes the Company’s significant contractual obligations at August 28, 2008,September 3, 2009, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods.

 Total  
Less than
1 year
  1-3 years  3-5 years  
More than
5 years
 
 (in millions)  Total  
Less than
1 year
  1-3 years  3-5 years  
More than
5 years
 
                              
Notes payable (1)
 $2,299  $158  $614  $202  $1,325  $2,785  $337  $854  $1,594  $-- 
Capital lease obligations (1)
 767  215  409  62  81   650   188   323   42   97 
Operating leases
 94  18  28  22  26   73   17   24   17   15 
Purchase obligations
 695  511  147  10  27   642   469   146   9   18 
Other long-term liabilities
  338   --   205   34   99   249   --   111   35   103 
Total
 $4,193  $902  $1,403  $330  $1,558  $4,399  $1,011  $1,458  $1,697  $233 
                                        
(1) Includes interest
                                        

The obligations disclosed above do not include contractual obligations recorded on the Company’s balance sheet as current liabilities except for the current portion of long-term debt.  The expected timing of payment amounts of the obligations discussed above is estimated based on current information.  Timing and actual amounts paid may differ depending on the timing of receipt of goods or services, market prices or changes to agreed-upon amounts for some obligations.

Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are noncancelable, (2) the Company would incur a penalty if the agreement was cancelled, or (3) the Company must make specified minimum payments even if it does not take delivery of the contracted products or services (“take-or-pay”).  If the obligation to purchase goods or services is noncancelable, the entire value of the contract was included in the above table.  If the obligation is cancelable, but the Company would incur a penalty if cancelled, the dollar amount of the penalty was included as a purchase obligation.  Contracted minimum amounts specified in take-or-pay contracts are also included in the above table as they represent the portion of each contract that is a firm commitment.

Pursuant to the Inotera Supply Agreement, the Company has an obligation to purchase up to 50% of Inotera’s output of semiconductor memory components subject to specific terms and conditions.  As purchase quantities are based on qualified production output, the Inotera Supply Agreement does not contain a fixed or minimum purchase quantity and therefore the Company did not include its obligations under the Inotera Supply Agreement in the contractual obligations table above.  The Company’s obligation under the Inotera Supply Agreement also fluctuates due to pricing which is based on manufacturing costs and margins associated with the resale of DRAM products.  Pursuant to the Company’s obligations under the Inotera Supply Agreement, the Company purchased $46 million of trench DRAM products from Inotera in 2009.


Off-Balance Sheet Arrangements

In May 2007, in connectionConcurrent with the offering of the 1.875% Senior Notes in May 2007, the Company paid approximately $151 million for three Capped Call transactions (the “Capped Calls”).  The Capped Calls cover an aggregate of approximately 91.3 million shares of common stock.  The Capped Calls are in three equal tranches with cap prices of $17.25, $20.13 and $23.00 per share, respectively, each with an initial strike price of approximately $14.23 per share, subject to certain adjustments.  The Capped Calls expire on various dates between November 2011 and December 2012.  (SeeThe Capped Calls are intended to reduce potential dilution upon conversion of the Senior Notes.

Concurrent with the offering of the 4.25% Senior Notes in April, 2009, the Company paid approximately $25 million for three capped call instruments that have an initial strike price of approximately $5.08 per share (the “2009 Capped Calls”).  The 2009 Capped Calls have a cap price of $6.64 per share and cover an aggregate of approximately 45.2 million shares of common stock.  The Capped Calls expire in October and November of 2012.  The 2009 Capped Calls are intended to reduce potential dilution upon conversion of the 4.25% Senior Notes.

(See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Shareholders’ Equity – Capped Call Transactions.”)



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Recently Adopted Accounting Standards

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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, an entity 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 adopted SFAS No. 159 effective as of the beginning of 2009.  The Company did not elect to measure any existing items at fair value upon the adoption of SFAS No. 159.

In 2001,September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  SFAS No. 157 (as amended by subsequent FSP’s) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  The Company adopted SFAS No. 157 effective as of the beginning of 2009 for financial assets and financial liabilities.  The adoption did not have a significant impact on the Company’s financial statements.  SFAS No. 157 is also effective for all other assets and liabilities of the Company received $480 million from the issuance of warrants to purchase 29.1 million sharesas of the Company’s common stock.beginning of 2010.  The warrants entitledCompany does not expect the holdersadoption to exercise their warrants and purchase shares of common stock for $56.00 per share at any time through May 15, 2008.  Allhave a significant impact on its financial statements as of the warrants expired unexercisedadoption date.  The impact to periods subsequent to the initial adoption of SFAS No. 157 for nonfinancial assets and liabilities will depend on May 15, 2008.the nature and extent of nonfinancial assets and liabilities measured at fair value after the beginning of 2010.


Recently Issued Accounting Standards

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”), which (1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, (2) requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and (3) requires additional disclosures about an enterprise’s involvement in variable interest entities.  The Company is required to adopt SFAS No. 167 as of the beginning of 2011.  The Company is evaluating the impact the adoption of SFAS No. 167 will have on its financial statements.

In May 2008, the Financial Accounting Standards Board  (“FASB”)FASB issued FASB Staff Position (“FSP”)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 of such instruments in a manner such that interest cost will reflectbe recognized at the entity’s nonconvertible debt borrowing rate as interest cost is recognized in subsequent periods.  The Company is required to adopt FSP No. APB 14-1 atas of the beginning of 2010.  OnUpon adoption, the Company will retrospectively account for its $1.3 billion of 1.875% convertible senior notes issued in May, of 2007 under the provisions of FSP No. APB 14-1.  Based on a preliminary analysis,At issuance, the Company estimates that debt recognized on issuancecarrying value of the $1.3 billion convertible senior notes wouldwill be approximately $400$402 million lower under FSP No. APB 14-1.  TheThis difference of approximately $400$402 million wouldwill be recognized in equity as additional capital and the carrying value of the convertible senior notes will be accreted to their face amount with a charge to interest expense over the approximate seven-year term of the notes.  A significant portionnotes, resulting in additional interest expense (net of the effects of capitalized interest) of $50 million, $38 million and $12 million in 2009, 2008 and 2007, respectively.  Additional interest expense wouldwill be deferred as capitalized interest costs$53 million in accordance with the Company’s regular accounting policies2010, $57 million in 2011, $62 million in 2012, $67 million in 2013 and will impact results of operations as the assets
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that include the capitalized interest are depreciated.  The Company is continuing to evaluate the full impact that the adoption of$54 million in 2014.  Under FSP No. APB 14-1, the carrying value of the $1.3 billion convertible senior notes will have on its financial statements.be $1,006 million at September 3, 2009.

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”)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) is effective atfor the Company as of 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.


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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-controllingnoncontrolling interest be separately identified in the income statement of operations, (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 is 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 Company did not elect to measure any existing items at fair value on the adoption of SFAS No. 159.

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 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).  In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active,” which clarifies the application of SFAS No. 157 for financial assets in a market that is not active.  The Company is required to adopt SFAS No. 157 for financial assets and liabilities effective at the beginning of 2009.  The Company does not expect that the adoption in 2009 of SFAS No. 157 for financial assets and financial liabilities will have a significant impact on its financial statements.  The Company is evaluating the impact that the adoption in 2010 of SFAS No. 157 for non-financial assets and non-financial liabilities 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 “Item 8. Financial Statements – Notes to Consolidated Financial Statements – Income Taxes.”)

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 2008.2010 and must be applied prospectively, except for the presentation and disclosure requirements, which must be applied retrospectively.  As a result of the retrospective adoption, the Company’s reported total equity for 2009 and 2008 will increase by $1,986 million and $2,865 million, respectively, and its net loss for the years 2009, 2008 and 2007 will (increase) decrease by $(111) million, $(10) million and $122 million, respectively.  The effect in periods subsequent to the initial adoption of SFAS No. 155 did not have a significant impactwill depend on the amounts and balances of noncontrolling interests as of and for those periods and the nature and extent of transactions involving changes in the Company’s resultsnoncontrolling interests after the beginning of operations or financial condition.2010.



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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.  Determining whether or not to consolidate a variable interest entity may require judgment in assessing whether the Company is the entity’s primary beneficiary.

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 assetassets 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.


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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.  In the second quarter of 2009, the Company wrote off all $58 million of its goodwill related to the Imaging segment based on the results of its test for impairment.  In the second quarter of 2008, the Company wrote off all $463 million of its goodwill relating to its Memory segment based on the results of its test for impairment.

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.


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Inventories:  Inventories are stated at the lower of average cost or market value and in 2008 the Company recorded aggregate charges of $603 million in aggregate for 2009 and $282 million in aggregate for 2008, to write down the carrying value of inventories of memory products to their estimated market values.  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 market value of the Company’s semiconductor memory inventory by approximately $70$75 million at August 28, 2008.September 3, 2009.  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.


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Property, plant and equipment:  The Company reviews the carrying value of property, plant and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition.  In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets.  The estimation of future cash flows involves numerous assumptions which require judgment by the Company, including, but not limited to, future use of the assets for Company operations versus sale or disposal of the assets, future selling prices for the Company’s products and future production and sales volumes.  In addition, judgment is required by the Company in determining the groups of assets for which impairment tests are separately performed.

Research and development:  Costs related to the conceptual formulation and design of products and processes are expensed as research and development whenas incurred.  Determining when product development is complete requires judgment by the Company.  The Company deems development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability.  Subsequent to product qualification, product costs are valued in inventory.

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 basedstock-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.



 
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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of August 28, 2008, $2,063September 3, 2009, $2,359 million of the Company’s $2,726$3,098 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 $2,167$2,868 million as of September 3, 2009 and $2,411was $2,167 million as of August 28, 2008 and August 30, 2007, respectively.2008.  The Company estimates that as of August 28, 2008,September 3, 2009, a 1% decrease in market interest rates would change the fair value of the fixed-rate debt by approximately $46$55 million.  An increase inAs of September 3, 2009, $739 million of the Company’s debt was at variable interest rates and an increase of 1% would increase annual interest expense on the Company’s variable-rate debt as of August 28, 2008 by approximately $7$8 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 an aggregate of U.S. $229 million as of September 3, 2009 and U.S. $425 million as of August 28, 2008 and U.S. $448 million as of August 30, 2007.2008.  The Company also had aggregate foreign currency liabilities valued at an aggregate of U.S. $742 million as of September 3, 2009, and U.S. $580 million as of August 28, 2008 and U.S. $979 million as of August 30, 2007.2008.  Significant components of the Company’s assets and liabilities denominated in foreign currencies were as follows (in U.S. dollar equivalents):

 2009  2008 
 2008  2007  Singapore Dollars  Yen  Euro  Singapore Dollars  Yen  Euro 
 Singapore Dollars  
Yen
  
Euro
  Singapore Dollars  
Yen
  
Euro
  (in millions) 
                                    
Cash and equivalents $84  $130  $25  $58  $180  $11  $7  $8  $21  $84  $130  $25 
Net deferred tax assets --  85  2  --  76  2   --   115   1   --   85   2 
Accounts payable and accrued expenses (105) (127) (61) (116) (168) (137)  (68)  (141)  (99)  (105)  (127)  (61)
Debt (49) (108) (4) (258) (165) (5)  (289)  (25)  (4)  (49)  (108)  (4)
Other liabilities  (6)  (54)  (38)  (8)  (45)  (43)

The Company estimates that, based on its assets and liabilities denominated in currencies other than the U.S. dollar as of August 28, 2008,September 3, 2009, a 1% change in the exchange rate versus the U.S. dollar would result in foreign currency gains or losses of approximately U.S. $3 million for the Singapore dollar and U.S. $1 million for the euro and the yen.  Historically, the Company has not used derivative instruments to hedge its foreign currency exchange rate risk.

4142

Item 8.  Financial Statements and Supplementary Data


Index to Consolidated Financial Statements

 Page
  
Consolidated Financial Statements as of September 3, 2009 and August 28, 2008 and for the fiscal years ended September 3, 2009, August 28, 2008 and August 30, 2007 and for the fiscal years ended August 28, 2008, August 30, 2007, and August 31, 2006:2007: 
  
Consolidated Statements of Operations
4344
  
Consolidated Balance Sheets
4445
  
Consolidated Statements of Shareholders’ Equity
4546
  
Consolidated Statements of Cash Flows
4647
  
Notes to Consolidated Financial Statements
4748
  
Report of Independent Registered Public Accounting Firm
6977
  
Financial Statement Schedule: 
  
Schedule II – Valuation and Qualifying Accounts
7684


 
4243
 

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)

For the year ended
 
August 28,
2008
  
August 30,
2007
  
August 31,
2006
  
September 3,
2009
  
August 28,
2008
  
August 30,
2007
 
                  
Net sales $5,841  $5,688  $5,272  $4,803  $5,841  $5,688 
Cost of goods sold  5,896   4,610   4,072   5,242   5,896   4,610 
Gross margin
 (55) 1,078  1,200   (439)  (55)  1,078 
                        
Selling, general and administrative 455  610  460   354   455   610 
Research and development 680  805  656   647   680   805 
Restructure  70   33   19 
Goodwill impairment 463  --  --   58   463   -- 
Restructure 33  19  -- 
Other operating (income) expense, net  (91)  (76)  (266)  107   (91)  (76)
Operating income (loss)
 (1,595) (280) 350 
Operating loss
  (1,675)  (1,595)  (280)
                        
Interest income 79  143  101   22   79   143 
Interest expense (82) (40) (25)  (135)  (82)  (40)
Other non-operating income (expense), net  (13)  9   7   (16)  (13)  9 
Income (loss) before taxes and noncontrolling interests
 (1,611) (168) 433 
  (1,804)  (1,611)  (168)
                        
Income tax (provision) (18) (30) (18)  (2)  (18)  (30)
Equity in net losses of equity method investees, net of tax  (140)  --   -- 
Noncontrolling interests in net (income) loss  10   (122)  (7)  111   10   (122)
Net income (loss) $(1,619) $(320) $408 
Net loss
 $(1,835) $(1,619) $(320)
                        
Earnings (loss) per share:            
Loss per share:            
Basic
 $(2.10) $(0.42) $0.59  $(2.29) $(2.10) $(0.42)
Diluted
 (2.10) (0.42) 0.57   (2.29)  (2.10)  (0.42)
                        
Number of shares used in per share calculations:                        
Basic
 772.5  769.1  691.7   800.7   772.5   769.1 
Diluted
 772.5  769.1  725.1   800.7   772.5   769.1 

 


See accompanying notes to consolidated financial statements.

 
4344
 

MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)

As of
 
August 28,
2008
  
August 30,
2007
  
September 3,
2009
  
August 28,
2008
 
            
Assets            
Cash and equivalents $1,243  $2,192  $1,485  $1,243 
Short-term investments 119  424   --   119 
Receivables 1,032  994   798   1,032 
Inventories 1,291  1,532   987   1,291 
Other current assets  94   92   74   94 
Total current assets
 3,779  5,234   3,344   3,779 
Intangible assets, net 364  401   344   364 
Property, plant and equipment, net 8,811  8,279   7,081   8,811 
Goodwill 58  515 
Equity method investments  315   84 
Other assets  418   389   371   392 
Total assets
 $13,430  $14,818  $11,455  $13,430 
                
Liabilities and shareholders’ equity                
Accounts payable and accrued expenses $1,111  $1,385  $1,037  $1,111 
Deferred income 114  84   209   114 
Equipment purchase contracts 98  134   222   98 
Current portion of long-term debt  275   423   424   275 
Total current liabilities
 1,598  2,026   1,892   1,598 
Long-term debt 2,451  1,987   2,674   2,451 
Other liabilities  338   446   249   338 
Total liabilities
  4,387   4,459   4,815   4,387 
                
Commitments and contingencies                
                
Noncontrolling interests in subsidiaries  2,865   2,607   1,986   2,865 
                
Common stock, $0.10 par value, authorized 3 billion shares, issued and outstanding 761.1 million and 757.9 million shares, respectively  76   76 
Common stock, $0.10 par value, authorized 3,000 shares, issued and outstanding 848.7 million and 761.1 million shares, respectively   85    76 
Additional capital 6,566  6,519   6,863   6,566 
Retained earnings (accumulated deficit) (456) 1,164 
Accumulated deficit  (2,291)  (456)
Accumulated other comprehensive (loss)  (8)  (7)  (3)  (8)
Total shareholders’ equity
  6,178   7,752   4,654   6,178 
Total liabilities and shareholders’ equity
 $13,430  $14,818  $11,455  $13,430 




See accompanying notes to consolidated financial statements.

 
4445
 

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)

 Common Stock        
Accumulated
Other
  Total  
Common Stock
             
 
Number
of Shares
  Amount  Additional Capital  Retained Earnings  
Comprehensive
(Loss)
  Shareholders’ Equity  
Number
of Shares
  Amount  Additional Capital  Retained Earnings  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Shareholders’ Equity
 
                                    
Balance at September 1, 2005  616.2  $62  $4,707  $1,078  $--  $5,847 
                        
Comprehensive income (loss):                        
Net income
             408      408 
Other comprehensive income (loss):
                        
Net change in unrealized gain (loss) on investments, net of tax
                  (2)  (2)
Total comprehensive income (loss)
                      406 
                        
Stock issued under stock plans 11.9  1  114          115 
Stock-based compensation expense         26          26 
Conversion of notes to stock, net of unamortized issuance costs 53.7  5  618          623 
Stock and stock options issued in connection with the acquisition of Lexar 50.7  5  878          883 
Premium recognized on convertible debt assumed in Lexar acquisition         43          43 
Settlement of capped calls         171          171 
Stock issued in connection with Intel stock rights  16.9   2   (2)          -- 
Balance at August 31, 2006  749.4  $75  $6,555  $1,486  $(2) $8,114   749.4  $75  $6,555  $1,486  $(2) $8,114 
                                                
Net loss             (320)     (320)              (320)      (320)
Stock issued under stock plans 8.7  1  73          74   8.7   1   73           74 
Stock-based compensation expense         44          44           44           44 
Repurchase and retirement of common stock (0.2)     (2) (2)     (4)  (0.2)      (2)  (2)      (4)
Adjustment to initially apply SFAS No. 158, net of tax benefit of $3                 (5) (5)                  (5)  (5)
Purchase of capped calls          (151)          (151)          (151)          (151)
Balance at August 30, 2007  757.9  $76  $6,519  $1,164  $(7) $7,752   757.9  $76  $6,519  $1,164  $(7) $7,752 
                                                
Comprehensive income (loss):                                                
Net loss
             (1,619)     (1,619)              (1,619)      (1,619)
Other comprehensive income (loss):
                                                
Net change in unrealized gain (loss) on investments, net of tax
                  (1)  (1)                  (1)  (1)
Total comprehensive income (loss)
                      (1,620)                      (1,620)
                                                
Stock issued under stock plans 3.7      3          3   3.7       3           3 
Stock-based compensation expense         48          48           48           48 
Adoption of FIN 48             (1)     (1)              (1)      (1)
Repurchase and retirement of common stock  (0.5)      (4)          (4)  (0.5)      (4)          (4)
Balance at August 28, 2008  761.1  $76  $6,566  $(456) $(8) $6,178   761.1  $76  $6,566  $(456) $(8) $6,178 
                        
Comprehensive income (loss):                        
Net loss
              (1,835)      (1,835)
Other comprehensive income (loss):
                        
Net change in unrealized gain (loss) on investments, net of tax
                  13   13 
Net change in cumulative translation adjustment, net of tax
                  (9)  (9)
Pension liability adjustment, net of tax
                  1   1 
Total comprehensive income (loss)
                      (1,830)
                        
Stock issued under stock plans  4.0   1               1 
Stock-based compensation expense          44           44 
Repurchase and retirement of common stock  (0.5)      (2)          (2)
Issuance of common stock  69.3   7   269           276 
Stock issued for business acquisition  1.8       12           12 
Exercise of Intel stock rights  13.0   1   (1)          -- 
Purchase of capped calls          (25)          (25)
Balance at September 3, 2009  848.7  $85  $6,863  $(2,291) $(3) $4,654 







See accompanying notes to consolidated financial statements.

 
4546
 

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

For the year ended
 
August 28,
2008
  
August 30,
2007
  
August 31,
2006
  
September 3,
2009
  
August 28,
2008
  
August 30,
2007
 
                  
Cash flows from operating activities                  
Net income (loss) $(1,619) $(320) $408 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Net loss $(1,835) $(1,619) $(320)
Adjustments to reconcile net loss to net cash provided by operating activities:            
Depreciation and amortization
 2,060  1,718  1,281   2,139   2,060   1,718 
Provision to write-down inventories to estimated market values
  603   282   20 
Noncash restructure charges
  156   7   5 
Equity in net losses of equity method investees, net of tax
  140   --   -- 
Goodwill impairment
 463  --  --   58   463   -- 
Provision to write-down inventories to estimated market values
 282  20  -- 
Gain from disposition of equipment, net of write-downs
 (66) (43) (2)
(Gain) loss from disposition of property, plant and equipment
  54   (66)  (43)
Loss on sale of majority interest in Aptina
  41   --   -- 
Noncontrolling interests in net income (loss)
  (111)  (10)  122 
Change in operating assets and liabilities:
                        
(Increase) decrease in receivables
 (26) 5  (62)  126   (26)  5 
Increase in inventories
 (40) (591) (12)  (356)  (40)  (591)
Increase (decrease) in accounts payable and accrued expenses
 (92) (1) 130   107   (92)  -- 
Increase (decrease) in customer prepayments
 (38) (4) 249 
Decrease in customer prepayments
  (63)  (38)  (4)
Increase in deferred income
  81   28   30 
Other
  94   153   27   66   69   (5)
Net cash provided by operating activities
  1,018   937   2,019   1,206   1,018   937 
                        
Cash flows from investing activities                        
Expenditures for property, plant and equipment (2,529) (3,603) (1,365)  (488)  (2,529)  (3,603)
Acquisition of equity method investment  (408)  (84)  -- 
(Increase) decrease in restricted cash  (56)  --   14 
Purchases of available-for-sale securities (283) (1,466) (3,080)  (6)  (283)  (1,466)
Investments in non-marketable equity instruments (84) --  -- 
Acquisition of noncontrolling interest in TECH --  (73) -- 
Acquisition of additional interest in TECH  --   --   (73)
Proceeds from maturities of available-for-sale securities 547  2,156  2,189   130   547   2,156 
Distributions from equity method investments  41   --   -- 
Proceeds from sales of property, plant and equipment 187  94  55   26   187   94 
Proceeds from sales of available-for-sale securities 24  540  33   --   24   540 
Consolidation of TECH --  --  319 
Cash acquired in acquisition of Lexar --  --  97 
Other  46   (39)  (4)  87   46   (53)
Net cash used for investing activities
  (2,092)  (2,391)  (1,756)  (674)  (2,092)  (2,391)
                        
Cash flows from financing activities                        
Proceeds from debt 837  1,300  --   716   837   1,300 
Cash received from noncontrolling interests 400  1,249  984 
Proceeds from issuance of common stock, net of costs  276   4   69 
Contributions from noncontrolling interests  24   400   1,249 
Proceeds from equipment sale-leaseback transactions 111  454  --   4   111   454 
Proceeds from issuance of common stock 4  69  113 
Distributions to noncontrolling interests  (705)  (132)  -- 
Repayments of debt (698) (193) (415)  (429)  (698)  (193)
Payments on equipment purchase contracts (387) (487) (209)  (144)  (387)  (487)
Distributions to noncontrolling interests (132) --  -- 
Cash received (paid) for capped call transactions --  (151) 171 
Cash paid for capped call transactions  (25)  --   (151)
Other  (10)  (26)  --   (7)  (10)  (26)
Net cash provided by financing activities
  125   2,215   644 
Net cash provided by (used for) financing activities
  (290)  125   2,215 
                        
Net increase (decrease) in cash and equivalents
 (949) 761  907   242   (949)  761 
Cash and equivalents at beginning of year  2,192   1,431   524   1,243   2,192   1,431 
Cash and equivalents at end of year $1,243  $2,192  $1,431  $1,485  $1,243  $2,192 
                        
Supplemental disclosures                        
Income taxes paid, net $(36) $(41) $(52) $(43) $(36) $(41)
Interest paid, net of amounts capitalized (84) (22) (28)  (107)  (84)  (22)
Noncash investing and financing activities:                        
Equipment acquisitions on contracts payable and capital leases
 501  1,010  326   331   501   1,010 
Stock and stock options issued in acquisition of Lexar
 --  --  883 
Conversion of notes to stock, net of unamortized issuance cost
 --  --  623 


See accompanying notes to consolidated financial statements.

 
4647
 

MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)

Significant Accounting Policies

Basis of presentation:  Micron Technology, Inc. and its consolidated subsidiaries (hereinafter referred to collectively as the “Company”) manufactureis a global manufacturer and marketmarketer of semiconductor devices, principally DRAM and NAND Flash memory,memory.  In addition, the Company manufactures CMOS image sensors and other semiconductor components.sensor products under a wafer foundry arrangement.  The Company has two reportable 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 accountsAmerica.  In preparation of the accompanying consolidated financial statements, the Company evaluated events and its consolidated subsidiaries.transactions occurring after September 3, 2009 through October 28, 2009.  All significant intercompany transactions and balances have been eliminated.

The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31.  The Company’s fiscal 2009 contained 53 weeks and fiscal 2008 2007 and 20062007 each contained 52 weeks.  All period references are to the Company’s fiscal periods unless otherwise indicated.

Use of estimates:  The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.  Estimates and judgments are based on historical experience, forecasted future events and various other assumptions that the Company believes to be reasonable under the circumstances.  Estimates and judgments may differ under different assumptions or conditions.  The Company evaluates its estimates and judgments on an ongoing basis.  Actual results could differ from estimates.

Product warranty:  The Company generally provides a limited warranty that its products are in compliance with Company specifications existing at the time of delivery.  Under the Company’s general terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items.  Under certain circumstances, the Company may provideprovides more extensive limited warranty coverage and general legal principles may impose upon the Company more extensive liability than that provided under the Company’s general terms and conditions.  The Company’s warranty obligations are not material.

Revenue recognition:  The Company recognizes product or license revenue when persuasive evidence ofthat a sales arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured.  Since the Company is unable to estimate returns and changes in market price and therefore the price is not fixed or determinable, for  sales made under agreements allowing pricing protection or rights of return (other than for product warranty), such sales are deferred until customers have soldresold the product.

Research and development:  Costs related to the conceptual formulation and design of products and processes are expensed as research and development as incurred.  Determining when product development is complete requires judgment by the Company.  The Company deems development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability.  Subsequent to product qualification, product costs are valued in inventory.  Product design and other research and development costs for NAND Flash are shared equally among the Company and Intel Corporation (“Intel”).  These chargesCharges from the cost-sharing agreement to Intel are reflected as a reduction of research and development expense.  (See “Joint Ventures“Consolidated Variable Interest Entities – NAND Flash Joint Venturesjoint ventures with Intel.”)

Stock-based compensation:  Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.  For stock awards granted after the beginning of 2006, expenses are amortized under the straight-line attribution method.  The Company grantsissues new shares upon the exercise of stock options or conversion of share units.  (See “Equity Plans.”)

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


48

Earnings per share:  Basic earnings per share is computed based on the weighted-average number of common shares and stock rights outstanding.  Diluted earnings per share is computed based on the weighted-average number of common shares and stock rights outstanding plus the dilutive effects of stock options, warrants and convertible notes.  Potential common shares that would increase earnings per share amounts or decrease loss per share amounts are antidilutive and are, therefore, excluded from diluted per share calculations.

47

Financial instruments:  Cash equivalents include highly liquid short-term investments with original maturities to the Company of three months or less, readily convertible to known amounts of cash.  Investments with original maturities greater than three months and remaining maturities less than one year are classified asincluded in short-term investments.  Investments with remaining maturities greater than one year are classified asincluded in other noncurrent assets.  Securities classified as available-for-sale are stated at market value.  The carrying value of investment securities sold is determined using the specific identification method.

Amounts reported as cash and equivalents, short-term investments, receivables, other assets, accounts payable and accrued expenses and equipment purchase contracts approximate their fair values.  As of August 28, 2008 and August 30, 2007, the estimated fair value of the Company’s debt was $2,167 million and $2,411 million, respectively, compared to their carrying value of $2,726 million and $2,410 million, respectively.  The estimated fair values presented herein were based on market interest rates and other market information available to management as of each balance sheet date presented.  The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair values.  The estimated fair values do not take into consideration expenses that could be incurred in an actual settlement.

Inventories:  Inventories are stated at the lower of average cost or market value.  Cost includes labor, material and overhead costs, including product and process technology costs.  Determining fair market values of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories.  As a result of these analyses, whenWhen fair market values are below the Company’s costs, the Company records a charge to cost of goods sold to write down inventories to their estimated market value in advance of when the inventory isinventories are actually sold.  The Company’s inventories have been categorized as Memory products or Imaging products for purposes of determining average cost and fair market value.  The major characteristics the Company considers in determining categories are product type and markets.

Product and process technology:  Costs incurred to acquire product and process technology or to patent technology developed by the Company are capitalized and amortized on a straight-line basis over periods currently ranging up to 10 years.  The Company capitalizes a portion of costs incurred based on its analysis of historical and projected patents issued as a percent of patents filed.  Capitalized product and process technology costs are amortized over the shorter of (i) the estimated useful life of the technology, (ii) the patent term or (iii) the term of the technology agreement.  Fully-amortized assets are removed from product and process technology and accumulated amortization.

Property, plant and equipment:  Property, plant and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of 5 to 30 years for buildings, 2 to 20 years for equipment and 23 to 5 years for software.  Assets held for sale are carried at the lower of cost or estimated fair value and are included in other noncurrent assets.  When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company’s accounts and any gain or loss is included in the Company’s results of operations.

The Company capitalizes interest on borrowings during the active construction period of major capital projects.  Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets.  The Company capitalized interest costs of $3 million, $13 million and $18 million in 2009, 2008 and $10 million in 2008, 2007, and 2006, respectively, in connection with various capital projects.

Recently issuedadopted accounting standards:In May 2008,February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Staff PositionStatement No. 115”.  Under SFAS No. 159, an entity 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 adopted SFAS No. 159 effective as of the beginning of 2009.  The Company did not elect to measure any existing items at fair value upon the adoption of SFAS No. 159.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  SFAS No. 157 (as amended by subsequent FSP’s) defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  The Company adopted SFAS No. 157 effective as of the beginning of 2009 for financial assets and financial liabilities.  The adoption did not have a significant impact on the Company’s financial statements.  SFAS No. 157 is also effective for all other assets and liabilities of the Company as of the beginning of 2010.  The Company does not expect the adoption to have a significant impact on its financial statements as of the adoption date.  The impact to periods subsequent to the initial adoption of SFAS No. 157 for nonfinancial assets and liabilities will depend on the nature and extent of nonfinancial assets and liabilities measured at fair value after the beginning of 2010.


49

Recently issued accounting standards:  In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“FSP”SFAS No. 167”), which (1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, (2) requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and (3) requires additional disclosures about an enterprise’s involvement in variable interest entities.  The Company is required to adopt SFAS No. 167 as of the beginning of 2011.  The Company is evaluating the impact the adoption of SFAS No. 167 will have on its financial statements.

In May 2008, the FASB issued 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 of such instruments in a manner such that interest cost will reflectbe recognized at the entity’s nonconvertible debt borrowing rate as interest cost is recognized in subsequent periods.  The Company is required to adopt FSP No. APB 14-1 atas of the beginning of 2010.  OnUpon adoption, the Company will retrospectively account for its $1.3 billion of 1.875% convertible senior notes issued in May, of 2007 under the provisions of FSP No. APB 14-1.  Based on a preliminary analysis,At issuance, the Company estimates that debt recognized on issuancecarrying value of the $1.3 billion convertible senior notes wouldwill be approximately $400$402 million lower under FSP No. APB 14-1.  TheThis difference of approximately $400$402 million wouldwill be recognized in equity as additional capital and the carrying value of the convertible senior notes will be accreted to their face amount with a charge to interest expense over the approximate seven-year term of the notes.  A significant portionnotes, resulting in additional interest expense (net of the effects of capitalized interest) of $50 million, $38 million and $12 million in 2009, 2008 and 2007, respectively.  Additional interest expense wouldwill be deferred as capitalized interest costs$53 million in accordance with the Company’s regular accounting policies2010, $57 million in 2011, $62 million in 2012, $67 million in 2013 and will impact results of operations as the assets that include the capitalized interest are depreciated.  The Company is continuing to evaluate the full impact that the adoption of$54 million in 2014.  Under FSP No. APB 14-1, the carrying value of the $1.3 billion convertible senior notes will have on its financial statements.be $1,006 million at September 3, 2009.


48

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”)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) is effective atfor the Company as of 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-controllingnoncontrolling interest be separately identified in the income statement of operations, (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 is 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 Company did not elect to measure any existing items at fair value on the adoption of SFAS No. 159.

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 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).  In October 2008, the FASB also issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active,” which clarifies the application of SFAS No. 157 for financial assets in a market that is not active.  The Company is required to adopt SFAS No. 157 for financial assets and liabilities effective at the beginning of 2009.  The Company does not expect that the adoption in 2009 of SFAS No. 157 for financial assets and financial liabilities will have a significant impact on its financial statements.  The Company is evaluating the impact that the adoption in 2010 of SFAS No. 157 for non-financial assets and non-financial liabilities 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 2008.2010 and must be applied prospectively, except for the presentation and disclosure requirements, which must be applied retrospectively.  As a result of the retrospective adoption, the Company’s reported total equity for 2009 and 2008 will increase by $1,986 million and $2,865 million, respectively, and its net loss for the years 2009, 2008 and 2007 will (increase) decrease by $(111) million, $(10) million and $122 million, respectively.  The effect in periods subsequent to the initial adoption of SFAS No. 155 did not have a significant impactwill depend on the amounts and balances of noncontrolling interests as of and for those periods and the nature and extent of transactions involving changes in the Company’s resultsnoncontrolling interests after the beginning of operations or financial condition.2010.


 
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Supplemental Balance Sheet Information

Investment Securities 2008  2007  2009  2008 
            
Available-for-sale securities:
            
Certificates of deposit
 $187  $198 
U.S. government and agencies
  --   289 
Commercial paper
 $271  $687   --   271 
U.S. government and agencies
 289  642 
Certificates of deposit
 198  532 
Other
  28   39   22   28 
 786  1,900   209   786 
Less cash equivalents
 (641) (1,449)  (187)  (641)
Less noncurrent investments in equity
  (26)  (27)
Less investments included in noncurrent assets
  (22)  (26)
Short-term investments
 $119  $424  $--  $119 

In 2009 and 2008, the Company recognized losses of $15 million and $8 million, respectively, for other-than-temporary impairments of investment securities and in 2008 realized losses of $5 million on sales of investment securities.  As of September 3, 2009, the Company had gross unrealized gains of $9 million in accumulated other comprehensive income, substantially all of which related to equity securities and recognized lossesthat had a fair value of $8 million for other-than-temporary impairments on investment securities.$15 million.  As of August 28, 2008, the Company had gross unrealized losses of $7 million in accumulated other comprehensive income, substantially all of which wasrelated to investments in commercial paper that had a fair value of $86 million and had been in an unrealized loss position for less than one year.  Gross unrealized losses and gains in accumulated other comprehensive income as of August 30, 2007 were not material.  Gross realized gains and losses on sales of securities in 2007 and 2006 were also not material.

Receivables 2008  2007  2009  2008 
            
Trade receivables (net of allowance for doubtful accounts of $2 and $4,respectively)
 $741  $735 
Trade receivables (net of allowance for doubtful accounts of $5 million and $2 million, respectively)
 $591  $741 
Related party receivables
  70   -- 
Income and other taxes
 43  47   49   43 
Other
  248   212   88   248 
 $1,032  $994  $798  $1,032 

As of September 3, 2009, related party receivables included $69 million due from Aptina Imaging Corporation under a wafer supply agreement for image sensor products and $1 million due from Inotera Memories, Inc. for reimbursement of expenses incurred under a technology transfer agreement.

As of September 3, 2009 and August 28, 2008, and August 30, 2007, other receivables included $71$29 million and $108$71 million, respectively, due from Intel for amounts related to NAND Flash product design and process development activities.  Other receivables as of September 3, 2009 and August 28, 2008 and August 30, 2007 also included $75$40 million and $83$75 million, respectively, due from settlement of litigation and $58 million, as of August 28, 2008, due from settlements of pricing adjustments with certain suppliers.

Other noncurrent assets as of August 28, 2008 and August 30, 2007 included receivables of $39 million and $110 million, respectively, due from settlement of litigation.

Inventories 2008  2007  2009  2008 
            
Finished goods
 $444  $517  $233  $444 
Work in process
 671  772   649   671 
Raw materials and supplies
  176   243   105   176 
 $1,291  $1,532  $987  $1,291 

The Company’s results of operations for the fourth, second and first quarters of 2008 and fourth quarter of 20072009 included charges of $205 million, $15 million, $62$234 million and $20$369 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.  For the fourth, second and first quarters of 2008, the Company recorded charges to write down the carrying value of work in process and finished goods inventories by $205 million, $15 million and $62 million, respectively.

Intangible Assets            
             
  2008  2007 
  
Gross
Amount
  
Accumulated
Amortization
  
Gross
Amount
  
Accumulated
Amortization
 
             
Product and process technology
 $577  $(320) $544  $(271)
Customer relationships
  127   (35)  127   (19)
Other
  29   (14)  29   (9)
  $733  $(369) $700  $(299)


 
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Intangible Assets            
             
  2009  2008 
  
Gross
Amount
  
Accumulated
Amortization
  
Gross
Amount
  
Accumulated
Amortization
 
             
Product and process technology
 $439  $(181) $577  $(320)
Customer relationships
  127   (50)  127   (35)
Other
  28   (19)  29   (14)
  $594  $(250) $733  $(369)

During 2009, the Company capitalized $88 million for product and process technology with a weighted-average useful life of 9 years.  During 2008, the Company capitalized $43 million for product and process technology with a weighted-average useful life of 10 years.  During 2007, the Company capitalized $86 million for product and process technology with a weighted-average useful life of 9 years and $2 million of other intangible assets with a weighted-average useful life of 4 years.

Amortization expense for intangible assets was $75 million, $80 million and $75 million in 2009, 2008 and $52 million in 2008, 2007, and 2006, respectively.  Annual amortization expense for intangible assets is estimated to be $72 million for 2009, $62$66 million for 2010, $56$63 million for 2011, $47$54 million for 2012, and $44$50 million for 2013.2013 and $41 million for 2014.

Property, Plant and Equipment 2008  2007  2009  2008 
            
Land
 $99  $107  $96  $99 
Buildings (includes $142 and $131, respectively, for capital leases)
 3,829  3,636 
Equipment (includes $755 and $744, respectively, for capital leases)
 13,591  12,379 
Buildings (includes $184 million and $142 million, respectively, for capital leases)
  4,463   3,829 
Equipment (includes $630 million and $755 million, respectively, for capital leases)
  11,834   13,591 
Construction in progress
 611  209   47   611 
Software
  283   267   269   283 
 18,413  16,598   16,709   18,413 
Accumulated depreciation (includes $327 and $258, respectively, for capital leases)
  (9,602)  (8,319)
Accumulated depreciation (includes $331 million and $327 million, respectively, for capital leases)
  (9,628)  (9,602)
 $8,811  $8,279  $7,081  $8,811 

Depreciation expense was $2,038 million, $1,976 million $1,664 million and $1,258$1,644 million for 2009, 2008 and 2007, respectively.

The Company, through its IM Flash joint venture, has an unequipped wafer manufacturing facility in Singapore that has been idle since it was completed in the first quarter of 2009.  The Company has been recording depreciation expense for the facility since it was completed and 2006, respectively.its net book value was $624 million as of September 3, 2009.  Utilization of the facility is dependent upon market conditions, including, but not limited to, worldwide market supply of, and demand for, semiconductor products, availability of financing, agreement between the Company and its joint venture partner and the Company’s operations, cash flows and alternative capacity utilization opportunities.  (See “Consolidated Variable Interest Entities – NAND Flash joint ventures with Intel” note.)

As part of a restructure plan initiated in 2009 to shut down 200mm manufacturing operations at its Boise, Idaho facilities, the Company recorded impairment charges of $152 million in 2009.  In connection therewith, assets with a carrying value of $34 million as of September 3, 2009 (original acquisition cost of $1,422 million) were classified as held for sale and included in other noncurrent assets.  (See “Restructure” note.)

As of September 3, 2009, property, plant and equipment with a carrying value of $1,176 million was collateral under TECH’s credit facility and $86 million of property, plant and equipment was collateral under the Company’s other notes payable.  (See “Debt” and “TECH Semiconductor Singapore Pte. Ltd.” notes.)

Goodwill

As of August 30, 2007,28, 2008, other noncurrent assets included goodwill of $58 million, all of which related to the Company’s Imaging segment.  In the second quarter of 2009, the Company hadwrote off the $58 million of Imaging goodwill related tobased on the results of its Memory segment of $463 million.  Duringtest for impairment.  In the second quarter of 2008, the Company wrote off allthe $463 million of the segment’s goodwill relating to its Memory segment based on the results of the Company’sits test for impairment.  As of August 28, 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 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 for impairment in the second and fourth quarters of 2008 indicated that the fair value of the Imaging segment exceeded its carrying value and therefore goodwill in the segment was not impaired.

52
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.unit.  If the carrying value of the goodwill of a reporting unit’s goodwillunit exceeds its implied fair value, goodwill is deemed impaired and is written down to the extent of the difference.

In the second quarter of 2009, the Company’s Imaging segment experienced a severe decline in sales, margins and profitability due to a significant decline in demand as a result of the downturn in global economic conditions.  The drop in market demand resulted in significant declines in average selling prices and unit sales.  Due to these market and economic conditions, the Company’s Imaging segment and its competitors experienced significant declines in market value.  As a result, the Company concluded that there were sufficient factual circumstances for interim impairment analyses under SFAS No. 142.  Accordingly, in the second quarter of 2009, the Company performed an assessment of its Imaging segment goodwill for impairment.

In the first step of the impairment analysis, the Company performed 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 the Imaging segment and the rate of return an outside investor would expect to earn.  Estimated future cash flows were based on the Company’s 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 Imaging segment based on revenue 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 Imaging 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 Imaging segment had been acquired in a business combination and the price paid to acquire it was the fair value.

Based on the results of the Company’s assessment of goodwill for impairment, it was determined that the carrying value of the Imaging segment exceeded its estimated fair value as of the end of the second quarter of 2009.  Therefore, the Company performed the second step of the impairment test to estimate the implied fair value of goodwill, which indicated there would be no remaining implied value attributable to goodwill in the Imaging segment.  Accordingly, the Company wrote off all the $58 million of goodwill associated with its Imaging segment as of March 5, 2009.

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 at that time 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 Memory segment goodwill for impairment.   Based onIn the resultsfirst step of the Company’s assessmentimpairment analysis, the Company performed extensive valuation analyses utilizing both income and market approaches to determine the fair value of goodwill for impairment, it was determinedits reporting units, which indicated that the carrying value of the Memory segment exceeded its estimated fair value.  Therefore, the Company performed the 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 analysisgoodwill, which 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.

Equity Method Investments

The Company has partnered with Nanya Technology Corporation (“Nanya”) in two Taiwan DRAM memory companies, Inotera Memories, Inc. (“Inotera”) and MeiYa Technology Corporation (“MeiYa”), which are accounted for as equity method investments.  The Company also has an equity method investment in Aptina Imaging Corporation (“Aptina”), a CMOS imaging company.


 
5153
 

DRAM joint ventures with Nanya:  The Company has a partnering arrangement with Nanya pursuant to which the Company and Nanya jointly develop process technology and designs to manufacture stack DRAM products.  In addition, the Company has deployed and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya.  As a result, the Company is to receive an aggregate of $207 million from Nanya through 2010.  The Company recognized $105 million of license revenue in net sales from this agreement in 2009, and since May 2008 through September 3, 2009, has recognized $142 million of cumulative license revenue.  In addition, the Company expects to receive royalties in future periods from Nanya for sales of stack DRAM products manufactured by or for Nanya.

The Company has concluded that both Inotera and MeiYa are variable interest entities as defined in FIN 46(R), “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51,” because of the Inotera and MeiYa supply agreements with Micron and Nanya.  Nanya and the Company are considered related parties under the provisions of FIN 46(R).  The Company reviewed several factors to determine whether it is the primary beneficiary of Inotera and MeiYa, including the size and nature of the entities’ operations relative to Nanya and the Company, nature of the day-to-day operations and certain other factors.  Based on those factors, the Company determined that Nanya is more closely associated with, and therefore the primary beneficiary of, Inotera and MeiYa.  The Company accounts for its interests using the equity method of accounting and does not consolidate these entities.

Inotera and MeiYa each have fiscal years that end on December 31.  The Company recognizes its share of Inotera’s and MeiYa’s quarterly earnings or losses for the calendar quarter that ends within the Company’s fiscal quarter.  As a result, the Company recognizes its share of earnings or losses from these entities for a period that lags the Company’s fiscal periods by two months.

Inotera:In the first stepquarter of 2009, the Company acquired a 35.5% ownership interest in Inotera, a publicly-traded entity in Taiwan, from Qimonda AG (“Qimonda”) for $398 million.  The interest in Inotera was acquired for cash, a portion of which was funded from loan proceeds of $200 million received from Nan Ya Plastics Corporation, an affiliate of Nanya.  A portion was also funded from loan proceeds of $85 million received from Inotera, which the Company repaid with accrued interest in the third quarter of 2009.  The loans were recorded at their fair values, which reflect an aggregate discount of $31 million from their face amounts.  This aggregate discount was recorded as a reduction of the impairment analysis,Company’s basis in its investment in Inotera.  The Company also capitalized $10 million of costs and other fees incurred in connection with the acquisition.  As a result of the above transactions, the initial carrying value of the Company’s investment in Inotera was $377 million.  As of the date of acquisition, the Company’s proportionate share of Inotera’s shareholders' equity was approximately $250 million higher than the Company’s initial carrying value of $377 million.  Substantially all of this difference will be amortized over the estimated five-year weighted-average remaining useful life of Inotera’s production equipment and facilities as of the acquisition date (the “Inotera Amortization”).  (See “Debt” note.)

On August 3, 2009, Inotera finalized the issuance of common shares in a public offering at a price equal to $16.02 New Taiwan dollars per common share (approximately $0.49 U.S. dollars at August 3, 2009).  Inotera expects to use the net proceeds of approximately $310 million to begin conversion to the Company’s 50nm stack DRAM technology.  As a result of the issuance, the Company’s interest in Inotera decreased from 35.5% to 29.8% and the Company performed extensive valuation analyses utilizing both incomewill recognize a gain of $59 million in the first quarter of 2010.  As of September 3, 2009, the ownership of Inotera was held 29.9% by Nanya, 29.8% by the Company and the balance was publicly held.


54

In connection with the acquisition of the shares in Inotera, the Company and Nanya entered into a supply agreement with Inotera (the “Inotera Supply Agreement”) pursuant to which Inotera will sell trench and stack DRAM products to the Company and Nanya.  The Company has rights and obligations to purchase up to 50% of Inotera’s wafer production capacity.  Inotera’s actual wafer production will vary from time to time based on market approachesand other conditions.  Inotera’s trench production is expected to determinetransition to the fair valueCompany’s stack process technology.  Inotera charges the Company and Nanya for a portion of the costs associated with its reporting units.underutilized capacity, if any.  The cost to the Company of wafers purchased under the Inotera Supply Agreement is based on a margin sharing formula among the Company, Nanya and Inotera.  Under such formula, all parties’ manufacturing costs related to wafers supplied by Inotera, as well as the Company’s and Nanya’s selling prices for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers from Inotera.  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 onInotera Supply Agreement, the Company’s internal projection models, industry projectionspurchase obligation includes purchasing Inotera’s trench DRAM capacity (less any trench DRAM products sold to Qimonda pursuant to a separate supply agreement between Inotera and other assumptions deemed reasonable by management.Qimonda (the “Qimonda Supply Agreement”)).  Under the market-based approach,Qimonda Supply Agreement, Qimonda was obligated to purchase trench DRAM products resulting from wafers started for it by Inotera through July 2009 in accordance with a ramp down schedule specified in the Company derived the fair value of its reporting units based on revenue and earnings multiples of comparable publicly-traded peer companies.Qimonda Supply Agreement.  In the second stepquarter of 2009, Qimonda filed for bankruptcy protection and defaulted on its obligations to purchase products from Inotera.  Pursuant to the impairment analysis,Company’s obligations under the Inotera Supply Agreement, the Company determinedrecorded $95 million of charges to cost of goods sold in 2009 for underutilized capacity.  For 2009, the implied fair valueCompany purchased $46 million of goodwill fortrench DRAM products from Inotera under 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.Inotera Supply Agreement.

Accounts Payable and Accrued Expenses 2008  2007 
       
Accounts payable
 $597  $856 
Salaries, wages and benefits
  244   247 
Customer advances
  130   85 
Income and other taxes
  27   33 
Other
  113   164 
  $1,111  $1,385 
The Company’s results of operations for 2009 also include losses of $130 million for the Company’s share of Inotera’s losses from the acquisition date through the second calendar quarter of 2009.  The losses recorded by the Company are net of $38 million of the Inotera Amortization as defined above.  During the third quarter of 2009, the Company received $50 million from Inotera pursuant to the terms of a technology transfer agreement.  In connection therewith, the Company reduced its investment in Inotera by $18 million based on its 35.5% share in Inotera.  The technology transfer agreement with Inotera supplanted a technology transfer agreement between the Company and MeiYa.  License fee revenue from the technology transfer agreements is being recognized through the third quarter of 2010.  The Company recognized $15 million and $4 million of revenue in 2009 and 2008, respectively, from the agreements with Inotera and MeiYa.  As of September 3, 2009, the Company had unrecognized license fee revenue of $13 million related to the technology transfer fee.

As of September 3, 2009, the carrying value of the Company’s equity investment in Inotera was $229 million and is included in equity method investments in the accompanying consolidated balance sheet.  As of September 3, 2009, the Company had recorded a loss of $3 million to accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets for cumulative translation adjustments on its investment in Inotera.  Based on the closing trading price of Inotera’s shares in an active market on September 3, 2009, the market value of the Company’s shares in Inotera was $694 million.

Summarized financial information for Inotera as of June 30, 2009 and for the period from the Company’s initial acquisition of Inotera shares on October 20, 2008 through June 30, 2009 (the period that Inotera’s operating results are reflected in the Company’s 2009 operating results due to the two-month lag period), is as follows:

As of June 30, 2009   
    
Current assets $450 
Noncurrent assets (primarily property, plant and equipment)  3,315 
Current liabilities  1,789 
Noncurrent liabilities  740 

For the period October 20, 2008 to June 30, 2009
Net sales$607
Gross margin(370)
Loss from operations(462)
Net loss(534)

As of September 3, 2009, the Company’s maximum exposure to loss on its investment in Inotera equaled the $232 million recorded in the Company’s consolidated balance sheet for its investment in Inotera including the $3 million loss in accumulated other comprehensive income (loss).  The Company may also incur losses in connection with its obligations under the Inotera Supply Agreement to purchase up to 50% of Inotera’s wafer production under a long-term pricing arrangement and charges from Inotera for underutilized capacity.

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On May 1, 2009, Inotera entered into an agreement with Nanya and MeiYa to lease a Nanya wafer fabrication facility that Nanya had previously been leasing to MeiYa.  The initial lease term is from January 1, 2009 through December 31, 2018 and Inotera is entitled to renew this lease for an unlimited number of additional five-year terms.  In addition, Inotera has an option to purchase the leased facility for $50 million after December 31, 2023.  Inotera’s initial lease obligations to Nanya are $15 million annually for the first nine years.  For the first five-year renewal lease term, Inotera would pay $10 million annually and for each subsequent renewal term, it would pay $2 million annually.  Concurrent with this agreement, Inotera purchased equipment from MeiYa for approximately $78 million.

MeiYa: In the fourth quarter of 2008, the Company and Nanya formed MeiYa to manufacture stack DRAM products and sell such products exclusively to the Company and Nanya.  As of September 3, 2009, the ownership of MeiYa was held 50% by Nanya and 50% by the Company.  The carrying value of the Company’s equity investment in MeiYa was $42 million and $84 million as of September 3, 2009 and August 28, 2008, respectively, and is included in equity method investments in the accompanying consolidated balance sheets.  As of September 3, 2009, the Company had recorded a loss of $6 million to accumulated other comprehensive income (loss) in the accompanying consolidated balance sheet for cumulative translation adjustments on its investment in MeiYa.  The Company’s results of operations for 2009 include losses of $10 million for its share of MeiYa’s results of operations for the twelve-month period ended June 30, 2009.  Losses recognized in 2008 were de minimis.

Pursuant to a technology transfer agreement, the Company received $50 million from MeiYa in the first quarter of 2009.  The technology transfer agreement between the Company and MeiYa was supplanted by a technology transfer agreement between the Company and Inotera and the Company returned the $50 million with accrued interest to MeiYa in the fourth quarter of 2009.

In connection with the purchase of its ownership interest in Inotera, the Company entered into a series of agreements with Nanya pursuant to which both parties ceased future funding of, and resource commitments to, MeiYa.  In the fourth quarter of 2009, the Company received a distribution of $27 million from MeiYa. As of September 3, 2009, the Company’s maximum exposure to loss on its MeiYa investment equaled the $48 million recorded in the Company’s consolidated balance sheet for its investment in MeiYa, including the $6 million loss in accumulated other comprehensive income (loss).

Aptina:  On July 10, 2009, the Company sold a 65% interest in Aptina, previously a wholly-owned subsidiary of the Company and a significant component of the Company’s Imaging segment, to Riverwood Capital (“Riverwood”) and TPG Capital (“TPG”).  In connection with the transaction, the Company received approximately $35 million in cash and retained a 35% interest in Aptina.  A portion of the 65% interest held by Riverwood and TPG are convertible preferred shares and have a liquidation preference over the common shares.  As a result, the Company’s interest represents 64% of Aptina’s common stock.  The Company also retained all cash held by Aptina and its subsidiaries.  The Company recorded a loss of $41 million in connection with the sale.  The carrying values of Aptina assets and liabilities, prior to the effects of the transaction, were as follows:

Receivables $50 
Inventories  56 
Other current assets  20 
Other assets (primarily property, plant and equipment and intangible assets)  63 
Accounts payable and accrued expenses  (68)
Other liabilities  (1)
Net carrying value $120 

Under the equity method, the Company will recognize its share of Aptina’s results of operations based on its 64% share of Aptina’s common stock on a two-month lag beginning in 2010.  As of September 3, 2009, the Company’s investment in Aptina was $44 million.  The Company’s Imaging segment continues to manufacture products for Aptina under a wafer supply agreement and recognized $70 million of sales and $60 million of cost of goods sold from products sold to Aptina subsequent to July 10, 2009.

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Accounts Payable and Accrued Expenses 2009  2008 
       
Accounts payable
 $526  $597 
Customer advances
  150   130 
Salaries, wages and benefits
  147   244 
Related party payables
  83   -- 
Income and other taxes
  32   27 
Other
  99   113 
  $1,037  $1,111 

As of September 3, 2009, related party payables consisted of amounts due to Inotera under the Inotera Supply Agreement including $51 million for the purchase of trench DRAM products and $32 million for underutilized capacity. (See “Equity Method Investments – DRAM joint ventures with Nanya – Inotera” note.)

As of September 3, 2009 and August 30, 2007,28, 2008, customer advances included $129$142 million and $83$129 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 September 3, 2009 and August 28, 2008, and August 30, 2007, other accounts payable and accrued expenses included $16$24 million and $17$16 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 August 28, 2008 and August 30, 2007, other noncurrent liabilities included $83 million and $167 million, respectively, pursuant to the supply agreement with Apple.
Debt 2009  2008 
       
Convertible senior notes, interest rate of 1.875%, due June 2014
 $1,300  $1,300 
TECH credit facility, effective interest rates of 3.6% and 5.0% , respectively, net of discount of $2 million and $3 million, respectively, due in periodic installments through May 2012
  548   597 
Capital lease obligations, weighted-average imputed interest rate of 6.7% and 6.6%, respectively, due in monthly installments through February 2023
  559   657 
Convertible senior notes, interest rate of 4.25%, due October 2013
  230   -- 
EDB notes, interest rate of 5.4%, due February 2012
  208   -- 
Nan Ya Plastics notes, effective imputed interest rate of 12.1%, net of discount of $18 million, due November 2010
  182   -- 
Convertible subordinated notes, interest rate of 5.6%, due April 2010
  70   70 
Other notes, weighted-average effective interest rates of 9.5% and 1.6%, respectively, due in periodic installments through July 2015
  1   102 
   3,098   2,726 
Less current portion
  (424)  (275)
  $2,674  $2,451 

Debt 2008  2007 
       
Convertible senior notes payable, interest rate of 1.875%, due June 2014
 $1,300  $1,300 
Notes payable in periodic installments through July 2015, weighted-average interest rates of 4.5%
  699   374 
Capital lease obligations payable in monthly installments through February 2023, weighted-average imputed interest rate of 6.6%
  657   666 
Convertible subordinated notes payable, interest rate of 5.6%, due April 2010
  70   70 
   2,726   2,410 
Less current portion
  (275)  (423)
  $2,451  $1,987 

As of August 28, 2008, notes payable and capital lease obligations above included an aggregate of $108 million, denominated in Japanese yen, at a weighted-average interest rate of 1.6%, which was subject to customary covenants, including the ratio of debt to equity.  As of August 28, 2008, the Company was in compliance with these customary covenants.  Notes payable and capital lease obligations as of August 28, 2008 also included $49 million, denominated in Singapore dollars, at a weighted average interest rate of 6.0%.

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%.  During the third quarter of 2008, TECH entered into a new credit facility enabling TECH to borrow up to $600 million at SIBOR plus 2.5%.  During 2008, TECH drew $600 million under the new credit facility and retired the previous credit facility by paying off the $240 million outstanding balance.  The new credit facility is collateralized by substantially all of the assets of TECH (approximately $1,741 million as of August 28, 2008) and contains 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.

 
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In 2008, the Company received $111 million in proceeds from sales-leaseback transactions and in connection with these transactions, recorded capital lease obligations aggregating $110 million with a weighted-average imputed interest rate of 6.7% and payable in periodic installments through June 2012.

In May 2007, the Company issued $1.3 billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Senior Notes”).  The issuance costs associated with the Senior Notes totaled $26 million and the net proceeds to the Company from the offering of the Senior Notes were $1,274 million.  The initial conversion rate for the Senior Notes is 70.2679 shares of common stock per $1,000 principal amount of Senior Notes, equivalent to an initial conversion price of approximately $14.23 per share of common stock.  Holders may convert the Senior Notes prior to the close of business on the business day immediately preceding the maturity date for the Senior Notes only under the following circumstances: (1) during any calendar quarter beginning after August 30, 2007 (and only during such calendar quarter), if the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the then applicable conversion price per share of the Senior Notes; (2) if the Senior Notes have been called for redemption; (3) if specified distributions to holders of the Company's common stock are made, or specified corporate events occur, as specified in the indenture for the Senior Notes; (4) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of Senior Notes for each day of that period was less than 98% of the product of the closing price of the Company’s common stock and the then applicable conversion rate of the Senior Notes; or (5) at any time on or after March 1, 2014.  Upon conversion, the Company will have the right to deliver, in lieu of shares of its common stock, cash or a combination of cash and shares of common stock.  If a holder elects to convert its Senior Notes in connection with a make-whole change in control, as defined in the indenture, the Company will, in certain circumstances, pay a make-whole premium by increasing the conversion rate for the Senior Notes converted in connection with such make-whole change in control.  On or after June 6, 2011, the Company may redeem for cash all or part of the Senior Notes if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending within five trading days prior to the date on which the Company provides notice of redemption.  The redemption price is 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest.  Upon a change in control or a termination of trading, as defined in the indenture, the holders may require the Company to repurchase for cash all or a portion of their Senior Notes at a repurchase price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any.  The Company expects that the accounting for the Senior Notes will be significantly impacted by adoption of FSP No. APB 14-1 which is effective for the Company at the beginning of 2010, and will requirewhich requires the Company to retrospectively account for the Senior Notes from their issuance date.  (See “Significant Accounting Policies – Recently issued accounting standards.”)

In 2008, the Company’s joint venture subsidiary, TECH Semiconductor Singapore Pte. Ltd. (“TECH”), drew $600 million under a credit facility at SIBOR plus 2.5%.  The credit facility is collateralized by substantially all of the assets of TECH (approximately $1,498 million as of September 3, 2009) and contains 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.  TECH repaid $50 million of principal amounts in 2009 and remaining payments are due in $50 million quarterly installments from September 2009 through May 2012.  Under the terms of the credit facility, TECH held $30 million in restricted cash as of September 3, 2009, which was increased to $60 million in the first quarter of 2010.  In the first quarter of 2010, TECH modified its debt covenants.  In connection with the modification, the Company has guaranteed approximately 85% of the outstanding amount borrowed under TECH’s credit facility and the Company’s guarantee could increase up to 100% of the outstanding amount borrowed under the facility based on further increases in the Company’s ownership interest in TECH and other conditions.

In 2009, the Company recorded $81 million in capital lease obligations with a weighted-average imputed interest rate of 5.9%, payable in periodic installments through February 2023.  In 2008, the Company received $111 million in proceeds from sales-leaseback transactions and in connection with these transactions, recorded capital lease obligations aggregating $110 million with a weighted-average imputed interest rate of 6.7%, payable in periodic installments through June 2012.  As of September 3, 2009, the Company had $46 million of capital lease obligations with covenants that require minimum levels of tangible net worth, cash and investments, and restricted cash of $26 million.  The covenants were modified in the second quarter of 2009, and the Company was in compliance with these debt covenants as of September 3, 2009.


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On April 15, 2009, the Company issued $230 million of 4.25% Convertible Senior Notes due October 15, 2013 (the “4.25% Senior Notes”).  Issuance costs for the 4.25% Senior Notes totaled $7 million.  The initial conversion rate for the 4.25% Senior Notes is 196.7052 shares of common stock per $1,000 principal amount, equivalent to approximately $5.08 per share of common stock, and is subject to adjustment upon the occurrence of certain events specified in the indenture for the 4.25% Senior Notes.  Holders of the 4.25% Senior Notes may convert them at any time prior to October 15, 2013.  If there is a change in control, as defined in the indenture, in certain circumstances the Company may pay a make-whole premium by increasing the conversion rate to holders that convert their 4.25% Senior Notes in connection with such make-whole change in control.  The Company may not redeem the 4.25% Senior Notes prior to April 20, 2012.  On or after April 20, 2012, the Company may redeem for cash all or part of the 4.25% Senior Notes if the closing price of its common stock has been at least 135% of the conversion price for at least 20 trading days during a 30 consecutive trading day period.  The redemption price will equal 100% of the principal amount plus a make-whole premium equal to the present value of the remaining interest payments from the redemption date to the date of maturity of the 4.25% Senior Notes.  Upon a change in control or a termination of trading, as defined in the indenture, the Company may be required to repurchase for cash all or a portion of the 4.25% Senior Notes at a repurchase price equal to 100% of the principal plus any accrued and unpaid interest to, but excluding, the repurchase date.

On February 23, 2009, the Company entered into a Singapore dollar-denominated term loan agreement with the Singapore Economic Development Board (“EDB”) enabling the Company to borrow up to $300 million Singapore dollars at 5.4% per annum.  The terms of the loan agreement required the Company to use the proceeds from any borrowings under the agreement to make equity contributions to its TECH joint venture subsidiary.  The loan agreement also required that TECH use the proceeds from the Company’s equity contributions to purchase production assets and meet certain production milestones related to the implementation of advanced process manufacturing.  The loan contains a covenant that limits the amount of indebtedness TECH can incur without approval from the EDB.  The loan is collateralized by the Company’s shares in TECH up to a maximum of 66% of TECH’s outstanding shares.  The Company drew $150 million Singapore dollars under the facility on February 27, 2009 and an additional $150 million Singapore dollars on June 2, 2009.  The aggregate $300 million Singapore dollars outstanding ($208 million U.S. dollars as of September 3, 2009) is due in February 2012 with interest payable quarterly.

In the first quarter of 2009, in connection with its purchase of its interest in Inotera, the Company entered into a two-year, variable-rate term loan with Nan Ya Plastics, an affiliate of Nanya, and received loan proceeds of $200 million.  Under the terms of the loan agreement, interest is payable quarterly at LIBOR plus 2%.  The interest rate resets quarterly and was 2.4% per annum as of September 3, 2009.  Based on imputed interest rate of 12.1%, the Company recorded the Nan Ya Plastics loan net of a discount of $28 million, which is recognized as interest expense over the life of the loan.  The loan is collateralized by a first priority security interest in the Inotera shares owned by the Company (approximate carrying value of $229 million as of September 3, 2009).  (See “Equity Method Investments” note.)

In connection with the Company’s acquisition of Lexar Media, Inc. (“Lexar”) in the fourth quarter of 2006, the Company assumed Lexar’s $70 million 5.625% convertible notes due April 1, 2010 (the “Lexar Notes”).  The Lexar Notes are convertible into the Company’s common stock any time at the option of the holders of the Lexar Notes at a price equal to approximately $11.28 per share and are subject to customary covenants.  The Lexar Notes became redeemable for cash at the Company’s option on April 1, 2008 at a price equal to the principal amount plus accrued interest plus the net present value of the remaining scheduled interest payments through April 1, 2010.  The Company may only redeem the Lexar Notes if its common stock has exceeded 175% of the conversion price for at least 20 trading days in the 30 consecutive trading days prior to delivery of a notice of redemption.

Certain notes payable are collateralized by property, plant and equipment with a carrying value of $28 million as of August 28, 2008.


 
5359
 

As of August 28, 2008,September 3, 2009, maturities of notes payable and future minimum lease payments under capital lease obligations were as follows:

 
Notes
Payable
  
Capital
Lease
Obligations
  
Notes
Payable
  
Capital
Lease
Obligations
 
            
2009 $99  $215 
2010 318  148  $270   $188 
2011 205  261   400   271 
2012 150  46   358   52 
2013 --  16   --   20 
2014 and thereafter 1,300  81 
2014  1,530   21 
2015 and thereafter  --   98 
Discount and interest, respectively  (3)  (110)  (19)  (91)
 $2,069  $657  $2,539  $559 

Commitments

As of August 28, 2008,September 3, 2009, the Company had commitments of approximately $300$276 million for the acquisition of property, plant and equipment.  The Company leases certain facilities and equipment under operating leases.  Total rental expense was $28 million, $39 million and $62 million for 2009, 2008 and $302007, respectively.  The Company also subleases certain facilities and buildings under operating leases to Aptina and recognized $1 million for 2008, 2007 and 2006, respectively.of rental income in 2009.  Minimum future rental commitments and minimum future sublease rentals to be received from Aptina under operating leases aggregated $94 million as of August 28, 2008 andnoncancelable subleases are payable as follows:  $18 million in 2009; $15 million in 2010; $13 million in 2011, $11 million in 2012, $11 million in 2013 and $26 million in 2014 and thereafter.

  
Operating
Lease
Commitments
  
Operating
Sublease
Rentals
 
       
2010 $17   $(3)
2011  14   (2)
2012  10   (3)
2013  10   (3)
2014  7   (1)
2015 and thereafter  15   -- 
  $73  $(12)

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 Lexarsecurities matters.


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Patent Matters: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.  TheOn January 9, 2009, the Delaware Court entered an opinion in favor of the Company also isholding that Rambus had engaged in patent litigation with Mosaid Technologies, Inc. (“Mosaid”)spoliation and that the twelve Rambus patents in boththe suit were unenforceable against the Company.  Rambus subsequently appealed the decision to the U.S. Court of Appeals for the Federal Circuit.  That appeal is pending.  In the U.S. District Court for the Northern District of California, trial on a patent phase of the case has been stayed pending resolution of Rambus' appeal of the Delaware spoliation decision or further order of the California Court.

On March 6, 2009, Panavision Imaging, LLC filed suit against the Company and Aptina Imaging Corporation, then a wholly-owned subsidiary of the Company (“Aptina”), in the U.S. District Court for the Central District of California.  The complaint alleges that certain of the Company and Aptina’s image sensor products infringe four Panavision Imaging U.S. patents and seeks injunctive relief, damages, attorneys’ fees, and costs.

 On March 24, 2009, Accolade Systems LLC filed suit against the Company and Aptina in the U.S. District Court for the Eastern District of Texas.  Texas alleging that certain of the Company and Aptina’s image sensor products infringe one Accolade Systems U.S. patent.  The complaint seeks injunctive relief, damages, attorneys’ fees, and costs.  Accolade Systems never served the complaint, and on October 15, 2009, filed a motion to dismiss the complaint against the Company and Aptina without prejudice.

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.


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Antitrust Matters:matters:  At least sixty-eight purported class action price-fixing 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 treblejoint and several damages, sustained by purported class memberstrebled, 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 pre-trial 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 acceptedagreed to consider 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.  ThreeThereafter, 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, Kentucky, 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 joint and several damages, andtrebled, as well as 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 October 3, 2008, the California Attorney General filed a similar lawsuit in California Superior Court, purportedly on behalf of local California government entities, alleging, among other things, violations of the Cartwright Act and state unfair competition law.

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Three purported class action DRAM lawsuits also have been filed against the Company 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 DRAM antitrust cases filed in the United States.  In May and June 2008 respectively, plaintiffs’Plaintiffs’ motion for class certification was denied in the British Columbia and Quebec cases.cases in May and June 2008, respectively.  Plaintiffs subsequently filed an appeal of each of those decisions.  Those appeals are pending.

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 joint and several damages, trebled, as well as restitution, attorneys’ fees, costs and injunctive relief, and other remedies.relief.

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 ofThree purported class action lawsuits have been filed against the Company and otheralleging price-fixing of SRAM suppliers.  Six casesproducts have been filed in Canada, asserting violations of the U.S. District Court for the Northern District of California assertingCanadian Competition Act.  These cases assert claims on behalf of a purported class of individuals and entities that purchased SRAM products directly or indirectly from various SRAM suppliers during the period from November 1, 1996 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 November 1, 1996 through December 31, 2006.  In September 2008, a class of direct purchasers was certified, and plaintiffs were granted leave to amend their complaint to cover Pseudo-Static RAM or “PSRAM” products as well.   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.suppliers.


55

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 addition, three purported class action lawsuits alleging price-fixing of Flash products have been filed in Canada, asserting violations of the Canadian Competition Act.  These cases assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly and indirectly from various Flash memory suppliers.

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 onof Rambus DRAM (“RDRAM”) and unfair competition.  Trial is currently scheduled to begin in March 2009.January 2010.  The complaint seeks treblejoint and several damages, trebled, 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:  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 iswas 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 allegesalleged breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and insider trading.  The amended complaint seekssought unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief, attorneys’ fees, costs, and expenses.  The amended complaint iswas derivative in nature and doesdid 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 Supreme Court.  On July 16, 2009, the Idaho Supreme Court issued an opinion upholding the lower court’s dismissal of Appeals.the complaint.

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.



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Capped Call TransactionsShareholders’ Equity

Stock rights:  As of September 3, 2009 and August 28, 2008, Intel held stock rights exchangeable into approximately 3.9 million and 16.9 million shares, respectively, of the Company’s common stock.  Shares issuable pursuant to the stock rights are included in weighted-average common shares outstanding in the computations of earnings per share.

Issuance of common stock: On April 15, 2009, the Company issued 69.3 million shares of common stock for $4.15 per share in a public offering.  The Company received net proceeds of $276 million, net of underwriting fees and other offering costs of $12 million.

Capped call transactions:  In connection with the offering of the Senior Notes in May 2007, the Company entered into three capped call transactions (the “Capped Calls”).  The Capped Calls each have an initial strike price of approximately $14.23 per share, subject to certain adjustments, which matches the initial conversion price of the Senior Notes.  The Capped Calls are in three equal tranches, have cap prices of $17.25, $20.13 and $23.00 per share, and cover, subject to anti-dilution adjustments similar to those contained in the Senior Notes, an approximate combined total of 91.3 million shares of common stock.  The Capped Calls mayexpire on various dates between November 2011 and December 2012.  The Capped Calls are intended to reduce the potential dilution upon conversion of the Senior Notes.  Settlement of the Capped Calls in cash on their respective expiration dates would result in the Company receiving an amount ranging from zero if the market price per share of the Company’s common stock is at or below $14.23 to a maximum of $538 million.  The Company paid $151 million to purchase the Capped Calls.  The Capped Calls are considered capital transactions and the related cost was recorded as a charge to additional capital.

Concurrent with the offering of the 4.25% Senior Notes on April 15, 2009, the Company entered into capped call transactions (the “2009 Capped Calls”) that have an initial strike price of approximately $5.08 per share, subject to certain adjustments, which was set to equal initial conversion price of the 4.25% Senior Notes.  The 2009 Capped Calls have a cap price of $6.64 per share and cover, subject to anti-dilution adjustments similar to those contained in the 4.25% Senior Notes,  an approximate combined total of 45.2 million shares of common stock, and are subject to standard adjustments for instruments of this type.  The 2009 Capped Calls expire on various dates betweenin October and November 2011 and Decemberof 2012.  The 2009 Capped Calls are intended to reduce the potential dilution upon conversion of the 4.25% Senior Notes.  Settlement of the Capped Calls in cash on their respective expiration dates would result in the Company receiving an amount ranging from zero if the market price per share of the Company’s common stock is at or below $5.08 to a maximum of $70 million.  The Company paid $25 million to purchase the 2009 Capped Calls.  The 2009 Capped Calls are considered capital transactions and the related cost was recorded as a charge to additional capital.


Shareholders’ Equity

Stock Rights:  As of August 28, 2008, Intel held stock rights exchangeable into approximately 16.9 million shares of the Company’s common stock.  The shares are issuable pursuant to the stock rights are included in weighted-average common shares outstanding in the computations of earnings per share.

Stock Warrants:  In 2001, the Company received $480 million from the issuance of warrants to purchase 29.1 million shares of the Company’s common stock.  The warrants 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 unexercised on May 15, 2008.

Accumulated Other Comprehensive Income (Loss)other comprehensive income (loss):  Accumulated other comprehensive income (loss), net of tax, consisted of the following as of the end of the periods shown below:

�� 2008  2007 
       2009  2008 
Unrealized loss on investments, net
 $(3) $(2)
      
Accumulated translation adjustment, net
 $(9) $-- 
Unrealized gain (loss) on investments, net
  10   (3)
Unrecognized pension liability
  (5)  (5)  (4)  (5)
Accumulated other comprehensive income (loss)
 $(8) $(7) $(3) $(8)


Fair Value Measurements

SFAS No. 157 establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).


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Fair value measurements on a recurring basis: Assets measured at fair value on a recurring basis as of September 3, 2009 were as follows:

  Level 1  Level 2  Total 
          
Money market(1)
 $1,184  $--  $1,184 
Certificates of deposit(2)
  --   217   217 
Marketable equity investments(3)
  15   --   15 
  $1,199  $217  $1,416 
             
(1)Included in cash and equivalents
 
(2)$187 million included in cash and equivalents and $30 million included in other noncurrent assets
 
(3)Included in other noncurrent assets
 

Level 2 assets are valued using observable inputs in active markets for similar assets or alternative pricing sources and models utilizing market observable inputs.  In 2009, the Company recognized impairment charges of $7 million for other-than-temporary declines in the value of marketable equity instruments.

As of September 3, 2009 and August 28, 2008, the estimated fair value of the Company’s debt was $2,868 million and $2,167 million, respectively, compared to the carrying value of $3,098 million and $2,726 million, respectively.  The fair value of the convertible notes payable is based on quoted market prices in active markets (Level 1).  The fair value of other long-term debt is estimated based on discounted cash flows using inputs that are observable in the market or that could be derived from or corroborated with observable market data, as well as significant unobservable inputs (Level 3), including interest rates based on yield curves of similar debt issues from parties with similar credit ratings as the Company.

Amounts reported as cash and equivalents, short-term investments, receivables, other assets, accounts payable and accrued expenses and equipment purchase contracts approximate their fair values.

Fair value measurements on a nonrecurring basis: As of September 3, 2009, non-marketable equity investments of $6 million were valued using Level 3 inputs.  During 2009, the Company identified events and circumstances that indicated the fair value of certain non-marketable equity investments sustained other-than-temporary declines in values and recognized charges of $8 million to write down the carrying values of these investments to their estimated fair values.  The fair value measurements were determined using present value techniques of estimated future cash flows based on inputs which were classified as Level 3 as they were unobservable and required management’s judgment.

During 2009, the Company recorded loans with Nan Ya Plastics and Inotera at fair value because the stated interest rates were substantially lower than the prevailing rates for loans with comparable terms and collateral and for borrowers with similar credit ratings.  The Company repaid the loan to Inotera in the third quarter of 2009.  During 2009, the Company also recorded other noncurrent contractual liabilities at fair values of $36 million (net of $39 million of discounts) based on prevailing rates for comparable obligations.  The fair values of these obligations were determined based on discounted cash flows using inputs that are observable in the market or that could be derived from or corroborated with observable market data, as well as significant unobservable inputs (Level 3), including interest rates based on published rates for transactions involving parties with similar credit ratings as the Company.  (See “Debt” note.)


Equity Plans

As of August 28, 2008,September 3, 2009, under its equity plans, the Company had an aggregate of 200.6195.1 million shares of its common stock reserved for issuance for stock options and restricted stock awards, of which 122.1125.9 million shares were subject to outstanding awards and 78.569.2 million shares were available for future grants.awards.  Awards are subject to terms and conditions as determined by the Company’s Board of Directors.

Stock Options:options:  Stock options granted by the Company are generally exercisable in increments of 25% during eachper year of employment beginning one year from the date of grant.  Stock options issued after September 22, 2004 generally expire six years from the date of grant.  All other options expire ten years from the grant date.


 
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Option activity for 20082009 is summarized as follows:

  Number of shares  Weighted-average exercise price per share  
Weighted-average remaining contractual life
(in years)
  Aggregate intrinsic value 
             
Outstanding at August 30, 2007  119.5  $20.00       
Granted  7.4   6.20       
Exercised  (0.2)  4.34       
Cancelled or expired  (13.8)  19.01       
Outstanding at August 28, 2008  112.9   19.24   3.25  $-- 
                 
Exercisable at August 28, 2008  95.8  $20.86   3.01  $-- 
Expected to vest after August 28, 2008  16.2   10.28   4.56   -- 

  Number of shares  Weighted-average exercise price per share  
Weighted-average remaining contractual life
(in years)
  Aggregate intrinsic value 
             
Outstanding at August 28, 2008  112.9  $19.24       
Granted  21.6   2.97       
Exercised  (0.0)  4.90       
Cancelled or expired  (18.0)  19.12       
Outstanding at September 3, 2009  116.5   16.25   2.90  $96 
                 
Exercisable at September 3, 2009  86.2  $20.20   2.24  $3 
Expected to vest after September 3, 2009  26.8   5.09   4.74   81 
The following table summarizes information about options outstanding as of August 28, 2008:September 3, 2009:

  Outstanding options  Exercisable options 
Range of exercise prices 
Number
of shares
  
Weighted-
average
remaining contractual
life (in years)
  
Weighted-
average
exercise
price
per share
  
Number
of shares
  
Weighted-
average
exercise
price
per share
 
                
$   0.51  -  $ 14.02  61.1   3.73  $11.78   45.4  $12.49 
   14.06  -     22.83  25.2   3.59   19.08   23.8   19.32 
   23.25  -     34.06  17.0   1.89   29.95   17.0   29.95 
   34.09  -     40.06  6.0   1.40   36.90   6.0   36.90 
   40.57  -     96.56  3.6   2.11   66.99   3.6   66.99 
   112.9   3.25   19.24   95.8   20.86 
  Outstanding options  Exercisable options 
Range of exercise prices Number of shares  
Weighted-average
remaining contractual
life (in years)
  
Weighted-average
exercise price
per share
  Number of shares  
Weighted-average
exercise price
per share
 
                
$  0.85   -$   9.79
  29.0   4.96  $3.96   3.2  $7.15 
  10.00   -     14.01  43.1   2.79   12.51   39.1   12.47 
  14.06   -     22.83  21.9   2.54   19.05   21.4   19.15 
  23.25   -     39.94  19.5   0.77   31.76   19.5   31.76 
  40.57   -     96.56  3.0   1.11   66.47   3.0   66.47 
   116.5   2.90   16.25   86.2   20.20 

The weighted-average grant-date fair value per share was $1.71, $2.52 $4.87 and $5.92$4.87 for options granted during 2009, 2008 2007 and 2006,2007, respectively.  The total intrinsic value was de minimis, $1 million $32 million and $46$32 million for options exercised during 2009, 2008 and 2007, and 2006.respectively.

Changes in the Company’s nonvested options for 20082009 are summarized as follows:

  Number of shares  
Weighted- average grant date fair value
 per share
 
       
Nonvested at August 30, 2007  16.6  $5.50 
Granted  7.4   2.52 
Vested  (5.0)  5.65 
Cancelled  (1.9)  5.12 
Nonvested at August 28, 2008  17.1   4.21 

  Number of shares  
Weighted- average grant date fair value
 per share
 
       
Nonvested at August 28, 2008  17.1  $4.21 
Granted  21.6   1.71 
Vested  (6.5)  4.76 
Cancelled  (1.9)  3.33 
Nonvested at September 3, 2009  30.3   2.36 
As of August 28, 2008, $51September 3, 2009, $43 million of total unrecognized compensation cost related to nonvested awards was expected to be recognized through the fourth quarter of 2012,2013, resulting in a weighted-average period of 1.21.3 years.  The Company’s nonvested options as of August 28, 2008September 3, 2009 have a weighted-average exercise price of $10.22,$4.98, a weighted-average remaining contractual life of 4.64.77 years and noan aggregate intrinsic value.value of $93 million.


 
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The fair valuevalues of each option award isawards were 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 arewere based on implied volatilities from traded options on the Company’s stock and on historical volatility.  The expected lifelives of options granted wasin 2009 were based, in part, on historical experience and on the terms and conditions of the options.  The expected lives of options granted prior to 2009 were based on the simplified method provided by the Securities and Exchange Commission as historical data did not provide a reasonable basis to estimate future terms due to significant changes in the terms of prior grants.Commission.  The risk-free interest rates utilized by the Company arewere based on the U.S. Treasury yield in effect at the time of the grant.  No dividends have beenwere assumed in the Company’s estimated option values.  Assumptions used in the Black-Scholes model are presented below:

 2008  2007  2006  2009  2008  2007 
                  
Average expected life in years 4.25  4.25  4.25   4.92   4.25   4.25 
Expected volatility 37%-54% 33%-42% 42%-48%
Weighted-average volatility 47% 39% 47%  73%  47%  39%
Weighted-average risk-free interest rate 2.9% 4.7% 4.4%  1.9%  2.9%  4.7%

Restricted Stockstock and Restricted Stock Unitsrestricted stock units (“Restricted Stock Awards”):  As of August 28, 2008,September 3, 2009, there were 9.29.4 million shares of restricted stock awardsRestricted Stock Awards outstanding, of which 2.94.0 million were performance-based restricted stock awards.Restricted Stock Awards.  For service-based restricted stock awards,Restricted Stock Awards, restrictions generally lapse either in one-fourth or one-third increments during each year of employment after the grant date.  For performance-based restricted stock awards,Restricted Stock Awards, vesting is contingent upon meeting certain Company-wide performance goals.goals, none of which were achieved or deemed probable to achieve as of September 3, 2009.  Restricted stock awardsStock Awards activity for 20082009 is summarized as follows:

  Number of shares  
Weighted-average remaining contractual life
(in years)
  Aggregate intrinsic value 
          
Outstanding at August 30, 2007  5.3       
Granted  5.6       
Restrictions lapsed  (1.3)      
Cancelled  (0.4)      
Outstanding at August 28, 2008  9.2   2.2  $40 
             
Expected to vest after August 28, 2008  7.5   2.4  $32 
  Number of shares  
Weighted-average remaining contractual life
(in years)
  Aggregate intrinsic value 
          
Outstanding at August 28, 2008  9.2       
Granted  3.6       
Restrictions lapsed  (2.2)      
Cancelled  (1.2)      
Outstanding at September 3, 2009  9.4   1.77  $67 
             
Expected to vest after September 3, 2009  5.2   2.11  $37 

The weighted-average grant-date fair value for restricted stock awards granted during 2009, 2008 and 2007 was $4.40, $8.41 and 2006 was $8.41, $14.91 and $13.04 per share, respectively.  The aggregate value at the lapse date of awards for which restrictions lapsed during 2009, 2008 and 2007 and 2006 was $8 million, $12 million $11 million and $2$11 million, respectively.  As of August 28, 2008,September 3, 2009, there was $56$28 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock awards, which is expected to be recognized overthrough the second quarter of 2013, resulting in a weighted-average period of 1.31.0 years.

Stock Purchase Plan:purchase plan: The Company’s 1989 Employee Stock Purchase Plan (“ESPP”) allowed eligible employees to purchase shares of the Company’s common stock through payroll deductions.  Shares could be purchased at 95% of the ending closing stock price of each offering quarterly period and could be resold when purchased.  Purchases were limited to 20% of an employee’s eligible compensation.  During 2008, the ESPPplan was suspended by the Company.  As of August 28,during 2008 1.8 million shares were reserved for future issuance under this plan.and expired during 2009.

Non-Employee Director Stock Incentive Plan:  Shares are issued under the Director Stock Incentive Plan (“DSIP”) as compensation to non-employee directors of the Company.  As of August 28, 2008, 69,808 shares of the Company’s common stock had been issued under the DSIP and 430,192 shares were reserved for future issuance under the plan.


 
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Stock-Based Compensation Expense:Stock-based compensation expense:  Total compensation costs for the Company’s equity plans were as follows:

 2008  2007  2006  2009  2008  2007 
                  
Stock-based compensation expense by caption:                  
Cost of goods sold
 $15  $11  $8  $16  $15  $11 
Selling, general and administrative
 19  21  11   16   19   21 
Research and development
  14   12   7   13   14   12 
Other operating (income) expense
  (1)  --   -- 
 $48  $44  $26  $44  $48  $44 
                        
Stock-based compensation expense by type of award:                        
Stock options
 $26  $26  $17  $29  $26  $26 
Restricted stock awards
  22   18   9   15   22   18 
 $48  $44  $26  $44  $48  $44 

As of August 28, 2008 and August 30, 2007, $3 million of stock-basedStock-based compensation expense was capitalized and remained in inventory, and $1of $3 million was capitalized and remained in inventory as of September 3, 2009 and August 31, 2006.28, 2008.  As of August 28, 2008, $107September 3, 2009, $71 million of total unrecognized compensation costs, net of estimated forfeitures, related to non-vested awards was expected to be recognized through the fourth quarter of 2012,2013, resulting in a weighted-average period of 1.2 years.  Stock-based compensation expense in the above presentation does not reflect any significant income tax benefits, which is consistent with the Company’s treatment of income or loss from its U.S. operations.  (See “Income Taxes” note.)


Employee Benefit Plans

The Company has employee retirement plans at its U.S. and international sites.  Details of the more significant plans are discussed as follows:

Employee Savings Plansavings plan for U.S. Employees:employees:  The Company has a 401(k) retirement plan (“RAM Plan”) under which U.S. employees may contribute up to 45% of their eligible pay (subject to IRS annual contribution limits) to various savings alternatives, none of which include direct investment in the Company’s common stock.  Under the RAM plan, the Company matchesmatched in cash eligible contributions from employees up to 4% of the employee’s annual eligible earnings or $2,000, whichever iswas greater.  In 2009, the Company suspended its match under in the RAM plan.  Contribution expense for the Company’s RAM Plan was $16 million, $32 million and $31 million in 2009, 2008 and $26 million in 2008, 2007, and 2006, respectively.

Retirement Plansplans:  The Company has pension plans in various countries worldwide.  The pension plans are only available to local employees and are generally government mandated.  Upon adoption of FAS 158 as of August 30, 2007, the Company increased its liability by $8 million related to the unfunded pension liabilities of the plans.


Restructure

In an effortresponse to increase its competitiveness and efficiency,a severe downturn in the fourthsemiconductor memory industry and global economic conditions, the Company initiated restructure plans in 2009 primarily within the Company’s Memory segment.  In the first quarter of 2007,2009, IM Flash, a joint venture between the Company began pursuingand Intel, terminated its agreement with the Company to obtain NAND Flash memory supply from the Company’s Boise facility, reducing the Company’s NAND Flash production by approximately 35,000 200mm wafers per month.  In connection with the termination of the NAND Flash memory supply agreement, Intel paid the Company $208 million in 2009.  The Company and Intel agreed to suspend tooling and the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication facility.  In addition, the Company phased out all remaining 200mm DRAM wafer manufacturing operations in Boise, Idaho in the second half of 2009.  As a numberresult of initiativesthese restructure plans, the Company reduced employment in 2009 by approximately 4,600 employees, or approximately 20%.  Due to improvements in market conditions and the pursuit of new business opportunities, future reduction in employees may not occur.  As of September 3, 2009, the Company expects to incur additional restructure costs in 2010 of approximately $2 million, excluding any gains or additional losses from disposition of equipment.  In 2008 and 2007, to reduce costs, acrossthe Company implemented restructure initiatives including workforce reductions and relocating and outsourcing certain of its operations.  These initiatives included workforce reductions in certain areasThe following table summarizes restructure charges (credits) resulting from the Company’s restructure activities:

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  2009  2008  2007 
          
Write-down of equipment $152  $--  $-- 
Severance and other employee costs  60   23   18 
Gain from termination of NAND Flash supply agreement  (144)  --   -- 
Other  2   10   1 
  $70  $33  $19 

During 2009 the Company made cash payments of $63 million for severance and other termination benefits.  Substantially all of the Company as its business was realigned.  Additional initiatives included establishing certain operations closercharges in location to the Company’s global customers2008 and evaluating functions more efficiently performed through partnerships or other outside relationships.  In 2008, the Company recorded charges2007 were paid in those years.  As of $33 million, primarily within its Memory segment, for employee severanceSeptember 3, 2009 and related costs, relocation and retention bonuses and a write-down of certain facilities to their fair values.  Since the restructure initiatives were initiated in the fourth quarter of 2007, the Company has incurred $52 million of restructure costs.  As of August 28, 2008, and August 30, 2007, $6$5 million and $5$6 million, respectively, of the restructure costs, primarily related to severance and other termination benefits, remained unpaid and were included in accounts payable and accrued expenses.

On October 9, 2008 the Company announced a plan to restructure its memory operations.  The Company’s IM Flash joint venture with Intel Corporation will discontinue production of 200mm wafer NAND flash memory at Micron’s Boise facility.  The NAND Flash production shutdown will reduce IM Flash’s NAND flash production by approximately 35,000 200mm wafers per month.  In addition, the Company and Intel agreed to suspend tooling and the ramp of production at IM Flash’s Singapore wafer fabrication plant.  As part of the restructuring, the Company plans to reduce its global workforce by approximately 15 percent during 2009 and 2010.  Cash costs for restructuring and other related expenses incurred in connection with this restructuring are anticipated to be approximately $60 million.

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Other Operating (Income) Expense, Net

Other operating (income) expense consisted of the following:

  2009  2008  2007 
          
(Gain) loss on disposition of property, plant and equipment $54  $(66) $(43)
Loss on sale of majority interest in Aptina  41   --   -- 
Losses from changes in currency exchange rates  30   25   14 
Other  (18)  (50)  (47)
  $107  $(91) $(76)

In the table above, “Other” for 2008 included gains of $66 million for disposals of semiconductor equipment and $38 million for receipts from the U.S. government in connection with anti-dumping tariffs.  Other operating expenses for 2008 included losses of $25 million from changes in currency exchange rates.  Other operating (income)tariffs and for 2007, included gains of $43 million from disposals of semiconductor equipment, $30 million from the sale of certain intellectual property to Toshiba Corporation and $7 million in grants received in connection with the Company’s operations in China.  Other operating expense for 2007 included losses of $14 million from changes in currency exchange rates.  Other operating (income) for 2006 included $230 million of net proceeds for the sale of the Company’s existing NAND Flash memory designs and certain related technology to Intel, net of amounts paid by the Company for a perpetual, paid-up license to use and modify such designs.  Other operating (income) for 2006 also included $23 million in additional amounts expected to be reimbursed resulting from the extension of an economic development agreement, which allows the Company to recover amounts relating to certain investments in IM Flash.  (See “Joint Ventures“Equity Method Investments – NAND Flash Joint Ventures with Intel.”Aptina” note.)


Income Taxes

Income (loss)The Company’s income tax (provision) and loss before taxes, and noncontrolling interests in net income(income) loss and the income tax (provision) benefitequity in net losses of equity method investees consisted of the following:

 2008  2007  2006  2009  2008  2007 
                  
Income (loss) before taxes and noncontrolling interests in net income:
         
Loss before taxes, noncontrolling interests in net (income) loss and equity in net losses of equity method investees:
         
U.S.
 $(1,713) $(571) $351  $(1,377) $(1,713) $(571)
Foreign
  102   403   82   (427)  102   403 
 $(1,611) $(168) $433  $(1,804) $(1,611) $(168)
                        
Income tax (provision) benefit:
                        
Current:
                        
U.S. federal
 $(7) $(5) $(12) $12  $(7) $(5)
State
 --  --  (1)  --   --   -- 
Foreign
  (17)  (39)  (29)  (12)  (17)  (39)
  (24)  (44)  (42)  --   (24)  (44)
Deferred:
                        
U.S. federal
 --  --  --   --   --   -- 
State
 --  --  --   --   --   -- 
Foreign
  6   14   24   (2)  6   14 
  6   14   24   (2)  6   14 
Income tax (provision)
 $(18) $(30) $(18) $(2) $(18) $(30)

68
The Company’s income tax (provision) benefit computed using the U.S. federal statutory rate reconciled to the Company’s income tax (provision) follows:

 2008  2007  2006  2009  2008  2007 
                  
U.S. federal income tax (provision) benefit at statutory rate
 $564  $59  $(152)
U.S. federal income tax (provision) at statutory rate
 $631  $564  $59 
State taxes, net of federal benefit
 38  3  5   38   38   3 
Tax credits
 8  25  7   18   8   25 
Change in valuation allowance
 (446) (219) 103   (554)  (446)  (219)
Foreign operations
  (135)  (21)  93 
Goodwill impairment
 (155) --  --   --   (155)  -- 
Foreign operations
 (21) 93  3 
Export sales benefit
 --  8  13 
Other
  (6)  1   3   --   (6)  9 
Income tax (provision)
 $(18) $(30) $(18) $(2) $(18) $(30)

State taxes reflect investment tax credits of $7 million, $12 million and $10 million for 2009, 2008 and $23 million for 2008, 2007, and 2006, respectively.

61
Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes.  The Company’s deferred tax assets and liabilities consist of the following as of the end of the periods shown below:

 2008  2007  2009  2008 
            
Deferred tax assets:
            
Net operating loss and credit carryforwards
 $1,358  $1,136  $1,965  $1,358 
Inventories
 235  35   197   235 
Basis differences in investments in joint ventures
 200  236   106   200 
Deferred income
 155  160   78   155 
Accrued salaries, wages and benefits
 76  64   74   76 
Other
  48   61   27   48 
Gross deferred tax assets
 2,072  1,692   2,447   2,072 
Less valuation allowance
  (1,569)  (1,142)  (2,118)  (1,569)
Deferred tax assets, net of valuation allowance
  503   550   329   503 
                
Deferred tax liabilities:
                
Unremitted earnings on certain subsidiaries
  (87)  (114)
Product and process technology
  (47)  (48)
Intangible assets
  (41)  (51)
Receivables
  (15)  (43)
Excess tax over book depreciation
 (141) (225)  (12)  (141)
Unremitted earnings on certain subsidiaries
 (114) (68)
Intangible assets
 (51) (59)
Product and process technology
 (48) (44)
Receivables
 (43) (76)
Other
  (16)  (13)  (6)  (16)
Deferred tax liabilities
  (413)  (485)  (208)  (413)
                
Net deferred tax assets
 $90  $65  $121  $90 
                
Reported as:
                
Current deferred tax assets (included in other current assets)
 $25  $25  $18  $25 
Noncurrent deferred tax assets (included in other assets)
 74  65   107   74 
Noncurrent deferred tax liabilities (included in other liabilities)
  (9)  (25)  (4)  (9)
Net deferred tax assets
 $90  $65  $121  $90 

The Company has a valuation allowance against substantially all of its U.S. net deferred tax assets.  As of August 28, 2008,September 3, 2009, the Company had aggregate U.S. tax net operating loss carryforwards of $2.7$4.2 billion and unused U.S. tax credit carryforwards of $205$212 million.  The Company also has unused state tax net operating loss carryforwards of $1.8$2.6 billion and unused state tax credits of $189$198 million as of August 28, 2008.September 3, 2009.  Substantially all of the net operating loss carryforwards expire in 2022 to 20282029 and substantially all of the tax credit carryforwards expire in 2013 to 2028.2029.  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.

69
The changes in valuation allowance of $549 million and $427 million in 2009 and $227 million in 2008, and 2007, respectively, are primarily due to uncertainties of realizing certain U.S. net operating losses and certain tax credit carryforwards.  The change in the valuation allowance in 2007 included $6 million for stock plan deductions, which will be credited to additional capital if realized.

Provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend payments from such companies are expected to result in additional tax liability.  During 2008 a decision was made to not be indefinitely reinvested in certain foreign jurisdictions.  For the year ended August 28, 2008, $322 million of earnings that in prior years had been considered indefinitely reinvested in foreign operations were determined to no longer be indefinitely reinvested.  This decision resulted in no impact to the consolidated statement of operations as the Company has a full valuation allowance against its net U.S. deferred tax assets.  Remaining undistributed earnings of $608$410 million as of August 28, 2008September 3, 2009 have been indefinitely reinvested; therefore, no provision has been made for taxes due upon remittance of these earnings.  Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.


62

Effective at the beginning 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.  Below is a reconciliation of the beginning and ending amount of unrecognized tax benefits:

 2008  2009  2008 
         
Beginning unrecognized tax benefits $16  $1  $16 
Foreign exchange fluctuations 1 
Settlements with taxing authorities (1)
Expiration of foreign statutes of limitations  (15)  (1)  (15)
Other  1   -- 
Ending unrecognized tax benefits $1  $1  $1 

The balance at September 3, 2009 and August 28, 2008 represents unrecognized income tax benefits, which if recognized, would affect the Company’s effective tax rate.  As of August 28, 2008 and August 31, 2007,September 3, 2009, accrued interest and penalties related to uncertain tax positions were de minimis.was $2 million.

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 20082009 and 2004 through 2008,2009, respectively.  In addition, tax years open to examination in multiple foreign taxing jurisdictions range from 20012002 to 2008.2009.  The Company is currently undergoing audits in the U.K.foreign jurisdictions for years 20042005 through 2007.2009.


Earnings Per Share

  2008  2007  2006 
          
Net income (loss) available to common shareholders – Basic
 $(1,619) $(320) $408 
Net effect of assumed conversion of debt
  --   --   6 
Net income (loss) available to common shareholders – Diluted
 $(1,619) $(320) $414 
             
Weighted-average common shares outstanding – Basic
  772.5   769.1   691.7 
Net effect of dilutive stock options and assumed conversionof debt
  --   --   33.4 
Weighted-average common shares outstanding – Diluted
  772.5   769.1   725.1 
             
Earnings (loss) per share:
            
Basic
 $(2.10) $(0.42) $0.59 
Diluted
  (2.10)  (0.42)  0.57 
  2009  2008  2007 
          
Net loss available to common shareholders
 $(1,835) $(1,619) $(320)
             
Weighted-average common shares outstanding
  800.7   772.5   769.1 
             
Loss per share:
            
Basic
 $(2.29) $(2.10) $(0.42)
Diluted
  (2.29)  (2.10)  (0.42)

Listed below are the potential common shares, as of the end of the periods shown below, that could dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive:

 2008  2007  2006  2009  2008  2007 
                  
Employee stock plans
 122.1  124.8  68.7   126.0   122.1   124.8 
Convertible notes
 97.6  97.6  6.2   142.8   97.6   97.6 
Common stock warrants
 --  29.1  29.1   --   --   29.1 



 
6370
 


AcquisitionsConsolidated Variable Interest Entities

Lexar Media, Inc.NAND Flash joint ventures with Intel (“Lexar”IM Flash”):  On June 21,The Company has formed two joint ventures with Intel (IM Flash Technologies, LLC formed January 2006 and IM Flash Singapore LLP formed February 2007) to manufacture NAND Flash memory products for the exclusive benefit of the partners.  IMFT and IMFS are each governed by a Board of Managers, with Micron and Intel initially appointing an equal number of managers to each of the boards.  The number of managers appointed by each party adjusts depending on the parties’ ownership interests.  These ventures will operate until 2016 but are subject to prior termination under certain terms and conditions.  IMFT and IMFS are aggregated as IM Flash in the following disclosure due to the similarity of their ownership structure, function, operations and the way the Company’s management reviews the results of their operations.  At inception and through September 3, 2009, the Company owned 51% and Intel owned 49% of IM Flash.

IM Flash is a variable interest entity as defined by FIN 46(R) because all costs of IM Flash are passed to the Company and Intel through product purchase agreements.  IM Flash is dependent upon the Company and Intel for any additional cash requirements.  The Company and Intel are also considered related parties under the provisions of FIN 46(R) due to restrictions on transfers of ownership interests.  As a result, the primary beneficiary of IM Flash is the entity that is most closely associated with IM Flash.  The Company considered several factors to determine whether it or Intel is more closely associated with IM Flash, including the size and nature of IM Flash’s operations relative to the Company and Intel, and which entity had the majority of economic exposure under the purchase agreements.  Based on those factors, the Company determined that it is more closely associated with IM Flash and is therefore the primary beneficiary.  Accordingly, the financial results of IM Flash are included in the Company’s consolidated financial statements and all amounts pertaining to Intel’s interests in IM Flash are reported as noncontrolling interests in subsidiaries.  (See “Significant Accounting Policies” note.)

IM Flash manufactures NAND Flash memory products using designs developed by the Company and Intel.  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 $107 million, $148 million and $240 million in 2009, 2008 and 2007, respectively.

IM Flash sells products to the joint venture partners generally in proportion to their ownership at long-term negotiated prices approximating cost.  IM Flash sales to Intel were $886 million, $1,037 million and $497 million for 2009, 2008 and 2007, respectively.  As of September 3, 2009 and August 28, 2008, IM Flash had receivables from Intel primarily for sales of NAND Flash products of $95 million and $144 million, respectively.  In addition, as of September 3, 2009 and August 28, 2008, the Company had receivables from Intel of $29 million and $71 million, respectively, related to NAND Flash product design and process development activities.  As of September 3, 2009 and August 28, 2008, IM Flash had payables to Intel of $3 million and $4 million, respectively, for various services.

Under the terms of a wafer supply agreement, the Company manufactured wafers for IM Flash in its Boise, Idaho facility.  In the first quarter of 2009, the Company and Intel agreed to discontinue production of NAND flash memory for IM Flash at the Boise facility.  Pursuant to the termination agreement, Intel paid the Company $208 million in 2009.  Also in the first quarter of 2009, IM Flash substantially completed construction of a new 300mm wafer fabrication facility structure in Singapore and the Company and Intel agreed to suspend tooling and the ramp of production at this facility.

IM Flash distributed $695 million and $132 million to Intel in 2009 and 2008, respectively, and $723 million and $137 million to the Company in 2009 and 2008, respectively.  Intel contributed $24 million, $393 million and $1,238 million to IM Flash in 2009, 2008 and 2007, respectively.  The Company contributed $25 million and $409 million and $1,017 million to IM Flash in 2009, 2008 and 2007, respectively.  Intel’s contributions in 2007 included $261 million as part of its initial obligations from the formation of IM Flash in January 2006.  The Company’s ability to access IM Flash’s cash and marketable investment securities ($114 million as of September 3, 2009) to finance the Company’s other operations is subject to agreement by the joint venture partners.


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Total IM Flash assets and liabilities included in the Company’s consolidated balance sheets are as follows:

As of 
September 3,
2009
  
August 28,
2008
 
       
Assets      
Cash and equivalents $114  $393 
Receivables  111   169 
Inventories  161   225 
Other current assets  8   14 
Total current assets
  394   801 
Property, plant and equipment, net  3,377   3,998 
Other assets  63   58 
Total assets
 $3,834  $4,857 
         
Liabilities        
Accounts payable and accrued expenses $93  $166 
Deferred income  137   67 
Equipment purchase contracts  1   18 
Current portion of long-term debt  6   5 
Total current liabilities
  237   256 
Long-term debt  66   38 
Other liabilities  4   5 
Total liabilities
 $307  $299 
         
Amounts exclude intercompany balances that are eliminated in the Company’s consolidated balance sheets. IMFT and IMFS are aggregated as IM Flash in this disclosure due to the similarity of their ownership structure, function, operations and the way the Company’s management reviews the results of their 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.

MP Mask Technology Center, LLC (“MP Mask”):  In 2006, the Company acquired Lexar,formed a designer, developer, manufacturerjoint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce photomasks for leading-edge and marketeradvanced next generation semiconductors.  At inception and through September 3, 2009, the Company owned 50.01% and Photronics owned 49.99% of Flash memory products, inMP Mask.  The Company purchases a stock-for-stock merger to broaden the Company’s NAND Flash memory product offering, enhance its retail presence and strengthen its portfolio of intellectual property.  Pursuant to the termssubstantial majority of the merger agreement,reticles produced by MP Mask pursuant to a supply arrangement.  In connection with the formation of the joint venture, the Company issued 50.7received $72 million sharesin 2006 in exchange for entering into a license agreement with Photronics, which is being recognized over the term of common stock, issued 6.6 million stock optionsthe 10-year agreement.  As of September 3, 2009, deferred income and incurred other acquisition costs resulting innoncurrent liabilities included an aggregate purchase price of $886 million.  In the final allocation of the $886$48 million purchase price,related to this agreement.  MP Mask made distributions to both the Company recorded total assetsand Photronics of $1,344$10 million (including cash and short-term investments of $101 million, receivables of $317 million, intangible assets of $183 million, deferred tax assets of $180each in 2009.  Photronics contributed $8 million and goodwill of $458 million)$11 million to MP Mask in 2008 and total liabilities of $4582007, respectively.  The Company contributed $4 million (including accounts payable and accrued expenses of $169 million, deferred tax liabilities of $176 million and debt of $113 million).
The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisition of Lexar had taken place at the beginning of 2006.  The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations.to MP Mask in 2007.

  2006 
  (unaudited) 
    
Net sales
 $5,746 
Net income
  266 
     
Earnings per share – diluted
 $0.35 
MP Mask is a variable interest entity as defined by FIN 46(R) because all costs of MP Mask are passed on to the Company and Photronics through  product purchase agreements and MP Mask is dependent upon the Company and Photronics for any additional cash requirements.  The Company and Photronics are also considered related parties under the provisions of FIN 46(R) due to restrictions on transfers of ownership interests.  As a result, the primary beneficiary of MP Mask is the entity that is more closely associated with MP Mask.  The Company considered several factors to determine whether it or Photronics is more closely associated with the joint venture.  The most important factor was the nature of the joint venture’s operations relative to the Company and Photronics.  Based on those factors, the Company determined that it is more closely associated with the joint venture and therefore is the primary beneficiary.  Accordingly, the financial results of MP Mask are included in the Company’s consolidated financial statements and all amounts pertaining to Photonics’ interest in MP Mask are reported as noncontrolling interests in subsidiaries.


72

Total MP Mask assets and liabilities included in the Company’s consolidated balance sheets are as follows:

As of 
September 3,
2009
  
August 28,
2008
 
       
Current assets $25  $27 
Noncurrent assets (primarily property, plant and equipment)  97   121 
Current liabilities  8   11 
         
Amounts exclude intercompany balances that are eliminated in the Company’s consolidated balance sheets. 

Effective September 15, 2006,The creditors of MP Mask have recourse only to the assets of MP Mask and do not have recourse to any other assets of the Company.

In 2008, the Company completed the construction of a facility to produce photomasks and sold the facility to Photronics under a build to suit lease agreement, with quarterly payments through January 2013.  On May 19, 2009, the Company and Toshiba CorporationPhotronics entered into agreements settling all outstanding NAND Flash memory-related litigation betweenan agreement whereby the companies.  Toshiba purchased certainCompany repurchased the facility from Photronics for $50 million and leased the facility to Photronics under an operating lease providing for quarterly lease payments aggregating $41 million through October 2014.


TECH Semiconductor Singapore Pte. Ltd.

Since 1998, the Company has participated in TECH Semiconductor Singapore Pte. Ltd. (“TECH”), a semiconductor memory manufacturing joint venture in Singapore among the Company, Canon Inc. and Hewlett-Packard Company (“HP”).
The financial results of the Company’s semiconductor technology patents and licensed certain patents previously owned by Lexar in exchange for payments totaling $288 million over three years, a substantial portion of which wasTECH are included in the allocationCompany’s consolidated financial statements and all amounts pertaining to Canon Inc. and HP are reported as noncontrolling interests in subsidiaries.  The Company began consolidating TECH’s financial results in 2006.

The shareholders’ agreement for the TECH joint venture expires in April 2011, but automatically extends for 10 years unless one or more of the shareholders provides a non-extension notification.  In the first quarter of 2010, TECH received a notice from HP that it does not intend to extend the TECH joint venture beyond April 2011.  The Company is working with HP and Canon to reach a resolution of the matter.  The parties’ inability to reach a resolution of this matter prior to April 2011 could result in the dissolution of TECH.

In the second quarter of 2009, the Company entered into a term loan agreement with the EDB that enabled the Company to borrow up to $300 million Singapore dollars at 5.4%.  The Company was required to use the proceeds from any borrowings under the facility to make equity contributions to TECH.  On February 27, 2009, the Company drew $150 million Singapore dollars under the facility and used the proceeds to purchase priceshares of TECH for Lexar$99 million.  On June 2, 2009, the Company drew the remaining $150 million Singapore dollars under the facility and purchased additional shares of TECH for $99 million.  Additionally, on August 27, 2009, the Company purchased shares of TECH for $60 million.  As a result, the Company’s interest in TECH increased from approximately 73% as a receivable at an imputed interest rate of 5.9%.  As of August 28, 2008 andto approximately 85% in August 30, 2007, $116 and $1932009.  As a result of these share purchases, the Company reduced noncontrolling interests by $87 million during 2009.  Because the cost of the settlement proceeds remained in currentnoncontrolling interest acquired was below carrying value, the Company’s carrying value for TECH’s property, plant and noncurrent receivables.equipment was also reduced $87 million.  (See “Debt” note.)

In March 2007, the Company acquired all of the shares of TECH common stock held by the Singapore Economic Development Board for approximately $290 million, increasing the Company’s ownership interest in TECH from 43% to 73%.

TECH’s cash and marketable investment securities ($188 million as of September 3, 2009) are not anticipated to be available to pay dividends of the Company or finance its other operations.  As of September 3, 2009, TECH had $548 million outstanding under a credit facility which is collateralized by substantially all of the assets of TECH (carrying value of approximately $1,498 million as of September 3, 2009) and contains 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.  As of September 3, 2009, the Company was in compliance with these covenants.  In the first quarter of 2010, TECH modified its debt covenants.  In connection with the modification, the Company has guaranteed approximately 85% of the outstanding amount borrowed under TECH’s credit facility and the Company’s guarantee could increase up to 100% of the outstanding amount borrowed under the facility based on further increases in the Company’s ownership interest in TECH and other conditions.  (See “Debt” note.)

73

Acquisition of Avago Technologies Limited Image Sensor Business (“Avago”):

On December 11, 2006, the Company acquired the CMOS image sensor business of Avago.  The acquisition provided Imaging with an experienced imaging team, select imaging products and intellectual property relating to Avago’s image sensor business.  The Company acquired Avago for an initial cash payment of $53$63 million and additional contingent consideration at the date of acquisition of up to $17 million if certain milestones were met through calendar 2008.  Through August 28, 2008, the Company has paid a total of $10 million of additional contingent consideration, which has been recorded as an increase in goodwill subsequent to the acquisition date.cash.  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 acquired goodwill is not deductible for tax purposes.  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 to manufacture NAND Flash memory products for the exclusive benefit of the partners:  IM Flash Technologies, LLC and IM Flash Singapore LLP.  As of August 28, 2008, the Company owned 51% and Intel owned 49% of IM Flash.  The Company has determined that both of the IM Flash joint ventures are variable interest entities as defined in FIN 46 (R), “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51,” (“FIN 46(R)”) and that the Company is the primary beneficiary of both.  Accordingly, IM Flash financial results are included in the consolidated financial statements of the Company and all amounts pertaining to Intel’s interests in IM Flash are reported as noncontrolling interest.


64

IM Flash sells products to the joint venture partners generally in proportion to their ownership at long-term negotiated prices approximating cost.  IM Flash sales to Intel were $1,037 million, $497 million and $114 million for 2008, 2007 and 2006, respectively.  As of August 28, 2008 and August 30, 2007, IM Flash had receivables from Intel for sales of NAND Flash products of $144 million and $121 million, respectively.  Under the terms of a lease agreement, IM Flash has the use of approximately 50% of the Company’s manufacturing facility in Manassas, Virginia through January 2016.  IM Flash purchases and installs manufacturing equipment into the leased facility, which is operated and maintained by the Company.  The cost of operating and maintaining the equipment is charged to IM Flash.  The Company and Intel entered into various service contracts with IM Flash under which they provide operational and administrative support services, and generally charge IM Flash for the costs of providing such services.  As of August 28, 2008 and August 30, 2007, IM Flash had payables to Intel of $4 million and $1 million, respectively.

IM Flash manufactures NAND Flash memory products based on NAND Flash designs developed by the Company and Intel and licensed to the Company.  Product design and other research and development (“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 $148 million, $240 million and $86 million in 2008, 2007 and 2006, respectively.

Under the terms of a wafer supply agreement, the Company manufactured wafers for IM Flash in its Boise, Idaho facility.  On October 9, 2008, the Company announced that it had agreed with Intel to discontinue production of 200mm wafer NAND flash memory at Micron’s Boise facility.  In the first quarter of 2009, IM Flash substantially completed construction of a new 300mm wafer fabrication facility in Singapore, which has not been equipped.  Additionally, the Company and Intel agreed to suspend tooling and the ramp of production at IM Flash’s Singapore facility.

Intel contributed to IM Flash $261 million and $1,238 million (net of $132 million of distributions to Intel in 2008) in 2008 and 2007, respectively.  Company’s ability to access IM Flash’s cash and marketable investment securities ($393 million as of August 28, 2008) to finance the Company’s other operations is subject to agreement by the joint venture partners.  IM Flash’s cash and marketable investment securities ($393 million as of August 28, 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 (“HP”).  As of August 28, 2008, the Company owned an approximate 73% interest in TECH.  The shareholders’ agreement for the TECH joint venture expires in 2011.  The Company began consolidating TECH’s financial results as of the beginning of the third quarter of 2006.

In March, 2007, the Company acquired all of the shares of TECH common stock held by the Singapore Economic Development Board for approximately $290 million, (including a note payable that was fully paid in 2008) increasing the Company’s ownership interest in TECH from 43% to 73%.

TECH uses the Company’s product and process technology to manufacture its memory semiconductor products.  The Company generally purchases all the semiconductor memory products manufactured by TECH, subject to specific terms and conditions, at prices determined quarterly, based on a discount from average selling prices realized by the Company for the preceding quarter.  The Company performs assembly and test services on product manufactured by TECH.  The Company also provides certain technology, engineering and training to support TECH.  Through the second quarter of 2006, prior to the consolidation of TECH, all of these transactions with TECH were recognized as part of the net cost of products purchased from TECH.  The net cost of products purchased from TECH amounted to $287 million for the first six months of 2006.

The Company’s ability to access TECH’s cash and marketable investment securities ($115 million as of August 28, 2008) to finance the Company’s other operations is subject to agreement by the joint venture partners.  In March, 2008, TECH entered into a $600 million credit facility, which is guaranteed, in part, by the Company.  (See “Debt” note.)

DRAM Joint Ventures with Nanya Technology Corporation (“Nanya”):  On June 8, 2008, the Company and Nanya formed a joint venture corporation ("MeiYa") to manufacture stack DRAM products and sell such products exclusively to the Company and Nanya.  The Company and Nanya each contributed approximately $84 million in cash to MeiYa in 2008 and each owns 50% of MeiYa.  The Company has determined that MeiYa is a variable interest entity as defined in FIN 46(R) and that the Company is not the primary beneficiary of MeiYa.  The Company's maximum loss in MeiYa is equal to it’s investment as of August 28, 2008 of $84 million.  The Company accounts for its interest in MeiYa under the equity method because of the Company’s ability to exercise significant influence over the operating and financial policies of MeiYa.

65

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.  The Company and Nanya also agreed to jointly develop process technology and designs to manufacture 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’s development costs are expected to exceed Nanya’s development costs by a significant amount.  Under this arrangement, the Company is to receive an aggregate of $232 million from Nanya and MeiYa through 2010 for licensing and technology transfer fees, of which the Company realized $40 million of revenue in 2008.  As of August 28, 2008, receivables from Nanya were $40 million related to licensing of intellectual property.  The Company will also receive royalties from Nanya for stack DRAM products manufactured by or for Nanya.
On October 12, 2008, the Company announced that it had entered into an agreement to acquire Qimonda AG’s 35.6% ownership stake in Inotera Memories, Inc. (“Inotera”), a Taiwanese DRAM memory manufacturer, for $400 million in cash.  The Company received commitments for $285 million of term loans to fund this acquisition in part.  Inotera is expected to implement the Company’s stack DRAM process technology and it is anticipated that the Company will receive royalties on the sale of Inotera’s production that is delivered to Nanya, a 35.6% stakeholder in Inotera.  The Company will eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera’s output.    In connection with this acquisition, the Company expects to enter into a series of agreements with Nanya to restructure MeiYa.  It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources to Inotera.

MP Mask Technology Center, LLC (“MP Mask”):  In 2006, the Company formed a joint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce photomasks for leading-edge and advanced next generation semiconductors.  As of August 28, 2008, the Company owned 50.01% and Photronics owned 49.99% of MP Mask.  The Company purchases a substantial majority of the reticles produced by MP Mask pursuant to a supply arrangement.  The financial results of MP Mask are included in the accompanying consolidated financial statements of the Company.  In connection with the joint venture, the Company received $72 million in 2006 in exchange for entering into a license agreement with Photronics, which is being recognized over the term of the 10-year agreement.

In 2008 the Company completed the construction of a facility to produce photomasks and leased such facility to Photronics under a build to suit lease agreement.  Under the terms of the lease agreement, the Company will receive future minimum lease payments in approximately equal quarterly installments through January 2013.  As of August 28, 2008, other receivables included $12 million and other noncurrent assets included $46 million of these minimum lease payments.


Segment Information

The Company’s reportable 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.  Subsequent to the sale of a 65% interest in Aptina on July 10, 2009, the Company’s Imaging segment continues to manufacture products for Aptina under a wafer supply agreement and also provides services to Aptina.  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.  (See “Equity Method Investments – Aptina” note.)

 2008  2007  2006  2009  2008  2007 
                  
Net sales:                  
Memory
 $5,188  $5,001  $4,523  $4,290  $5,188  $5,001 
Imaging
  653   687   749   513   653   687 
Total consolidated net sales
 $5,841  $5,688  $5,272  $4,803  $5,841  $5,688 
                        
Operating income (loss):                        
Memory
 $(1,564) $(288) $197  $(1,499) $(1,564) $(288)
Imaging
  (31)  8   153   (176)  (31)  8 
Total consolidated operating income (loss)
 $(1,595) $(280) $350  $(1,675) $(1,595) $(280)



66

Certain Concentrations

Approximately 50%30% of the Company’s net sales for 20082009 were to the computing market, including desktop PCs, servers, notebooks and workstations.  Sales to Intel were 19%20% of the Company’s net sales in 20082009 and were included in the Memory segment.  Sales of DRAM, NAND Flash and CMOS image sensor products constituted 54%50%, 35%39% and 11%, respectively, of the Company’s net sales for 2008.2009.  Certain components used by the Company in manufacturing semiconductor products are available from a limited number of suppliers.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, investment securities and trade receivables.  The Company invests through high-credit-quality financial institutions and, by policy, generally limits the concentration of credit exposure by restricting investments with any single obligor.  A concentration of credit risk may exist with respect to trade receivables as a substantial portion of the Company’s customers are affiliated with the computing industry.  The Company performs ongoing credit evaluations of customers worldwide and generally does not require collateral from its customers.  Historically, the Company has not experienced significant losses on receivables.  The Company’s Capped Call instruments expose the Company to credit risk to the extent that the counter parties may be unable to meet the terms of the agreement.  The Company seeks to mitigate such risk by limiting its counter parties to major financial institutions and by spreading the risk across several major financial institutions.  In addition, the potential risk of loss with any one counter party resulting from this type of credit risk is monitored on an ongoing basis.  (See “Shareholders’ Equity – Capped call transactions” note.)


74
Geographic Information

Geographic net sales based on customer ship-to location were as follows:

 2008  2007  2006  2009  2008  2007 
                  
Asia Pacific (excluding China and Japan) $1,696  $1,496  $1,068 
China $1,242  $1,372  $1,064 
Asia Pacific (excluding China, Malaysia and Taiwan)  990   1,660   1,448 
United States 1,486  1,719  1,721   928   1,486   1,719 
China 1,372  1,064  1,049 
Malaysia  542   173   215 
Europe 559  666  719   470   559   666 
Japan 441  477  494 
Taiwan  447   304   309 
Other  287   266   221   184   287   267 
 $5,841  $5,688  $5,272  $4,803  $5,841  $5,688 

Net property, plant and equipment by geographic area was as follows:

 2008  2007  2006  2009  2008  2007 
                  
United States $6,004  $6,545  $4,422  $4,670  $6,004  $6,545 
Singapore 2,345  1,212  867   2,066   2,345   1,212 
Italy 259  268  318   180   259   268 
Japan 171  226  269   112   171   226 
Other  32   28   12   53   32   28 
 $8,811  $8,279  $5,888  $7,081  $8,811  $8,279 


 
6775
 

Quarterly Financial Information (Unaudited)
(in millions except per share amounts)

2008
 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
2009 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
                        
Net sales
 $1,535  $1,359  $1,498  $1,449  $1,402  $993  $1,106  $1,302 
Gross margin
 5  (43) 48  (65)  (449)  (267)  107   170 
Operating loss
 (260) (772) (225) (338)  (672)  (708)  (246)  (49)
Net loss
 (262) (777) (236) (344)  (706)  (751)  (290)  (88)
                                
Diluted loss per share
 $(0.34) $(1.01) $(0.30) $(0.45) $(0.91) $(0.97) $(0.36) $(0.10)


 
2007
 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
             
Net sales
 $1,530  $1,427  $1,294  $1,437 
Gross margin
  442   357   106   173 
Operating income (loss)
  110   (34)  (195)  (161)
Net income (loss)
  115   (52)  (225)  (158)
                 
Diluted earnings (loss) per share
 $0.15  $(0.07) $(0.29) $(0.21)
2008 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
             
Net sales
 $1,535  $1,359  $1,498  $1,449 
Gross margin
  5   (43)  48   (65)
Operating loss
  (260)  (772)  (225)  (338)
Net loss
  (262)  (777)  (236)  (344)
                 
Diluted loss per share
 $(0.34) $(1.01) $(0.30) $(0.45)

The results of operations for the second quarterquarters of 2009 and 2008 included a chargecharges of $58 million and $463 million, respectively, to write off all the goodwill associated with the Company’s Imaging and Memory segment.segments, respectively.

The Company’s results of operations for the fourth, second and first quarters of 2008 and fourth quarter of 20072009 included charges of $205 million, $15 million, $62$234 million and $20$369 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.  The Company’s results of operations for the fourth, second and first quarters of 2008 included charges of $205 million, $15 million and $62 million, respectively, to write down the carrying value of work in process and finished goods inventories of memory products to their estimated market values.  As charges to write down inventories are recorded in advance of when inventories are sold, gross margins in subsequent periods are higher than they otherwise would be.

In the fourth quarter of 2009, the Company sold a 65% interest in its Aptina business.  In connection therewith, in the third quarter of fiscal 2009, the Company recorded a charge of $53 million for the sale and in the fourth quarter, recorded a credit of $12 million to adjust the estimated loss to the final loss of $41 million.

In the fourth quarter of 2008, costs of goods sold benefited by $70 million due to settlements of pricing adjustments with certain suppliers.

As a result of a settlement agreement with a class of direct purchasers of certain DRAM products, the Company recorded a $50 million charge to revenue and $31 million net charge to selling, general and administrative expenses in the first quarter of 2007.  The aggregate net charge including the impact on the Company’s compensation programs was a $77 million reduction in net income.


 
6876
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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

In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 8 present fairly, in all material respects, the financial position of Micron Technology, Inc. and its subsidiaries at September 3, 2009 and August 28, 2008, and August 30, 2007, and the results of their operations and their cash flows for each of the three years in the period ended August 28, 2008September 3, 2009 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 28, 2008,September 3, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers LLP
San Jose, California
October 27, 200828, 2009

 
6977
 

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

None.

Item 9A.  Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

During the fourth quarter of fiscal 2008,2009, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  The Company’s internal control over financial reporting includes those policies and procedures that i)(i) pertain to the maintenance of records that in reasonable detail accurately reflect the transactions and dispositions of the assets of the Company; ii)(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and iii)(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

Internal control over financial reporting cannot provide absolute assurance regarding the prevention or detection of misstatements because of inherent limitations.  These inherent limitations are known by management and considered in the design of the Company’s internal control over financial reporting which reduce, though not eliminate, this risk.

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of August 28, 2008.September 3, 2009.  The effectiveness of the Company’s internal control over financial reporting as of August 28, 2008September 3, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in Part II, Item 8, of this Form 10-K.

Item 9B.  Other Information

None.


 
7078
 


PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Item 11.  Executive Compensation

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.  Certain Relationships and Related Transactions, and Director Independence

Item 14.  Principal Accounting Fees and Services

Certain information concerning the registrant’s executive officers is included under the caption, “Directors and Executive Officers of the Registrant,” in Part I, Item 1 of this report.  Other information required by Items 10, 11, 12, 13 and 14 will be contained in the registrant’s Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days after August 28, 2008September 3, 2009 and is incorporated herein by reference.


PART IV

Item 15.  Exhibits, Financial Statement Schedules

The following documents are filed as part of this report:

1.  Financial Statement:  See Index to Consolidated Financial Statements under Item 8.
2.  Certain Financial Statement Schedules have been omitted since they are either not required, not applicable or the information is otherwise included.
3.  Exhibits.

ExhibitNumber
 
Description of Exhibits
  
1.1Underwriting Agreement dated as of May 17, 2007, by and between Micron Technology, Inc. and Morgan Stanley & Co. Incorporated, as representative of the underwriters (1)
1.2Note Underwriting Agreement, dated as of April 8, 2009, by and among Micron Technology, Inc. and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co., as representatives of the underwriters (2)
1.3Common Stock Underwriting Agreement, dated as of April 8, 2009, by and among Micron Technology, Inc. and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co., as representatives of the underwriters (2)
2.1Agreement and Plan of Merger by and among Micron Technology, Inc., March 2006 Merger Corp. and Lexar Media, Inc., dated as of March 8, 2006 (2)(3)
2.2First Amendment to Agreement and Plan of Merger dated as of May 30, 2006, by and among Micron Technology, Inc., March 2006 Merger Corp. and Lexar Media, Inc. (3)(4)
2.3Second Amendment to Agreement and Plan of Merger dated as of June 4, 2006, by and among Micron Technology, Inc., March 2006 Merger Corp. and Lexar Media, Inc. (4)(5)
3.1Restated Certificate of Incorporation of the Registrant (5)(6)
3.2Bylaws of the Registrant, as amended (6)(7)
4.2Securities Purchase Agreement dated September 24, 2003, between the Registrant and Intel Capital Corporation (7)(8)
4.3Stock Rights Agreement dated September 24, 2003, between the Registrant and Intel Capital Corporation (7)(8)
4.4Indenture dated March 30, 2005, by and between Lexar Media, Inc. and U.S. Bank National Association (8)(9)
4.5First Supplemental Indenture to the Lexar Indenture dated as of June 21, 2006, between Lexar and U.S. Bank National Association (9)(10)
4.6Indenture dated as of May 23, 2007 by and between Micron Technology, Inc. and Wells Fargo Bank, National Association, as trustee (1)
4.7Convertible Senior Indenture between the Company and Wells Fargo Bank, National Association, dated as of April 15, 2009 (2)
4.8Form of 4.25% Convertible Senior Note due October 15, 2013 (2)
10.1Executive Officer Performance Incentive Plan (10)(11)
79
10.21989 Employee Stock Purchase Plan (11)(12)
10.31994 Stock Option Plan (12)(11)
10.41994 Stock Option Plan Form of Agreement and Terms and Conditions (11)(12)
10.51997 Nonstatutory Stock Option Plan (13)(11)
10.61998 Non-Employee Director Stock Incentive Plan (14)(11)
71
10.71998 Nonstatutory Stock Option Plan (13)(11)
10.82001 Stock Option Plan (15)(11)
10.92001 Stock Option Plan Form of Agreement (16)(13)
10.102002 Employment Inducement Stock Option Plan (15)(11)
10.112004 Equity Incentive Plan (25)(2)
10.122004 Equity Incentive Plan Forms of Agreement and Terms and Conditions (11)(12)
10.13Nonstatutory Stock Option Plan (17)(11)
10.14Nonstatutory Stock Option Plan Form of Agreement and Terms and Conditions (11)(12)
10.15Lexar Media, Inc. 2000 Equity Incentive Plan (18)(11)
10.16Micron Quantum Devices, Inc. 1996 Stock Option Plan (12)(14)
10.17Micron Quantum Devices, Inc. 1996 Stock Option Plan Sample Stock Option Assumption Letter (12)(14)
10.18Rendition, Inc. 1994 Equity Incentive Plan (19)(16)
10.19Rendition, Inc. 1994 Equity Incentive Plan Sample Stock Option Assumption Letter (19)(16)
10.20*Settlement and Release Agreement dated September 15, 2006, by and among Toshiba Corporation, Micron Technology, Inc. and Acclaim Innovations, LLC (20)(17)
10.21*Patent License Agreement dated September 15, 2006, by and among Toshiba Corporation, Acclaim Innovations, LLC and Micron Technology, Inc. (20)(17)
10.22*Omnibus Agreement dated as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation (9)(10)
10.23*Limited Liability Partnership Agreement dated as of February 27, 2007, between Micron Semiconductor Asia Pte. Ltd. and Intel Technology Asia Pte. Ltd. (9)(10)
10.24*Supply Agreement dated as of February 27, 2007, between Micron Semiconductor Asia Pte. Ltd. and IM Flash Singapore, LLP (9)(10)
10.25*Amended and Restated Limited Liability Company Operating Agreement of IM Flash Technologies, LLC dated as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation (9)(10)
10.26*Supply Agreement dated as of February 27, 2007, between Intel Technology Asia Pte. Ltd. and IM Flash Singapore, LLP (9)(10)
10.27Form of Indemnification Agreement between the Registrant and its officers and directors (21)(18)
10.28Form of Severance Agreement between the Company and its officers (22)(19)
10.29Form of Agreement and Amendment to Severance Agreement between the Company and its officers (23)(20)
10.30Purchase Agreement dated October 1, 1998, between the Registrant and TECH Semiconductor Singapore Pte. Ltd. (24)(21)
10.34*Business Agreement dated September 24, 2003, between the Registrant and Intel Corporation (7)(8)
10.35Securities Rights and Restrictions Agreement dated September 24, 2003, between the Registrant and Intel Capital (7)(8)
10.36*Master Agreement dated as of November 18, 2005, between Micron Technology, Inc. and Intel Corporation (25)(15)
10.37*Limited Liability Company Operating Agreement of IM Flash Technologies, LLC dated as of January 6, 2006, between Micron Technology, Inc. and Intel Corporation (25)(15)
10.38*Manufacturing Services Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies, LLC (25)(15)
10.39*Boise Supply Agreement dated as of January 6, 2006, between IM Flash Technologies, LLC and Micron Technology, Inc. (25)(15)
10.40*MTV Lease Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies, LLC (25)(15)
10.41*Product Designs Assignment Agreement dated January 6, 2006, between Intel Corporation and Micron Technology, Inc. (25)(15)
10.42*NAND Flash Supply Agreement, effective as of January 6, 2006, between Apple Computer, Inc. and Micron Technology, Inc. (25)(15)
10.43*Supply Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies, LLC (25)(15)
10.44*Supply Agreement dated as of January 6, 2006, between Intel Corporation and IM Flash Technologies, LLC (25)(15)
80
10.45Capped Call Confirmation (Reference No.CEODL6) by and between Micron Technology, Inc. and Morgan Stanley & Co. International plc (1)
10.46Capped Call Confirmation (Reference No. 53228800) by and between Micron Technology, Inc. and Credit Suisse International (1)
10.47Capped Call confirmation (Reference No. 53228855) by and between Micron Technology, Inc. and Credit Suisse International (1)
72
10.482007 Equity Incentive Plan (27)(11)
10.492007 Equity Incentive Plan Forms of Agreements (27)(22)
10.50Severance Agreement dated April 9, 2008, between Micron Technology, Inc. and Ronald C. Foster (28)(23)
10.51*Master Agreement, dated as of April 21, 2008, by and between Nanya Technology Corporation and Micron Technology, Inc. (26)(24)
10.52*Joint Venture Agreement, dated as of April 21, 2008, by and between Micron Semiconductor B.V. and Nanya Technology Corporation (26)(24)
10.53*Supply Agreement, dated as of June 6, 2008, by and among Micron Technology, Inc., Nanya Technology Corporation and MeiYa Technology Corporation (26)(24)
10.54*Joint Development Program Agreement, dated as of April 21, 2008, by and between Nanya Technology Corporation and Micron Technology, Inc. (26)(24)
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 (26)(24)
10.56*Technology Transfer and License Agreement, dated as of April 21, 2008, by and between Micron Technology, Inc. and Nanya Technology Corporation (26)(24)
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 (26)(24)
10.58*Technology Transfer Agreement, dated as of May 13, 2008, by and among Nanya Technology Corporation, Micron Technology, Inc. and MeiYa Technology Corporation (26)(24)
10.59Services Agreement, dated as of June 6, 2008, by and between Nanya Technology Corporation and MeiYa Technology Corporation (26)(24)
10.60Micron Guaranty Agreement, dated April 21, 2008, by and between Nanya Technology Corporation and Micron Semiconductor B.V. (26)(24)
10.61TECH 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 (26)(24)
10.62Guarantee, dated March 31, 2008, by Micron Technology, Inc. as Guarantor in favor of ABN Amro Bank N.V., Singapore Branch acting as Security Trustee (26)(24)
10.63Form of Severance Agreement (29)(25)
10.64Lexar Media, Inc. 1996 Stock Option Plan, as Amended (11)
10.65*Boise Supply Termination and Amendment Agreement, dated October 10, 2008, by and among Intel Corporation, Micron Technology, Inc. and IM Flash Technologies, LLC (11)
10.66*Loan Agreement, dated November 26, 2008, by and among Micron Semiconductor B.V., Micron Technology, Inc., and Nan Ya Plastics Corporation (11)
10.67Loan Agreement, dated November 26, 2008, by and between Micron Technology, Inc. and Inotera Memories, Inc. (11)
10.68Transition Agreement, dated October 11, 2008, by and among Nanya Technology Corporation, Qimonda AG, Inotera Memories, Inc. and Micron Technology, Inc. (11)
10.69Micron Guaranty Agreement, dated November 26, 2008, by Micron Technology, Inc. in favor of Nanya Technology Corporation (11)
10.70Share Purchase Agreement by and among Micron Technology, Inc. as the Buyer Parent, Micron Semiconductor B.V., as the Buyer, Qimonda Ag as the Seller Parent and Qimonda Holding B.V., as the Seller Sub dated as of October 11, 2008 (11)
10.71*Master Agreement, dated November 26, 2008, among Micron Technology, Inc., Micron Semiconductor B.V., Nanya Technology Corporation, MeiYa Technology Corporation and Inotera Memories, Inc. (11)
10.72*Joint Venture Agreement, dated November 26, 2008, by and between Micron Semiconductor B.V. and Nanya Technology Corporation (11)
10.73*Facilitation Agreement, dated November 26, 2008, by and between Micron Semiconductor B.V., Nanya Technology Corporation and Inotera Memories, Inc. (11)
10.74*Supply Agreement, dated November 26, 2008, by and among Micron Technology, Inc., Nanya Technology Corporation and Inotera Memories, Inc. (11)
10.75*Amended and Restated Joint Development Program Agreement, dated November 26, 2008, by and between Nanya Technology Corporation and Micron Technology, Inc. (11)
81
10.76*Amended and Restated Technology Transfer and License Agreement, dated November 26, 2008, by and between Micron Technology, Inc. and Nanya Technology Corporation (11)
10.77*Technology Transfer Agreement, dated November 26, 2008, by and among Nanya Technology Corporation, Micron Technology, Inc. and Inotera Memories, Inc. (11)
10.78*Technology Transfer Agreement for 68-50nm Process Nodes, dated October 11, 2008, by and between Micron Technology, Inc. and Inotera Memories, Inc. (11)
10.79Loan Agreement as of February 23, 2009, by and between Micron Technology, Inc. and Economic Development Board (26)
10.80Mortgage and Charge Agreement as of February 23, 2009, by and among Economic Development Board, Micron Technology, Inc. and TECH Semiconductor Singapore Pte. Ltd. (26)
10.81Capped Call Confirmation (Reference No. SDB 1630322480), dated as of April 8, 2009, by and between Micron Technology, Inc. and Goldman, Sachs & Co. (2)
10.82Capped Call Confirmation (Reference No. CGPWK6), dated as of April 8, 2009, by and between Micron Technology, Inc. and Morgan Stanley & Co International plc (2)
10.83Capped Call Confirmation (Reference No. 325758), dated as of April 8, 2009, by and between Micron Technology, Inc. and Deutsche Bank AG, London Branch (2)
10.84Amendment Agreement, dated September 25, 2009, to 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 (27)
10.85Supplemental Deed, dated September 25, 2009, to 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 (27)
21.1Subsidiaries of the Registrant
23.1Consent of Independent Registered Public Accounting Firm
31.1Rule 13a-14(a) Certification of Chief Executive Officer
31.2Rule 13a-14(a) Certification of Chief Financial Officer
32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350
________________________

(1)
Incorporated by reference to Current Report on Form 8-K dated May 17, 2007
(2)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended June 4, 2009
(3)
Incorporated by reference to Current Report on Form 8-K dated March 8, 2006
(3)(4)
Incorporated by reference to Current Report on Form 8-K dated May 30, 2006
(4)(5)
Incorporated by reference to Current Report on Form 8-K dated June 4, 2006
(5)(6)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2001
(6)(7)
Incorporated by reference to Current Report on Form 8-K dated December 5, 2006October 1, 2008
(7)(8)
Incorporated by reference to Current Report on Form 8-K dated September 24, 2003
(8)(9)
Incorporated by reference to Lexar Media, Inc.’s Current Report on Form 8-K dated March 30, 2005
(9)(10)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2007
(10)(11)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 2, 20044, 2008
(11)(12)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 3, 2005
(12)
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-50353)
(13)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended November 28, 2002
(14)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended June 3, 1999
(15)
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-102545)
(16)
Incorporated by reference to Current Report on Form 8-K dated April 3, 2005
(17)(14)
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-103341)333-50353)
(18)(15)
Incorporated by reference to Registration StatementQuarterly Report on Form S-8 (Reg. No. 333-135459)10-Q for the fiscal quarter ended December 1, 2005
(19)(16)
Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-65449)
(20)(17)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006
(21)(18)
Incorporated by reference to Proxy Statement for the 1986 Annual Meeting of Shareholders
73
(22)(19)
Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended August 28, 2003
(23)(20)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 1997
(24)(21)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 3, 1998
(25)(22)
Incorporated by reference to QuarterlyRegistration Statement on Form S-8 (Registration No. 333-148357)
(23)
Incorporated by reference to Current Report on Form 10-Q for the fiscal quarter ended December 1, 20058-K dated April 9, 2008
(26)(24)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 29, 2008
(27)
Incorporated by reference to Registration Statement on Form S-8 (Registration No. 333-148357)
(28)
Incorporated by reference to Current Report on Form 8-K dated April 9, 2008
(29)(25)
Incorporated by reference to Current Report on Form 8-K dated October 26, 2007
(26)
Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 5, 2009
(27)
Incorporated by reference to Current Report on Form 8-K dated September 25, 2009
________________________
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.

 
7482
 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on the 27th28th day of October 2008.2009.

 Micron Technology, Inc.
  
  
  
 
By:                /s/ Ronald C. Foster                                                  
 
Ronald C. Foster
Vice President of Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature TitleDate
    
    
/s/ Steven R. Appleton Chairman of the Board,October 27, 200828, 2009
(Steven R. Appleton) Chief Executive Officer 
  (Principal Executive 
   Officer) 
    
/s/ Ronald C. Foster Vice President of Finance,October 27, 200828, 2009
(Ronald C. Foster) Chief Financial Officer 
  (Principal Financial and 
  Accounting Officer) 
    
/s/ Teruaki Aoki DirectorOctober 27, 200828, 2009
(Teruaki Aoki)   
    
    
/s/ James W. Bagley DirectorOctober 27, 200828, 2009
(James W. Bagley)   
    
    
/s/ Robert L. Bailey DirectorOctober 27, 200828, 2009
(Robert L. Bailey)   
    
    
/s/ Mercedes Johnson DirectorOctober 27, 200828, 2009
(Mercedes Johnson)   
    
    
/s/ Lawrence N. Mondry DirectorOctober 27, 200828, 2009
(Lawrence N. Mondry)   
    
    
/s/ Robert E. Switz DirectorOctober 27, 200828, 2009
(Robert E. Switz)   

 
7583
 

MICRON TECHNOLOGY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)

 
Balance at
Beginning of
Year
  Acquisitions and Consolidation of TECH  
Charged
(Credited) to
Costs and
Expenses
  
 
Deductions/
Write-Offs
  
Balance
at End of
Year
  
Balance at
Beginning of Year
  Business Acquisitions  
Charged
(Credited) toCosts and Expenses
  
 
Deductions/
Write-Offs
  
Balance at End
of Year
 
                              
Allowance for Doubtful Accounts                              
Year ended September 3, 2009
 $2  $--  $5  $(2) $5 
Year ended August 28, 2008
 $4  $--  $(1) $(1) $2   4   --   (1)  (1)  2 
Year ended August 30, 2007
 4  --  1  (1) 4   4   --   1   (1)  4 
Year ended August 31, 2006
 2  --  2  --  4 
                                        
Deferred Tax Asset Valuation Allowance                                        
Year ended September 3, 2009
 $1,569  $--  $554  $(5) $2,118 
Year ended August 28, 2008
 $1,142  $--  $446  $(19) $1,569   1,142   --   446   (19)  1,569 
Year ended August 30, 2007
 915  (12) 219  20  1,142   915   (12)  219   20   1,142 
Year ended August 31, 2006
 1,029  (36) (103) 25  915 

76