UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 30, 2012September 3, 2015
OR
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10658
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | 75-1618004 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 8000 S. Federal Way, Boise, Idaho | 83716-9632 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code | (208) 368-4000 |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Name of each exchange on which registered |
| Common Stock, par value $.10 per share | NASDAQ Global Select Market |
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 T 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 T
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 T 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 (§ 232.405 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 T 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. T
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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act: |
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Large Accelerated Filer x | Accelerated Filer o | Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of such stock on March 1, 2012,5, 2015, as reported by the NASDAQ Global Select Market, was approximately $5.727.7 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 18, 2012,21, 2015, was 1,017,560,5231,085,753,663.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrant’s Fiscal 20122015 Annual Meeting of Shareholders to be held on January 22, 2013,28, 2016, are incorporated by reference into Part II and Part III of this Annual Report on Form 10-K.
Definitions of Commonly Used Terms
As used herein, "we," "our," "us," and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:
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| Term | | Definition | | Term | | Definition |
| 2014 Notes | | 1.875% Convertible Notes due 2014 | | LPDRAM | | Mobile Low-Power DRAM |
| 2022 Notes | | 5.875% Senior Notes due 2022 | | MAI | | Micron Akita, Inc. |
| 2023 Notes | | 5.250% Senior Notes due 2023 | | MCP | | Multi-Chip Package |
| 2024 Notes | | 5.250% Senior Notes due 2024 | | Micron | | Micron Technology, Inc. (Parent Company) |
| 2025 Notes | | 5.500% Senior Notes due 2025 | | MIT | | Micron Technology, Italia, S.r.l. |
| 2026 Notes | | 5.625% Senior Notes due 2026 | | MLC | | Multi-Level Cell |
| 2027 Notes | | 1.875% Convertible Notes due 2027 | | MMJ | | Micron Memory Japan, Inc. |
| 2031 Notes | | 2031A and 2031B Notes | | MMJ Companies | | MAI and MMJ |
| 2031A Notes | | 1.500% Convertible Senior Notes due 2031 | | MMJ Group | | MMJ and its subsidiaries |
| 2031B Notes | | 1.875% Convertible Senior Notes due 2031 | | MMT | | Micron Memory Taiwan Co., Ltd. |
| 2032 Notes | | 2032C and 2032D Notes | | MP Mask | | MP Mask Technology Center, LLC |
| 2032C Notes | | 2.375% Convertible Senior Notes due 2032 | | OEM | | Original Equipment Manufacturer |
| 2032D Notes | | 3.125% Convertible Senior Notes due 2032 | | Photronics | | Photronics, Inc. |
| 2033 Notes | | 2033E and 2033F Notes | | PSRAM | | Pseudo-static DRAM |
| 2033E Notes | | 1.625% Convertible Senior Notes due 2033 | | Qimonda | | Qimonda AG |
| 2033F Notes | | 2.125% Convertible Senior Notes due 2033 | | R&D | | Research and Development |
| 2043G Notes | | 3.00% Convertible Senior Notes due 2043 | | Rexchip | | Rexchip Electronics Corporation |
| Aptina | | Aptina Imaging Corporation | | RLDRAM | | Reduced Latency DRAM |
| Elpida | | Elpida Memory, Inc. | | SEC | | Securities and Exchange Commission |
| Gb | | Gigabit | | SG&A | | Selling, General and Administration |
| HMC | | Hybrid Memory Cube | | SLC | | Single-Level Cell |
| HP | | Hewlett-Packard Company | | SSD | | Solid-State Drive |
| IMFT | | IM Flash Technologies, LLC | | ST | | STMicroelectronics S.r.l. |
| Inotera | | Inotera Memories, Inc. | | Tera Probe | | Tera Probe, Inc. |
| Intel | | Intel Corporation | | TLC | | Triple-Level Cell |
| Japan Court | | Tokyo District Court | | VIE | | Variable Interest Entity |
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 "Products" regarding increased sales of DDR4 products, growth in demand for NAND Flash products and solid-state drivesSSDs, and regarding volume production of DDR4 in 2013;3D NAND Flash and 3D XPoint™ memory, and in "Manufacturing" regarding the transition to smaller line-width process technologies.technologies and 3D NAND Flash. Our actual results could differ materially from our 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 our fiscal periods unless otherwise indicated.
Corporate Information
Micron, Technology, Inc., a Delaware corporation, was incorporated in 1978. As used herein, "we," "our," "us" and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise. Our executive offices are located at 8000 South Federal Way, Boise, Idaho 83716-9632 and our telephone number is (208) 368-4000. Information about us is available on the internet at www.micron.com. Copies of our 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 our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the "SEC").SEC. Materials filed or furnished by us with the SEC are also available at the SEC’sSEC'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 (800) SEC-0330. Also available on our website are our: Corporate Governance Guidelines, Governance Committee Charter, Compensation Committee Charter, Audit Committee Charter, and Code of Business Conduct and Ethics. Any amendments or waivers of our Code of Business Conduct and Ethics will also be posted on our 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 our website is not incorporated by reference and does not form a part of this Annual Report on Form 10-K.
Overview
We areMicron Technology, Inc., including its consolidated subsidiaries, is a global manufacturer and marketerleader in advanced semiconductor systems. Our broad portfolio of semiconductor devices, principallyhigh-performance memory technologies, including DRAM, NAND Flash, DRAM and NOR Flash, is the basis for solid-state drives, modules, multi-chip packages, and other system solutions. Our memory as well as othersolutions enable the world's most innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, enterprise storage, networking, automotive, industrial,mobile, embedded, and mobile products. In addition, we manufacture semiconductor components for CMOS image sensors and other semiconductor products.automotive applications. We market our products through our internal sales force, independent sales representatives, and distributors primarily to original equipment manufacturers ("OEMs")OEMs and retailers located around the world. Our success is largely dependent on the market acceptance of our diversified portfolio of semiconductor products, efficient utilization of our manufacturing infrastructure, successful ongoing development of advanced product and process technologies, and thegenerating a return on research and development ("R&D")&D investments.
We obtain products from three primary sources: (1) productionfor sale to our customers from our wholly-owned manufacturing facilities (2) production fromand our joint venture manufacturing facilities, and (3) to a lesser degree, from third party manufacturers.ventures. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions and various partnering arrangements, including joint ventures, which have helped us to attain lower costs than we could otherwise achieve through internal investments alone.arrangements.
We make significant investments to develop the proprietary product and process technologies that are implemented in our worldwide manufacturing facilities and through our joint ventures. These investments enable our production of semiconductor products with increasing functionality and performance at lower costs. We generally reduce the manufacturing cost of each generation of product through advancements in product and process technologytechnologies, such as our leading-edge line-width process technology and innovative array architecture.technology. We continue to introduce new generations of products that offer improved performance characteristics, such asincluding higher data transfer rates, reduced package size, lower power consumption, improved read/write reliability, and increased memory density. To leverage our significant investments in R&D, we have formed, and may continue to form, strategic joint ventures that allow us to share the costs of developing memory product and process technologies with joint venture partners. In addition, from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.
On July 2, 2012,31, 2013, we entered into a Sponsor Agreement withcompleted the trusteesacquisition of Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT (together, the "MMJ Acquisition"). The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan, and an assembly and test facility located in Akita, Japan. These wafer fabrication facilities together represented approximately 30% of our total wafer capacity for 2015. The operations from the MMJ Acquisition, which are included primarily in our MBU and CNBU segments, include the manufacture of mobile DRAM targeted to mobile phones and tablets and computing DRAM targeted to desktop PCs, servers, notebooks, and workstations. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Inc. and Elpida's wholly-owned subsidiary, Akita Elpida Memory, Inc. The Elpida Companies filed petitions for corporate reorganization proceedings with the Tokyo District Court under the Corporate Reorganization Act of Japan, on February 27, 2012. (See "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations – Overview.Inc.")
Business Segments
We have the following four business units, which are our reportable segments:
NAND Solutions GroupCompute and Networking Business Unit ("NSG"CNBU"): Includes high-volume NAND Flashmemory products sold into datacompute, networking, graphics, and cloud server markets.
Mobile Business Unit ("MBU"): Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"): Includes memory products sold into enterprise, client, cloud, and removable storage personal music
players and the high-density computing market, as well as NAND Flashmarkets. SBU also includes products sold to Intel Corporation ("Intel") through IM Flash.our IMFT joint venture.
DRAM Solutions GroupEmbedded Business Unit ("DSG"EBU"): Includes DRAM products sold to the PC, consumer electronics, networking and server markets.
Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market.
Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flashmemory products sold into automotive, and industrial, applications, as well as NORconnected home, and NAND Flash sold to consumer electronics networking, PC and server markets.
Our other operations do not meet the quantitative thresholds of a reportable segmentFor more information regarding our segments, see "Part II – Item 8. Financial Statements and are reported under All Other.Supplementary Data – Notes to Consolidated Financial Statements – Segment Information."
Products
NAND FlashDRAM
DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage and retrieval with a variety of performance, pricing, and other characteristics. Sales of DRAM products were 64%, 68%, and 48% of our total net sales in 2015, 2014, and 2013, respectively. DRAM products are sold by CNBU, MBU, and EBU.
DDR3 DRAM is a standardized, high-density, high-volume, DRAM product, which offers high speed and high bandwidth at a relatively low cost. DDR3 products are primarily targeted at computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications. In 2015, we offered DDR3 products in 1Gb, 2Gb, 4Gb, and 8Gb densities. We also offered next generation DDR4 DRAM products in 4Gb and 8Gb densities in 2015 and we expect sales of these products to increase significantly in 2016 as they replace DDR3 DRAM products in many applications. Sales of DDR3 and DDR4 DRAM products were 38%, 40%, and 31% of our total net sales in 2015, 2014, and 2013, respectively.
LPDRAM products offer lower power consumption relative to other DRAM products and are used primarily in mobile phones, tablets, embedded applications, ultra-thin laptop computers, and other mobile consumer devices that require low power consumption. We offer DDR4, DDR3, DDR2, and DDR versions of LPDRAM. Sales of LPDRAM products were 18%, 20%, and 6% of our total net sales in 2015, 2014, and 2013, respectively.
We also offer other DRAM products targeted to specialty markets including DDR2 DRAM, DDR DRAM, GDDR5 DRAM, SDRAM, RLDRAM, and PSRAM. These products are used primarily in networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades. We offer HMC products, which are semiconductor memory devices where vertical stacks of DRAM die that are connected using through-silicon-via interconnects are placed above a small, high-speed logic layer. HMC enables ultra-high system performance and is targeted primarily at networking and high performance computing applications.
Non-Volatile Memory
Non-Volatile Memory includes NAND Flash and 3D XPoint™ memory. Through 2015, substantially all of our Non-Volatile Memory sales were from NAND Flash products. NAND Flash products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off. NAND Flash sales were 44%33%, 36%27%, and 30%40% of our total net sales in 2012, 20112015, 2014, and 2010,2013, respectively. NAND Flash products are sold by our NSG, WSG and ESG segments. NAND Flash is ideal for mass-storage devices due to its fast erase and write times, high density, and low cost per bit relative to other solid-state memories. Embedded NAND Flash-based storage devices are utilized in mobile phones, SSDs, tablets, computers, industrial and automotive applications, networking, and other personal and consumer applications. Removable storage devices, such as USB and Flash memory cards, are used with applications such as PCs, digital still cameras, MP3/4 players and mobile phones. Embedded NAND Flash-based storage devices are utilized in mobile phones, MP3/4 players, computers, solid-state drives ("SSDs"), tablets and other personal and consumer applications. The market for NAND Flash products has grown rapidly and we expect it to continue to grow due to increased demand for these and other removableembedded and embeddedremovable storage devices. NAND Flash products are sold by SBU, EBU, MBU, and CNBU.
Our NAND Flash products feature a small cell structure that enables higher densities for demanding applications. We offer Single-Level Cell ("SLC")high-speed SLC, MLC, and TLC NAND Flash products as well as Multi-Level Cell ("MLC")that are compatible with advanced interfaces. MLC and Triple-Level Cell ("TLC") NAND FlashTLC products which have two and three times, respectively, the bit density of SLC NAND Flash products. In 2012,2015, we offered SLC NAND Flash products in 1 gigabit ("Gb")1Gb to 64Gb densities. In addition, we offered 8Gb to 128Gbdensities; 2-bit-per-cell MLC NAND Flash products and 32Gbin 8Gb to 128Gb densities; and 3-bit-per-cell TLC NAND Flash products.in 128Gb density. In 2015, we began sampling products featuring our new 3D NAND Flash technology, which stacks layers of data storage cells vertically to create storage devices with three times higher capacity than competing NAND Flash technologies. This enables more storage in a smaller space, bringing significant cost savings, low power usage and high performance to a range of mobile consumer devices as well as the most demanding enterprise deployments. We offer high-speedexpect to be in production of a 256Gb MLC version and 384Gb TLC version of 3D NAND Flash products that are compatible with advanced interfaces. Additionally, our multichip packages ("MCPs") incorporate NAND Flash with other memory products to create a single package that simplifies design while improving performance and functionality.by the end of calendar year 2015.
We offer next-generation RealSSD™client and enterprise SSDs for enterprise server and notebook applications which feature higher performance, reduced powerreduced-power consumption, and enhanced reliability as compared to typical hard disk drives. Our client SSDs are targeted at notebooks, desktops, workstations, and other consumer applications. Using our SLC and MLC NAND Flash process technology theseand a leading-edge SATA 6 Gb per second interface, our SSDs deliver read and write speeds that help improve boot and application load times and deliver higher performance than hard disk drives. Our client SSDs feature industry-leading encryption for corporate users and are offered in a 2.5-inch, M.2., and 1.8-inch form factors,mSATA modules, with densities up to 512 gigabytes1 terabyte. Our enterprise SSDs are targeted at server and storage applications and incorporate our Extended Performance and Enhanced Reliability Technology ("GB"XPERT"). architecture, which closely incorporates the storage and controller through highly optimized firmware algorithms and hardware enhancements. The end result is a set of market-focused enterprise features that deliver ultra-low latencies, improved data transfer time, power-loss protection, and cost-effectiveness, along with higher capacities and power efficiency. We also offer embedded USB devices with densities up to 16GB. We are sampling enterprise PCIe SSDs with both PCIe and SATA interfaces and capacities up to 700GB.1.4 terabytes. We expect that demand for both client and enterprise SSDs will continue to increase significantly over the next several years.
We also offer managed MCP products, which incorporate our NAND Flash. These managed NAND Flash products include e-MMC, e-MCP, and embedded USB. Our e-MMC products combine NAND Flash with a logic controller that performs media management and Error Code Correction ("ECC"), which provides reduced ECC complexity, better system performance, improved reliability, easy integration, and lower overall system costs. Our e-MCP products combine e-MMC with LPDRAM on the same substrate, which improves overall functionality and performance while simplifying system design.
Through our Lexar®Lexar® brand, we sell high-performance digital media products and other flash-based storage products through retail and OEM channels. Our digital media products include a variety of flash memory cards and JumpDrive™JumpDrive® products with a range of speeds, capacities, and value-added features. We offer flash memory cards in a variety of speeds and capacities and in all major media formats, including:including CompactFlash®, Memory Stick®, and Secure Digital ("SD"). formats. CompactFlash and Memory Stick products sold by us incorporate our patented controller technology. Other products, including SD memory cards and some JumpDrive products, incorporate third party controllers. We also manufacture products that are sold under other brand names and resell flash memory products that are purchased from other NAND Flash suppliers.
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 sales products were 39%, 41% and 60% of our total net sales in 2012, 2011 and 2010, respectively. DRAM products are sold by our DSG, WSG and ESG segments. We offer DRAM products with a variety of performance, pricing and other characteristics including high-volume DDR3 and DDR2 products as well as specialty DRAM memory products including Mobile Low Power DRAM ("LPDRAM"), DDR, SDRAM, Reduced Latency DRAM ("RLDRAM") and Pseudo-static DRAM ("PSRAM").
DDR3 and DDR2: DDR3 and DDR2 are standardized, high-density, high-volume, DRAM products that are sold primarily for use as main system memory in computers and servers. DDR3 and DDR2 products offer high speed and high bandwidth at a relatively low cost. DDR3 sales were 20%, 21% and 22% of our total net sales in 2012, 2011 and 2010, respectively. DDR2 sales were 9%, 10% and 24% of our total net sales in 2012, 2011 and 2010, respectively. We expect to begin volume production of DDR4 products in 2013.
In the fourth quarter of 2015, we introduced 3D XPoint technology, a new category of non-volatile memory. 3D XPoint memory's innovative, transistor-less, cross point architecture creates a three-dimensional checkerboard where memory cells sit at the intersection of word lines and bit lines, allowing the cells to be addressed individually. As a result, data can be written and read in small sizes, leading to fast and efficient read/write processes. We offer DDR3plan to produce commercial volumes of 3D XPoint memory products in 1Gb, 2Gb and 4Gb densities and DDR2 products in 512 megabit ("Mb"), 1Gb and 2Gb densities. These densities enable us to meet customer demands for a broad array of products and we offer these products in multiple configurations, speeds and package types.2016.
Specialty DRAM products: We also offer DRAM memory products including DDR and DDR2 Mobile LPDRAM, DDR, SDRAM, RLDRAM and PSRAM in densities ranging from 64Mb to 4Gb. LPDRAM products are used primarily in laptop computers, tablets and other consumer devices that require low power consumption. Our other specialty DRAM products are used primarily in networking devices, servers, consumer electronics, communications equipment and computer peripherals as well as computer memory upgrades. Aggregate sales of LPDRAM and our other specialty DRAM products were 10%, 10% and 14% of our total net sales in 2012, 2011 and 2010, respectively.
NOR Flash Memory
NOR Flash products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off, offer fast read times due to random access capability and have execute-in-place ("XiP") capability that enables processors to read NOR Flash without first accessing RAM. These capabilities make NOR ideal for storing program code in wireless and embedded applications. Our NOR Flash sales originated from the May 7, 2010 acquisition of Numonyx and were 12%, 18% and 5% of our total net sales for 2012, 2011 and 2010, respectively. NOR Flash products are sold by our WSG and ESG segments.
We offer both parallel and serial interface NOR Flash products in a broad range of densities, packages and features. Our parallel NOR Flash products are constructed to meet the needs of the consumer electronics, industrial, wired and wireless communications, computing and automotive applications. These products offer high densities, XiP performance, architectural flexibility and proven reliability in rigorous industrial settings. Our serial NOR Flash products are designed to meet the needs of consumer electronics, industrial, wired communications and computing applications. These products offer industry-standard packaging, pinouts, command sets and chipset compatibility.
Other
Other products included primarily NOR Flash, which are electrically re-writeable, semiconductor memory devices that offer fast read times which are used in wireless and embedded applications.
Partnering Arrangements
The following is a summary of our partnering arrangements as of August 30, 2012:September 3, 2015:
| | | | | Member or Partner(s) | Approximate Micron Ownership Interest | Formed/ Acquired | Product Market | |
| Consolidated Entities | | | | |
| Entity | | | | Member or Partner | | Micron Ownership Interest | | Formed/ Acquired | | Product Market |
| Consolidated entities: | | Consolidated entities: | |
| IMFT | (1) | | Intel Corporation | 51 | % | 2006 | NAND Flash | (1) | | Intel Corporation | | 51% | | 2006 | | Non-Volatile |
| MP Mask | (2) | | Photronics, Inc. | 50 | % | 2006 | Photomasks | (2) | | Photronics, Inc. | | 50% | | 2006 | | Photomasks |
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| Equity Method Investments | | |
| | | |
| Equity method investments: | | Equity method investments: | |
| Inotera | (3) | | Nanya Technology Corporation | 40 | % | 2009 | DRAM | (3) | | Nanya Technology Corporation | | 33% | | 2009 | | DRAM |
Aptina
| (4) | | Riverwood Capital LLC and TPG Partners VI, L.P. | 35 | % | 2009 | CMOS Image Sensors | |
| Tera Probe | | (4) | | Various | | 40% | | 2013 | | Wafer Probe |
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| (1) | IMFT: We partner with Intel for the design, development, and manufacture of NAND Flash and certain emerging3D XPoint memory products. In connection therewith, we formed athe IMFT joint venture with Intel IM Flash Technologies, LLC ("IMFT"), to manufacture NAND Flash and 3D XPoint memory products for the exclusive benefituse of the members. The members share the output of IMFT generally in proportion to their investment. We sell NAND Flasha portion of our products to Intel through IMFT at long-term negotiated prices approximating cost. We generally share with Intel the costs of product design and other research andprocess development costsactivities for NAND Flash memory and certain emerging memory technologies equally with Intel. In April 2012, we acquired Intel's remaining interests in a separate NAND Flash3D XPoint memory. The IMFT joint venture IM Flash Singapore, LLP ("IMFS").agreement extends through 2024 and includes certain buy-sell rights. Commencing in January 2015, Intel can put to us, and commencing in January 2018, we can call from Intel, Intel's interest in IMFT, in either case, for an amount equal to the noncontrolling interest balance attributable to Intel at that time. If Intel elects to sell to us, we can elect to set the closing date of the transaction to be any time within two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date. (See "Item"Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable Interest EntitiesEquity – IM Flash" note.Noncontrolling Interests in Subsidiaries – IMFT.") |
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| (2) | MP Mask: We produce photomasks for leading-edge and advanced next generationnext-generation semiconductors through MP Mask, Technology Center, LLC ("MP Mask"), a joint venture with Photronics. On March 24, 2015, we notified Photronics Inc. ("Photronics"). Weof our election to terminate MP Mask effective in May 2016. Upon termination, we have the right to acquire Photronics' interest in MP Mask for an amount equal to the noncontrolling interest balance. Since its inception, we and Photronics also have supply arrangements wherein weeach owned approximately 50% of MP Mask. We purchase a substantial majority of the reticlesphotomasks produced by MP Mask.Mask pursuant to a supply arrangement. (See "Item"Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable Interest EntitiesEquity – Noncontrolling Interests in Subsidiaries – MP Mask" note.Mask.") |
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| (3) | Inotera: We partner with Nanya Technology Corporation ("Nanya") for the design, development and manufacture of DRAM products, including the joint development of DRAM process technology. In connection therewith, we have partnered with Nanya in a DRAM memory company in Taiwan, Inotera Memories, Inc. ("Inotera"). We have a supply agreement with Inotera and Nanya which gives us the right and obligation to purchase 50% of Inotera's semiconductor memory capacity subject to specific terms and conditions. Under the formula for this supply agreement, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers purchased by us from Inotera. In connection with the partnering agreement, we have also deployed and licensed certain intellectual property related to the manufacture of DRAM products by Inotera, a Taiwan DRAM memory company. Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting discounts from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to Nanya and licensed certain intellectual property from Nanya. We also partner with Nanya to jointly develop process technology and designs to manufacture DRAM products. Under a cost-sharing arrangementbe effective beginning in April 2010, we generally share DRAM development costs with Nanya. In addition, in 2010 we began receiving royalties from Nanyaon January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for sales of DRAM products manufacturedsold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or for Nanya with technology developed prior to April 2010.any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. (See "Item"Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Inotera" note.Inotera.") |
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| (4) | Aptina:Tera Probe: We manufacture CMOS image sensor products for Aptina under a wafer supply agreement. We own 64% of Aptina’s common stock and none of their preferred stock resulting in a totalhave an approximate 40% ownership interest in Aptina of 35%. (See "Item 8. Financial StatementsTera Probe, an entity that provides semiconductor wafer testing and Supplementary Data – Notesprobe services to Consolidated Financial Statements – Equity Method Investments – Other" note.)us and others.
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On August 30, 2012, we had a 50% interest in Transform Solar Pty Limited ("Transform"), a joint venture with Origin Energy Limited ("Origin"). Transform developed and manufactured photovoltaic solar panels. As a result of the ongoing challenging global environment in the solar industry and unfavorable worldwide supply and demand conditions, on May 25, 2012, the Board of Directors of Transform approved a liquidation plan. As of August 30, 2012, the operations of Transform were substantially discontinued. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Transform" note.)
Manufacturing
Our manufacturing facilities are located in the United States, China, Israel, Italy,Japan, Malaysia, Puerto RicoSingapore, and Singapore.Taiwan. Our Inotera joint venture also has a wafer fabrication facility in Taiwan. In 2011, we soldNearly all of our wafer fabrication facilityproducts are manufactured on 300mm wafers in Japan to Tower Semiconductor Ltd. ("Tower") and entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014. Our manufacturing facilities that generally operate 24 hours per day, 7 days per week. Semiconductor manufacturing is extremely capital intensive, requiring large investments in sophisticated facilities and equipment. A significant portion of our semiconductor equipment is replaced every three to five years with increasingly advanced equipment. DRAM, NAND Flash, DRAM and NOR Flash products share a number of common manufacturing processes, enabling us to leverage our product and process technologies and manufacturing infrastructure across these product lines. In 2015, we began construction of a significant expansion of our wafer fabrication facilities in Singapore for production of NAND Flash memory.
Our 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 process line-width, 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. We continuously enhance our production processes, reducing die sizes, and transitioning to higher density products. In 2012, most2015, the majority of our NAND Flash memory products wereDRAM production was manufactured on our 25nm line-width process technology.technologies. We expect that forby the second half of 2013 a2016 the majority of our NAND FlashDRAM production will be manufactured on our 20nm line-width process technology. In 2012,2015, a majority of our NAND Flash production was manufactured on our 20nm and 16nm line-width process technology. We began production of 3D NAND Flash products in 2015 and expect that in 2016 the majority of our DRAM production was manufactured on 42nm line-width process technology. We expect that for 2013 the majority of our DRAMNAND Flash production will be manufactured on 30nmusing 16nm line-width process technology. Our NOR Flash memory products in 2012 were manufactured on our 65nm and 45nm line-width process technologies. In 2012, we manufactured all of our high-volumetechnology or 3D NAND Flash and DRAM products on 300mm wafers. We manufactured NOR Flash, some specialty DRAM and CMOS image sensor products on 200mm wafers in 2012.technology.
Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield-yield and quality-limiting contaminants. Despite stringent manufacturing controls, individual circuits may be nonfunctional or wafers may need to be scrapped due to equipment errors, minute impurities in materials, defects in photomasks, circuit design marginalities or defects, and dust particles can lead to wafers being scrapped and individual circuits being nonfunctional.particles. Success of our manufacturing operations depends largely on minimizing defects to maximize yield of high-quality circuits. In this regard, we employ rigorous quality controls throughout the manufacturing, screening, and testing processes. We are able to recover certain devices by testing and grading them to their highest level of functionality.
After fabrication, most silicon wafers are separated into individual die. We sell 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. We assemble 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 for use in packaging technologies such as system-in-a-package ("SIPs") and MCPs, which reduce the board area required.
We test our products at various stages in the manufacturing process, perform high temperature burn-in on finished products, and conduct numerous quality control inspections throughout the entire production flow. In addition, we use our proprietary AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of semiconductor memory die during the burn-in process, capturing quality and reliability data, and reducing testing time and cost.
We sell semiconductor products in both packaged and unpackaged (i.e. "bare die") forms. Our packaged products include memory modules, SSDs, MCPs, managed NAND, memory cards, USB devices, and HMCs. We assemble a significant portion ofmany products in-house and, in some cases, outsource assembly services where we can reduce costs and minimize our memory products into memory modules. Memory modules consist of an array of memory components attached to printed circuit boards that insert directly into computer systems or other electronic devices.capital investment. We also contract with independent foundries and assembly and testing organizationscompanies to manufacture NAND Flash media products such as memory cards and USB devices.
We utilize subcontractors to perform a portion of our assembly and module assembly services. Outsourcing these services enables us to reduce costs and minimize our capital investment.
In recent years, we have produced an increasingly broad portfolio of products, which enhances our ability to allocate resources to our most profitable products but also increases the complexity of our manufacturing process.operations. Although our product lines generally use similar manufacturing processes, our overall cost efficiency can be affected by frequent conversions to new products, the allocation of manufacturing capacity to more complex, smaller-volume parts, and the reallocation of manufacturing capacity across various product lines.
Availability of Raw Materials
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our raw materials. However,materials; however, only a limited number of suppliers are capable of delivering certain raw materials that meet our standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability and increase the cost of raw materials such as silicon wafers, photomasks, chemicals, gases, photoresist, lead frames, and molding compound. Shortages may occur from time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. 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.
Marketing and Customers
Our products are sold into computing, consumer, networking, telecommunications,compute and graphics, mobile, SSD and other storage, automotive, industrial, medical, and mobileother embedded and server markets. Market concentrations from 20122015 net sales were approximately as follows: computing25% for compute and graphics (including desktop PCs, servers, notebooks, and workstations), 25%; consumer electronics, 25% for mobile; 20%; mobile, 15%; networking for SSD and storage, 10%;other storage; 15% for server; and SSDs, 10%. for automotive, industrial, medical, and other embedded. Sales to Kingston, primarily DRAM, were 11% of our net sales in 2015 and 10% of our net sales in 2014. Sales to Intel, primarily NAND Flash products through IM Flash,IMFT were 12%8% of our net sales in 2012, 10%2015, 8% of our net sales in 2011,2014, and 10% of our net sales in 2013. Sales to HP, primarily DRAM, were 7% of our net sales in 2015, 9% of our net sales in 2010. Sales to Hewlett-Packard Company, primarily of DRAM, were 8%2014, and 10% of our net sales in 2012, 9% of our net sales in 2011 and 13% of our net sales in 2010.2013.
Our semiconductor memory products are offered under the Micron Lexar®®, Crucial™Lexar, Crucial®, SpecTek®SpecTek®, and Numonyx®Elpida® brand names and private labels. We market our semiconductor memory products primarily through our own direct sales force and maintain sales or representative offices in our primary markets around the world. We sell Lexar-branded NAND Flash memory products primarily through retail channels and our Crucial-branded products through a web-based customer direct sales channel as well as through channel and distribution partners. Our products are also offered through independent sales representatives and distributors. Independent sales representatives obtain orders subject to final acceptance by us and are compensated on a commission basis. We make shipments against these orders directly to the customer. Distributors carry our products in inventory and typically sell a variety of other semiconductor products, including competitors' products. We maintain inventory at locations in close proximity to certain key customers to facilitate rapid delivery of products. Many of our customers require a thorough review or qualification of semiconductor products, which may take several months.
Backlog
Because of volatile industry conditions, customers are reluctant to enter into long-term, fixed-price contracts. Accordingly, new order volumes for our semiconductor products fluctuate significantly. We typically accept orders with acknowledgment that the terms may be adjusted to reflect market conditions at the date of shipment. For these reasons, we do not believe that our order backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.
Product Warranty
Because the design and manufacturing process for semiconductor products is highly complex, it is possible that we may produce products that do not comply with customer specifications, contain defects, or are otherwise incompatible with end uses. In accordance with industry practice, we generally provide a limited warranty that our products are in compliance with our specifications existing at the time of delivery. Under our 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, we provide more extensive limited warranty coverage than that provided under our general terms and conditions.
Competition
We face intense competition in the semiconductor memory market from a number of companies, including Elpida Memory, Inc.;Intel; Samsung Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; Spansion Inc. and Toshiba Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which we compete, invest in technology, and capitalize on growth opportunities. Our competitors seek to increase silicon capacity, improve yields, reduce die size, and minimize mask levels in their product designs resulting in significantly increased worldwide supply and downward pressure on prices. Many of our high-volume memory products are manufactured to industry standard specifications and as such have similar performance characteristics to those of our competitors. For these high-volume memory products, the principal competitive factors are generally price and performance characteristics including: operating speed, power consumption, reliability, compatibility, size, and form factors. For our other memory products, the aforementioned performance characteristics generally take precedence toover pricing.
Research and Development
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies, as well as new, fundamentally different memory structures, materials, and packages, which are designed to facilitate our transition to next generation memory 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 our core semiconductor expertise, and the development of new manufacturing materials. Product design and development efforts include our high density DDR3 and DDR4 DRAM and Mobile Low Power DDR DRAMLPDRAM products as well as high density and mobile NAND Flash memory (including 3D NAND and MLC and TLC technologies), 3D XPoint memory, NOR Flash memory, specialty memory, phase-change memory, SSDs, HMCs, and other memory technologies and systems.
Our R&D expenses were $918 million, $791 million$1.54 billion, $1.37 billion, and $624$931 million in 2012, 20112015, 2014, and 2010,2013, respectively. We generally share R&Dwith Intel the costs of product design and process and design costsdevelopment activities for NAND Flash with Intelmemory and for DRAM with Nanya. We also share3D XPoint memory. Our R&D costs for certain emerging memory technologies with Intel. Asexpenses reflect net reductions of $231 million, $162 million, and $176 million in 2015, 2014, and 2013, respectively, as a result of reimbursements under our Intel and Nanyaother cost-sharing arrangements, our overall R&D expenses were reduced by $225 million, $236 million and $155 million in 2012, 2011 and 2010, respectively.arrangements.
To compete in the semiconductor memory industry, we must continue to develop technologically advanced products and processes. We believe that expansion of our semiconductor product offerings is necessary to meet expected market demand for specific memory solutions. Our process, design, and package development efforts occur at multiple locations across the world, with our largest R&D center and largest design center are located at our corporate headquarters in Boise, Idaho. In 2012, we commenced operation of our newIdaho, and other significant R&D facility in Boise, which was designed to accommodate 450mm wafer manufacturing. We have several additional product design centers in Japan, China, and other strategic locations aroundsites in the world.U.S. In addition, we develop photolithography mask technology at our 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 our products, we typically begin to process wafers before completion of performance and reliability testing. We deem 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.
Geographic Information
Sales to customers outside the United States totaled $7.0$13.63 billion for 20122015 and included $2.9sales of $6.66 billion in sales in China, $1.0$2.24 billion in sales in Taiwan, $827 million in sales$1.25 billion in Europe, $546 million in sales in Malaysia and $1.2$1.03 billion in salesJapan, and $2.04 billion in the rest of the Asia Pacific region (excluding China, MalaysiaJapan, and Taiwan). Sales to customers outside the United States totaled $7.4$13.81 billion for 20112014 and $7.1$7.56 billion for 2010.2013. As of August 30, 2012,September 3, 2015, we had net property, plant, and equipment of $3.3 billion in Singapore, $3.2$3.64 billion in the United States, $328$3.24 billion in Singapore, $2.17 billion in Japan, $1.07 billion in Taiwan, $331 million in China, $163 million in Italy, $59 million in Israel, and $37$96 million in other countries. (See "Item"Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information" note and "Item 1A. Risk Factors.")
Patents and Licenses
In recent years, we have been recognized as a leader in per capita and quality of patents issued. As of August 30, 2012,September 3, 2015, we owned approximately 16,90016,800 U.S. patents and 3,3004,200 foreign patents. In addition, we have numerousthousands of U.S. and foreign patent applications pending. Our patents have various terms expiring through 2032.2034.
We have a number of patent and intellectual property license agreements.agreements and have from time to time licensed or sold our intellectual property to third parties. Some of these license agreements require us to make one-time or periodic payments while others have resulted in us receiving payments. We may need to obtain additional patent licenses or renew existing license agreements in the future.future and we may enter into additional sales or licenses of intellectual property and partnering arrangements. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
In recent years, we have recovered some of our investment in technology through sales or licenses of intellectual property rights to joint venture partners and other third parties. We are pursuing additional opportunities to recover our investment in intellectual property through additional sales or licenses of intellectual property and potential partnering arrangements.
Employees
As of August 30, 2012,September 3, 2015, we had approximately 27,400 employees, of which approximately 16,000 were outside the United States, including approximately 7,800 in Singapore, 3,400 in Italy, 2,200 in China, 1,100 in Israel and 1,000 in Malaysia. Our employees include approximately 1,600 in our IMFT joint venture, primarily located in the United States. Our employment levels can vary depending on market conditions and the level of our production, research and product and process development. Many of our employees are highly skilled and our continued success depends in part upon our ability to attract and retain such31,800 employees. The loss of key personnel could have a material adverse effect on our 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 our manufacturing processes. In 2012,2015, our wholly-owned wafer fabrication facilities continued to conform to the requirements of ISO 14001 certification. To continue certification, we metmust meet 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 we have not experienced any material adverse effects to our operations from environmental regulations, changes in the regulations could necessitate additional capital expenditures, modification of our operations, or other compliance actions.
Directors and Executive Officers of the Registrant
Our executive officers are appointed annually by the Board of Directors and our directors are elected annually by our shareholders. Any directors appointed by the Board of Directors to fill vacancies on the Board serve until the next election by the shareholders. All officers and directors serve until their successors are duly chosen or elected and qualified, except in the case of earlier death, resignation, or removal.
As of August 30, 2012,September 3, 2015, the following executive officers and directors were subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
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| | | | |
| Name | | Age | | Position |
| Mark W. Adams | | 4851 | | President |
| April S. Arnzen | | 44 | | Vice President, Human Resources |
| Scott J. DeBoer | | 49 | | Vice President, Research & Development |
| D. Mark Durcan | | 5154 | | Director and Chief Executive Officer |
Thomas T. EbyErnest E. Maddock | | 57 | | Chief Financial Officer and Vice President, Finance |
| Joel L. Poppen | | 51 | | Vice President, of Embedded Solutions |
Ronald C. Foster | | 62 | | Vice President of Finance and Chief Financial Officer |
Glen W. Hawk | | 50 | | Vice President of NAND Solutions |
Roderic W. Lewis | | 57 | | Vice President of Legal Affairs, General Counsel, and Corporate Secretary |
Patrick T. Otte | | 50 | | Vice President of Human Resources |
Brian J. Shields | | 50 | | Vice President of Worldwide Operations |
| Brian M. Shirley | | 4346 | | Vice President, of DRAMMemory Technology and Solutions |
| Steven L. Thorsen, Jr. | | 4750 | | Vice President, of Worldwide Sales and Corporate Marketing |
| Robert L. Bailey | | 5558 | | Director |
| Richard M. Beyer | | 66 | | Director |
| Patrick J. Byrne | | 5154 | | Director |
| D. Warren A. East | | 53 | | Director |
| Mercedes Johnson | | 5861 | | Director |
| Lawrence N. Mondry | | 5255 | | Director |
| Robert E. Switz | | 6568 | | Chairman |
Mark W. Adams joined us in June 2006 and served as our Vice President of Digital Media and Vice President of Worldwide Sales before being appointed our President in February 2012. Mr. Adams also served as our interim Chief Financial Officer from March 2015 through May 2015. From January 2006, until he joined us, 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 currently serves as a member of the Board of Directors for Cadence Design Systems, Inc. Mr. Adams holds a BA in Economics from Boston College and an MBA from Harvard Business School.
April S. Arnzen joined us in December 1996 and has served in various leadership positions since that time. Ms. Arnzen was appointed our Vice President, Human Resources in January 2015. Ms. Arnzen holds a BS in Human Resource Management and Marketing from the University of Idaho.
Scott J. DeBoer joined us in February 1995and has served in various leadership positions since that time. Dr. DeBoer became an officer in May 2007 and, in January 2013, he was appointed our Vice President, Research & Development. Dr. DeBoer holds a PhD in Electrical Engineering and an MS in Physics from Iowa State University. He completed his undergraduate degree at Hastings College.
D. Mark Durcan joined us in June 1984 and has served in various positions since that time. Mr. Durcan was appointed our Chief Operating Officer in February 2006, President in June 2007, and Director and Chief Executive Officer in February 2012. Mr. Durcan has been an officer since 1996. Mr. Durcan is a member of the Board of Directors of AmerisourceBergen Corporation and Freescale Semiconductor, Inc. Mr. Durcan holds a BS and MChE in Chemical Engineering from Rice University. Mr. Durcan has served on our Board of Directors since February 2012.
Thomas T. EbyErnest E. Maddock joined us in September 2010 and servesJune 2015 as our Vice President of Embedded Solutions. Mr. Eby was with Spansion Inc. from October 2005 to September 2010 where he held leading roles in strategy and communications, sales and marketing, and integration. He was also the General Manager and Executive Vice President of Spansion's embedded group. Mr. Eby previously held a variety of positions in sales and marketing and strategy with AMD. Mr. Eby holds a BS degree in Electrical Engineering and Computer Science from Princeton University.
Ronald C. Foster joined usin April 2008 and is the Chief Financial Officer and Vice President, Finance. From April 2013 until he joined us, Mr. Maddock served as Executive Vice President and Chief Financial Officer of Finance. In this position,Riverbed Technology. From October 2008 to April 2013, Mr. Foster has oversight responsibilitiesMaddock served as Executive Vice President and Chief Financial Officer of Lam Research Corporation after serving as Lam's Vice President of Global Operations from October 2003 to September 2008. Mr. Maddock currently serves as a member of the financial aspectsBoard of worldwide operations.Directors for Intersil Corporation. Mr. Maddock holds a BS in Industrial Management from the Georgia Institute of Technology and an MBA from Georgia State University.
Joel L. Poppen joined us in October 1995 and has held various leadership positions since that time. He was appointed to his current position in 2008 after serving as a member of the Board of Directors from June 2004 to April 2005. Before joining Micron,December 2013. Mr. Foster was the Chief Financial Officer of FormFactor, Inc. He previously served as the Chief Financial Officer for JDS Uniphase, Inc., and Novell, Inc., and has held senior financial management positions at Hewlett-Packard and Applied Materials. He is currently a member of the Board of Directors of Luxim, Inc. Mr. Foster holds an MBA from the University of Chicago and a BA in Economics from Whitman College.
Glen W. Hawk joined us in May 2010 and serves as our Vice President of NAND Solutions. Mr. Hawk served as the Vice President and General Manger of the Embedded Business Group for Numonyx from 2008 to May 2010. Prior to Numonyx, Mr. Hawk served as General Manager of the Flash Product Group for Intel Corporation. Mr. HawkPoppen holds a BS in ChemicalElectrical Engineering from the University of California, Berkeley.
Roderic W. Lewis joined us in August 1991 and has served in various capacities since that time. Mr. Lewis has served as our 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 UniversityIllinois and a JD from Columbiathe Duke University School of Law.
Patrick T. Otte joined us in 1987 and has served in various positions of increasing responsibility, including production and operations manager in several of our fabrication facilities and site director for our facility in Manassas, Virginia. Mr. Otte has served as our Vice President of Human Resources since March 2007. Mr. Otte holds a BS degree from St. Paul Bible College.
Brian J. Shields joined us in November 1986 and has served in various operational positions with us. Mr. Shields first became an officer in March 2003 and was Vice President of Wafer Fabrication starting December 2005 and has served as Vice President of Worldwide Operations from June 2010.
Brian M. Shirley joined us in August 1992 and has served in various leadership positions since that time. Mr. Shirley became Vice President of Memory in February 2006, Vice President of DRAM Solutions in June 2010 and has served as Vice President, of DRAMMemory Technology and Solutions from June 2010.since April 2014. Mr. Shirley holds a BS in Electrical Engineering from Stanford University.
Steven L. Thorsen, Jr. joined us in September 1988 and has served in various leadership positions since that time including Vice President and Chief Procurement Officer. Mr. Thorsen became Vice President, of Worldwide Sales and Corporate Marketing in April 2012. Mr. Thorsen holds a BA in Business Administration from Washington State University.
Robert L. Bailey was the Chairman of the Board of Directors of PMC-Sierra, ("PMC")Inc. from 2005 until May 2011 and also served as PMC's Chairman from February 2000 until February 2003. Mr. Bailey has served as a director of PMC sincefrom October 1996.1996 to May 2011. 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 semiconductor storage solutions for the next-generation Internet. Mr. Bailey currently serves on the Board of Directors of Entropic Communications. Mr. Bailey holds a BS degree in Electrical Engineering from the University of Bridgeport and an MBA from the University of Dallas. HeMr. Bailey has served on our Board of Directors since 2007.
Richard M. Beyer was Chairman and CEO of Freescale Semiconductor, Inc. from 2008 through June 2012 and served as a director with Freescale until April 2013. Prior to Freescale, Mr. Beyer was President, Chief Executive Officer and a Director of Intersil Corporation from 2002 to 2008. He has also previously served in executive management roles at FVC.com, VLSI Technology, and National Semiconductor Corporation. He currently serves on the Board of Directors of Dialog Semiconductor and Analog Devices, Inc. Mr. Beyer served three years as an officer in the United States Marine Corps. He holds a BA and an MA in Russian from Georgetown University and an MBA in Marketing and International Business from Columbia University Graduate School of Business. Mr. Beyer has served on our Board of Directors since 2013.
Patrick J. Byrne has served as the President of Tektronix, a subsidiary of Danaher Corporation, since July 2014. Mr. Byrne was Vice President of Strategy and Business Development and Chief Technical Officer of Danaher from November 2012 to July 2014. Danaher designs, manufactures, and markets innovative products and services to professional, medical, industrial, and commercial customers. Prior to that, Mr. Byrne served as Director, President and Chief Executive Officer of Intermec, Inc. (“Intermec”) from 2007 to May 2012. Intermec develops and integrates products, services and technologies that identify, track and manage supply chain assets and information. Mr. Byrne was with Agilent Technologies, Inc. from 1999 to 2007 and served in various management positions, including as Senior Vice President and President of the Electronic Measurement Group from February 2005 to March 2007. Mr. Byrne is also a member of the Board of Directors of Flow International Corporation, a manufacturer of ultrahigh-pressure waterjet technology, and a leading provider of robotics and assembly equipment.positions. Mr. Byrne holds a BS degree in Electrical Engineering from the University of California, Berkeley, and an MS degree in Electrical Engineering from Stanford University. Mr. Byrne joinedhas served on our Board of Directors since 2011.
D. Warren A. East has served as CEO of Rolls-Royce Holdings plc since July 2015. Mr. East was the CEO of ARM Holdings PLC from October 2001 to July 2013. He originally joined ARM in April 2011.1994, and served in various roles prior to being appointed CEO. He currently serves on the Board of Directors of Rolls-Royce plc. Mr. East is a chartered engineer, Distinguished Fellow of the British Computer Society, Fellow of the Institution of Engineering and Technology, Fellow of the Royal Academy of Engineering, and a Companion of the Chartered Management Institute. Mr. East holds a BA BSc(Eng) and an MBA MEng in Engineering Science from Oxford University and an MBA and honorary doctorate from Cranfield University. Mr. East has served on our Board of Directors since 2013.
Mercedes Johnson was the Senior Vice President and Chief Financial Officer of Avago Technologies Limited, a supplier of analog interface components for communications, industrial and consumer applications, from December 2005 to August 2008. She also served as the Senior Vice President, Finance, of Lam Research Corporation ("Lam") from June 2004 to January 2005 and as Lam's Chief Financial Officer from May 1997 to May 2004. Ms. Johnson holds a degree in Accounting from the University of Buenos Aires and currently serves on the Board of Directors for Intersil Corporation, and Juniper Networks, Inc., and Teradyne, Inc. Ms. Johnson is the Chairman of the Board's Audit Committee and has served on our Board of Directors since 2005.
Lawrence N. Mondry was the Chief Executive Officer of Apollo Brands, a consumer products portfolio company, from February 2014 to February 2015. Mr. Mondry was the Chief Executive Officer of Flexi Compras Corporation, a rent-to-own retailer, from June 2013 to February 2014. Mr. Mondry was the President and Chief Executive Officer of CSK Auto Corporation, ("CSK"), a specialty retailer of automotive aftermarket parts, from August 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 holds a BA degree from Boston University. Mr. Mondry is the Chairman of the Board's Compensation Committee and Governance Committee and Compensation Committee. He has served on our Board of Directors since 2005.
Robert E. Switz was the Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc., ("ADC"), a supplier of network infrastructure products and services from August 2003 until December 2010, when Tyco Electronics Ltd. acquired ADC. Mr. Switz joined ADC in 1994 and throughout his career there held numerous leadership positions. Mr. Switz holds an MBA from the University of Bridgeport as well asand a degreeBS in Marketing/EconomicsBusiness Administration from Quinnipiac University. Mr. Switz also serves on the Board of Directors for Broadcom Corporation, GT Advanced Technologies, and Leap Wireless International,Gigamon Inc. HeMr. Switz was appointed Chairman of the Board in 2012 and has served on our Board of Directors since 2006 and was appointed Chairman of the Board in February 2012.2006.
There are no family relationships between any of our directors or executive officers.
Additional Information
Micron, Lexar, Crucial, SpecTek, Elpida, JumpDrive, any associated logos, and all other Micron trademarks are the property of Micron. 3D XPoint is a trademark of Intel in the U.S. and/or other countries. Other product names or trademarks that are not owned by Micron are for identification purposes only and may be the registered or unregistered trademarks of their respective owners.
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 us.
We have experienced dramatic declines in average selling prices for our semiconductor memory products which have adversely affected our business.
If average selling prices for our memory products decrease faster than we can decrease per gigabit costs, our business, results of operations, or financial condition could be materially adversely affected. We have experienced significant decreases in our average selling prices per gigabit in recentprevious years as noted in the table below and may continue to experience such decreases in the future. In some prior periods, average selling prices for our memory products have been below our manufacturing costs and we may experience such circumstances in the future.
|
| | | | | | | |
| | | DRAM | | | Trade NAND Flash* |
| | | (percentage change in average selling prices) |
| 2012 from 2011 | | (45 | )% | | | (55 | )% |
| 2011 from 2010 | | (39 | )% | | | (12 | )% |
| 2010 from 2009 | | 28 | % | | | 26 | % |
| 2009 from 2008 | | (52 | )% | | | (52 | )% |
| 2008 from 2007 | | (51 | )% | | | (68 | )% |
| * Trade NAND Flash excludes sales to Intel from IM Flash. | | | | | |
|
| | | | | | |
| | | DRAM | | Trade NAND Flash* |
| | | | | |
| | | (percentage change in average selling prices) |
| 2015 from 2014 | | (11 | )% | | (17 | )% |
| 2014 from 2013 | | 6 | % | | (23 | )% |
| 2013 from 2012 | | (11 | )% | | (18 | )% |
| 2012 from 2011 | | (45 | )% | | (55 | )% |
| 2011 from 2010 | | (39 | )% | | (12 | )% |
| * Trade NAND Flash excludes sales to Intel from IMFT. | | | | |
We may be unable to reduce our per gigabit manufacturing costs at the rate average selling prices decline.maintain or improve gross margins.
Our gross margins are dependent upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs, including, reducing the die sizebut not limited to, process line-width, architecture, number of our existing products.mask layers, number of fabrication steps, and yield. In future periods, we may be unable to reduce our per gigabit manufacturing costs at sufficient levels to improvemaintain or maintainimprove gross margins. Factors that may limit our ability to reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, difficulty in transitioning to smaller line-width process technologies, technological barriers, and changes in process technologies or products that 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.
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.;Intel; Samsung Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; Spansion Inc. and Toshiba Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete, invest in technologycompete. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments, such as China, have provided, and capitalize on growth opportunities.may continue to provide, significant financial assistance to some of our competitors or to new entrants. Our competitors seek to increase silicon capacity, improve yields, reduce die size, and minimize mask levels in their product designs. Transitions to smaller line-width process technologies and product and process improvements have resulted in significant increases in the worldwide supply of semiconductor 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. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. In recent periods, we and some of our competitors have begun construction on or announced plans to build new fabrication facilities. Increases in worldwide supply of semiconductor memory, if not accompanied withby 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.
The EuropeanDebt obligations could adversely affect our financial crisiscondition.
In recent periods, our debt levels have increased due to the capital intensive nature of our business, business acquisitions, and overall downturnrestructuring of our capital structure. As of September 3, 2015, we had debt with a carrying value of $7.34 billion. In addition, the conversion value in excess of principal amount for our convertible notes outstanding as of September 3, 2015 was $553 million. In 2015, we paid $1.43 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of $489 million. In 2014, we paid $2.30 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of $1.09 billion. As of September 3, 2015, we had (1) revolving credit facilities available that provide for up to $842 million of additional financing and (2) a term loan agreement available to obtain financing collateralized by certain property, plant, and equipment in the worldwide economyamount of 6.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $213 million as of September 3, 2015), of which we drew $40 million in 2015. The availability of these revolving and other facilities is subject to certain conditions, including outstanding balances of trade receivables; inventories; collateralization of certain property, plant, and equipment; and other conditions. Events and circumstances may harm our business.
The European financial crisisoccur which would cause us to not be able to satisfy these applicable drawdown conditions and the overall downturnutilize these facilities. We have in the worldwide economy have had an adverse effectpast and expect in the future to continue to incur additional debt to finance our capital investments, business acquisitions, and restructuring of our capital structure.
Our debt obligations could adversely impact us. For example, these obligations could:
require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
continue to dilute our business. A continuation or further deteriorationearnings per share as a result of depressed economic conditions could have an even greater adverse effect on our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, networking products and mobile devices. Reduced demand for these products could result in significant decreasesthe conversion provisions in our average selling prices. A continuationconvertible notes;
require us to continue to pay cash amounts substantially in excess of current negative conditions in worldwidethe principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
adversely impact our credit markets would limitrating, which could increase future borrowing costs; and
increase our vulnerability to adverse economic and semiconductor memory industry conditions.
Our ability to meet our payment obligations under our debt instruments depends on our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings ofgenerate significant cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of loss on our accounts receivables due to credit defaults. As a result, our business, results of operations or financial condition could be materially adversely affected.
Inotera's financial situation may adversely impact the value of our interest and our supply agreement.
Due to significant market declinesflows in the selling prices of DRAM, Inotera incurred net losses of $259 million for its six-month period ended June 30, 2012future. This, to some extent, is subject to general economic, financial, competitive, legislative, and $737 million for its fiscal year ended December 31, 2011. Under generally accepted accounting principles in the Republic of China, Inotera reported a loss for its quarter ended September 30, 2012 of an additional New Taiwan dollars 4,390 million (approximately $150 million U.S. dollars). In addition, Inotera's current liabilities exceeded its current assets by $1.85 billionregulatory factors as of June 30, 2012, which exposes Inotera to liquidity risk. As of June 30, 2012 and December 31, 2011, Inotera was also not in compliance with certain loan covenants and had not been in compliance for the past several years, which may result in its lenders requiring repayment of such loans during the next year. Inotera obtained a waiver from complying with its financial covenants through June 30, 2012 and has requested an additional waiver from these requirements. Inotera's management has developed plans to improve its liquidity.well as other factors that are beyond our control. There can be no assurance that Inoteraour business will generate cash flow from operations, or that additional capital will be successfulavailable to us, in obtaining an additional waiver or improving its liquidity.amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If Inotera iswe are unable to adequately improve its liquidity,generate sufficient cash flow to service our debt obligations, we may haveneed to impairrefinance or restructure our investment in Inotera,debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which had a net carrying value of $321 million as of August 30, 2012.
In the second quarter of 2012, we contributed $170 million to Inotera, which increased our ownership percentage from 29.7% to 39.7%. We may not continue to make equity contributions to Inotera, which may further increase their liquidity risk. Wecould have a supply agreement with Inotera, under which Nanya is also a party, for the rights and obligations to purchase 50% of Inotera's wafer production capacity (the "Inotera Supply Agreement"). As a result of our March 7, 2012 equity contribution to Inotera, we expect to receive a higher share of Inotera's 30-nanometer output when it becomes available as a result of Inotera capital investments enabled by our $170 million equity investment. In the fourth quarter of 2012, we purchased $170 million of DRAM products from Inotera and our supply from Inotera accounted for 47% of our aggregate DRAM gigabit production. As a result, if our supply of DRAM from Inotera is impacted, our business, results of operations or financial condition could be materially adversely affected.
Our Inotera Supply Agreement involves numerous risks.
Our Inotera Supply Agreement involves numerous risks including the following:
we have experienced difficulties and delays in ramping production at Inoteramaterial adverse effect on our technology and may continue to experience difficulties and delays in the future;
we may experience continued difficulties in transferring technology to Inotera;
costs associated with manufacturing inefficiencies resulting from underutilized capacity;
difficulties in obtaining high yield and throughput due to differences in Inotera's manufacturing processes from our other fabrication facilities;
uncertainties around the timing and amount of wafer supply we will receive under the supply agreement; and
the cost of our product obtained from Inotera is impacted by Nanya's revenue and back-end manufacturing costs for product obtained from Inotera.
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks including the following:
integrating the operations, technologies and products of acquired or newly formed entities into our operations;
increasing capital expenditures to upgrade and maintain facilities;
increased debt levels;
the assumption of unknown or underestimated liabilities;
the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, research and development expenditures and other business activities;
diverting management's attention from normal daily operations;
managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
hiring and retaining key employees;
requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability to realize synergies or other expected benefits;
failure to maintain customer, vendor and other relationships;
inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological advancements or worse-than-expected performance of the acquired business.
In recent years, supply of memory products has significantly exceeded customer demand resulting in significant declines in average selling prices of DRAM, NAND Flash and NOR Flash products. Resulting operating losses have led to the deterioration in the financial condition of a number of industry participants, including the liquidation of Qimonda AG and the recent bankruptcy filing by Elpida Memory, Inc. These types of proceedings often lead to confidential court-directed processes involving the sale of related businesses or assets. We believe the global memory industry is experiencing a period of consolidation as a result of these market conditions and other factors, and we have engaged, and expect to continue to engage, in discussions regarding potential acquisitions and similar opportunities arising out of these industry conditions, such as our pending acquisition of Elpida. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, high-technology companies are inherently risky and may not be successful and may materially adversely affect our business, results of operations, or financial condition.
Our pending acquisitions of ElpidaWe may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and Rexchip involve numerous risks.make adequate capital investments.
On July 2, 2012,Our cash flows from operations depend primarily on the volume of semiconductor memory sold, average selling prices, and manufacturing costs. To develop new product and process technologies, support future growth, achieve operating efficiencies, and maintain product quality, we entered intomust make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology. We estimate that cash expenditures in 2016 for property, plant, and equipment will be approximately $5.3 billion to $5.8 billion. Investments in capital expenditures for 2015 were $4.12 billion. In addition, as a sponsor agreement with the trusteesresult of the Elpida Companies that provides for, among other things,MMJ acquisition and our acquisition of 100% of the equity of Elpida. Under the sponsor agreement,capacity expansion in Singapore, we committed to support plans of reorganization for the Elpida Companies that would provide for payments to the secured and unsecured creditors of the Elpida Companies in an aggregate amount of 200 billion yen (or approximately $2.5 billion), less certain expenses of the reorganization proceedings and certain other items. As a condition of the sponsor agreement, we deposited 1.8 billion yen (or approximately $23 million) into an escrow account in July 2012 whichexpect our future capital spending will be applied to the share acquisition payments at closing. Of the aggregate amount,higher than our historical levels. As of September 3, 2015, we will fund 60had cash and marketable investments of $5.63 billion, yen (or approximately $750 which included $748 million) through a cash payment to Elpida at the closing, in exchange for 100% ownership of Elpida's equity. The remaining 140 billion yen (or approximately $1.75 billion) of payments will be made held by the Elpida Companies in six annual installments payable at the endMMJ Group and $134 million held by IMFT, none of each calendar year beginning in 2014, with payments of 20 billion yen (or approximately $250 million) in each of 2014 through 2017, and payments of 30 billion yen (or approximately $375 million) in each of 2018 and 2019.
On that same date, we entered into a share purchase agreement with Powerchip and certain of its affiliates, under which we will purchase approximately 714 million shares of the common stock of Rexchip, a manufacturing joint venture formed by Elpida and Powerchip, for approximately 10 billion New Taiwan dollars (or approximately $334 million). If the transactions contemplated by these two agreements are completed, we will own 100% of Elpida and, directly or indirectly through Elpida, approximately 89% of Rexchip.is generally available to finance our other operations.
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions would also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends to us in respect of the shares of such subsidiaries owned by the MMJ Companies, as any such dividends would have to be first paid to the MMJ Companies which are prohibited from repaying those amounts to us as dividends under the plans of reorganization. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ Companies may be considered outside of the ordinary course of business and subject to approval of the legal trustees and Japan Court. As a result, the assets of the MMJ Companies and their subsidiaries, while available to satisfy the MMJ Companies' installment payments and the other obligations, capital expenditures, and other operating needs of the MMJ Companies and their subsidiaries, are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us. There can be no assurance that these transactionswe will close when expected or at all, or that the acquisition of Elpida will ultimately be consummated on the terms and conditions set forth in the sponsor agreement. The transactions remain subject to bankruptcy and/or regulatory approval in various jurisdictions including the People's Republic of China. These regulatory authorities may not approve the transactions or may impose modifications, conditions or restrictions that adversely impact the value of the transactions to Micron. In addition, the proposed plan of reorganization of the trustees, which contemplates Micron's acquisition of Elpida pursuant to the sponsor agreement, remains subject to approval of both the court and the creditors of Elpida, neither of which can be assured. Various creditors are challenging the trustees' proposed plan of reorganization, and certain creditors have proposed an alternative plan of reorganization that does not contemplate Micron's acquisition of Elpida. If the requisite court and creditor approvals are not obtained, Micron will not be able to close the acquisitions.
In additiongenerate sufficient cash flows, use cash held by MMJ to the risks described in the immediately preceding risk factor relating to acquisitions generally and to Micron's ability to consummate the transaction described in the preceding paragraph, these acquisitions are expected to involve the following significant risks:
continued deterioration of conditions in the semiconductor memory market threaten Elpida's ability to payfund its obligations;
we may incur losses in connection with our support, including guarantees, of the Elpida Company's debtor-in-possession financing and capital expenditures, which losses may arise even ifaccess capital markets or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do the transactions do not close;
we are unable to maintain customers, successfully execute our integration strategies, or achieve planned synergies;
we are unable to accurately forecast the anticipated financial results of the combined business;
our consolidated financial condition may be adversely impacted by the increased leverage resulting from the transactions;
increased exposure to the DRAM market, which experienced significant declines in pricing during 2012 and 2011;
further deterioration of Elpida's and Rexchip's operations and customer base during the period between signing and closing;
increased exposure to operating costs denominated in yen and New Taiwan dollar;
integration issues with Elpida's and Rexchip's primary manufacturing operations in Japan and Taiwan;
integration issues of our product and process technology with Elpida and Rexchip;
an overlap in customers; and
restrictionsforegoing could have a material adverse effect on our ability to freely operate Elpida as a result of contractual commitments as well as continued oversight by the court and trustee during the pendency of the corporate reorganization proceedings of the Elpida Companies, which could last until all installment payments have been made.
Our pending acquisitions of Elpida and Rexchip are inherently risky, may not be successful and may materially adversely affect our business, results of operations, or financial condition.conditions.
Our pending acquisitions of Elpida and Rexchip expose us to significant risks from changes in currency exchange rates.
Under the sponsor agreement, we committed to support plans of reorganization for Elpida that would provide for payments to the secured and unsecured creditors of Elpida in an aggregate amount of 200 billion yen. Also, under the share purchase agreement with Powerchip, we agreed to pay approximately 10 billion New Taiwan dollars to purchase approximately 714 million shares of Rexchip common stock. These payments in yen and New Taiwan dollars expose us to significant risks from changes in currency exchange rates.
On July 2, 2012, we executed a series of separate currency exchange transactions pursuant to which we purchased call options to buy 200 billion yen with a weighted-average strike price of 79.15 (yen per dollar). In addition, to reduce the cost of these call options, we sold put options to sell 100 billion yen with a strike price of 83.32 and we sold call options to buy 100 billion yen with a strike price of 75.57. The net cost of these call and put options, which expire on April 3, 2013, of $49 million is payable upon settlement. These currency options mitigate the risk of a strengthening yen for our yen-denominated payments under the sponsor agreement while preserving some ability for us to benefit if the value of the yen weakens relative to the U.S. dollar. On July 25, 2012, we executed a series of separate currency exchange transactions pursuant to which we purchased call options to buy 10 billion New Taiwan dollars with a weighted-average strike price of 29.21 (New Taiwan dollars per U.S. dollars). The net cost of these options, which expire on April 2, 2013, of $3 million is payable upon settlement. These currency options mitigate the risk of a strengthening New Taiwan dollar for our payments under the Rexchip Share Purchase Agreement. These yen and New Taiwan dollar option contracts were not designated for hedge accounting and are remeasured at fair value each period with gains and losses reflected in our results of operations. Therefore, changes in the exchange rate between the U.S. dollar and the yen and the New Taiwan dollar could have a significant impact on our results of operations.
The acquisition of our ownership interest in Inotera from Qimonda has been legally challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit against usMicron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between usMicron B.V. and Qimonda signed in fall 2008 pursuant to which weMicron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera Shares"), representing approximately 55% of our total shares in Inotera as of September 3, 2015, and seeks an order requiring us to retransfer the Inoterare-transfer those shares purchased from Qimonda to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate under Sections 103 or 133 of the German Insolvency Code a patent cross licensecross-license between us and Qimonda entered into at the same time as the share purchase agreement. A three-judge panel will render a decision after
Following a series of hearings with pleadings, arguments, and witnesses. A first hearing was heldwitnesses on September 25, 2012.behalf of the Qimonda estate, on March 13, 2014, the Court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court. The next hearing is scheduled for February 5, 2013. on the matter has not yet been scheduled.
We are unable to predict the outcome of this lawsuitthe matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera shares or equivalent monetary damages, andunspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross license,cross-license, which could have a material adverse effect on our business, results of operation, or financial condition. As of August 30, 2012,September 3, 2015, the Inotera shares purchased from QimondaShares had a net carrying value for purposes of $177our financial reporting of $683 million and a market value of $846 million.
Our future success may dependdepends on our ability to develop and produce competitive new memory technologies.
Our key semiconductor memory technologies of DRAM, NAND Flash, and NOR Flash face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on the ability to shrink products in order to reduce costs, meet higher density requirements, and improve power consumption and reliability. To meet these requirements, we expect that new memory technologies will be developed by the semiconductor memory industry. Our competitors are working to develop new memory technologies that may offer performance and/or cost advantages to our existing memory technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory technologies. There can be no assurance of the following:
that we will be successful in developing competitive new semiconductor memory technologies;
that we will be able to cost-effectively manufacture new products;
that we will be able to successfully market these technologies; and
that margins generated from sales of these products will allow us to recover costs of development efforts.
In the fourth quarter of 2015, we announced the development of new 3D XPoint technology, which is an entirely new class of non-volatile memory. There is no assurance that our efforts to develop and market this new product technology will be successful. If our efforts to develop new semiconductor memory technologies are unsuccessful, our business, results of operations, or financial condition may 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, capital equipment, facilities, R&D and product and process technology. We estimate that capital spending for 2013 will be approximately $1.6 billion to $1.9 billion. As of August 30, 2012, we had cash and equivalents of $2,459 million and short-term investments of $100 million. Cash and investments included $157 million held by IMFT, which is generally not available to finance our other operations. In the past we have utilized external sources of financing when needed. As a result of our current debt levels, general economic conditions and adverse conditions in the credit markets, it may be difficult for us to obtain financing on terms acceptable to us. There can be no assurance that we will be able to generate sufficient cash flows, access capital markets 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. Our inability to do the foregoing could have a material adverse effect on our business and results of operations.
Debt obligations could adversely affect our financial condition.
We are engaged in a capital intensive business subject to significant changes in supply and demand and product pricing and recent periods of consolidation, any of which could result in our incurrence or assumption of indebtedness. In recent periods, our debt levels have increased and are expected to continue to increase through 2013. As of August 30, 2012, we had $3.3 billion of debt, including $949 million principal amount of convertible senior notes due 2014. In September and October 2012, we entered into financing arrangements that allow for borrowings up to $469 million. In addition, if we are able to complete the Elpida acquisition, we will fund 60 billion yen (or approximately $750 million) through a cash payment to Elpida at the closing, in exchange for 100% ownership of Elpida's equity. The remaining 140 billion yen (or approximately $1.75 billion) of payments will be made by the Elpida Companies in six annual installments payable at the end of each calendar year beginning in 2014, with payments of 20 billion yen (or approximately $250 million) in each of 2014 through 2017, and payments of 30 billion yen (or approximately $375 million) in each of 2018 and 2019. We may need to incur additional debt in the future.
Our debt could adversely impact us. For example it could:
require us to use a large portion of our cash flow to pay principal and interest on debt, including the convertible notes, which will reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions, research and development expenditures and other business activities;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, research and development and other general corporate requirements;
contribute to a future downgrade of our credit rating, which could increase future borrowing costs; and
increase our vulnerability to adverse economic and semiconductor memory industry conditions.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our payment obligations under the convertible notes and our other debt and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the convertible notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our payment obligations under the convertible notes and our other debt.
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 IMFT NAND Flash joint venture with Intel, our Inotera DRAM joint venture with Nanya, our MP Mask joint venture with Photronics, our Transform joint venture with Origin Energy and our CMOS image sensor wafer supply agreement with Aptina. These joint ventures and strategic partnerships 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 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;
we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
we may need to continue to recognize our share of losses from Inotera or Transform in our future results of operations;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, our partners may decide not to join us in funding capital investment by our joint ventures, which may result in higher levels of cash expenditures by us: for example, our contributions to IMFS in 2011 and 2010 totaled $1,708 million while Intel's contributions totaled $38 million and in 2012 we paid Intel approximately $600 million to acquire its interests in two NAND Flash fabrication facilities;
cash flows may be inadequate to fund increased capital requirements;
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal or regulatory requirements may necessitate changes in the agreements with our partners.
If our joint ventures and strategic partnerships are unsuccessful, our business, results of operations or financial condition may be adversely affected. Specifically, as a result of a liquidation plan approved by the Board of Directors of Transform in May 2012, we recognized a charge of $69 million.
An adverse outcome relating to allegations of anticompetitive conduct could materially adversely affect our business, results of operations or financial condition.
On May 5, 2004, Rambus, Inc. ("Rambus") filed a complaint in the Superior Court of the State of California (San Francisco County) against us and other DRAM suppliers which alleged that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus' complaint alleged various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus sought a judgment for damages of approximately $3.9 billion, joint and several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the jury on September 21, 2011. On November 16, 2011, the jury found for us on all claims. On April 2, 2012, Rambus filed a notice of appeal to the California 1st District Court of Appeal.
We are unable to predict the outcome of this matter. An adverse court determination of any lawsuit 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.
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.
On January 13, 2006, 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 fourteen 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. On January 9, 2009, in another lawsuit involving us 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 us. Rambus subsequently appealed the Delaware Court's decision to the U.S. Court of Appeals for the Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for analysis of the remedy based on the Federal Circuit's decision. The Northern District of California Court stayed the trial of the patent phase of the Northern District of California case upon appeal of the spoliation issue to the Federal Circuit. In addition, others have asserted, and may assert in the future, that our products or manufacturing processes infringe their intellectual property rights. (See "Item 3. Legal Proceedings" for additional details on these lawsuits.)
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.
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. In recent periods we have further diversified and expanded our product offerings which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. If 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.
New product development may be unsuccessful.
We are developing new products, including system-level memory products, that complement our traditional memory products or leverage their underlying design or process technology. We have made significant investments in product and process technologies and anticipate expending significant resources for new semiconductor product development over the next several years. The process to develop DRAM, NAND Flash, NOR Flash, and certain specialty memory products, requires us to demonstrate advanced functionality and performance, many times well in advance of a planned ramp of production, in order to secure design wins with our customers. There can be no assurance of the following:
•that our product development efforts will be successful, successful;
•that we will be able to cost-effectively manufacture new products, products;
•that we will be able to successfully market these productsproducts; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.
ConsolidationIf our efforts to develop new products are unsuccessful, our business, results of industry participantsoperations, or financial condition may be materially adversely affected.
Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time we experience problems with nonconforming, defective or incompatible products after we have shipped such products. In recent periods we have further diversified and governmental assistance to someexpanded our product offerings which could potentially increase the chance that one or more of our competitorsproducts could fail to meet specifications in a particular application. As a result of these problems we could be adversely affected in several ways, including the following:
we may contributebe required to uncertaintycompensate customers for costs incurred or damages caused by defective or incompatible product or replace products;
we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and
we may encounter adverse publicity, which could cause a decrease in sales of our products.
A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could materially adversely affect our business, results of operations, or financial condition.
As is typical in the semiconductor memory industry and negativelyother high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe their intellectual property rights. We are unable to predict the outcome of assertions of infringement made against us. A determination that our products or manufacturing processes infringe the intellectual property rights of others, or entering a license agreement covering such intellectual property, 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. (See "Part II. Financial Information – Item 8. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.")
We have a number of 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.
Our joint ventures and strategic relationships involve numerous risks.
We have entered into strategic relationships to manufacture products and develop new manufacturing process technologies and products. These relationships include our IMFT joint venture with Intel, our Inotera joint venture with Nanya, and our MP Mask joint venture with Photronics. These joint ventures and strategic relationships 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 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;
our joint venture partners' products may compete with our products;
we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
we may recognize losses from our equity method investments;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, our partners may decide not to join us in funding capital investment in our joint ventures, which may result in higher levels of cash expenditures by us;
cash flows may be inadequate to fund increased capital requirements;
we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners;
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal, or regulatory requirements may necessitate changes in the agreements with our partners.
If our joint ventures and strategic relationships are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.
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. We maintain operations and continuously implement new product and process technology at our manufacturing operations which are widely dispersed in multiple locations in several countries including the U.S., Singapore, Taiwan, Japan, Malaysia, and China. Additionally, our control over operations at IMFT, Inotera, MP Mask, and Tera Probe is limited by our agreements with our partners. From time to time, we have experienced disruptions in our manufacturing process as a result of power outages, improperly functioning equipment, equipment failures, earthquakes, or other environmental events. 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, loss of revenues, or damage to customer relationships, any of which could materially adversely affect our business, results of operations, or financial condition.
The operations of the MMJ Companies are subject to continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings.
Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of our acquisition of MMJ, the Japan Proceedings are continuing, and the MMJ Companies remain subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the Japan Proceedings. The Japan Proceedings and oversight of the Japan Court are expected to continue until the final creditor payment is made under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. Although we may be able to petition the court to terminate the Japan Proceedings once two-thirds of all payments under the plans of reorganization are made, there can be no assurance that the Japan Court will grant any such petition.
During the pendency of the Japan Proceedings, the MMJ Companies are obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of the MMJ Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of the plans of reorganization of the MMJ Companies. Accordingly, during the pendency of the Japan Proceedings, our ability to compete.effectively integrate the MMJ Companies as part of our global operations or to cause the MMJ Companies to take certain actions that we deem advisable for their businesses could be adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to the MMJ Companies.
Our Inotera supply agreements involves numerous risks.
Since January 2013, we have purchased all of Inotera's DRAM output at a price reflecting a discount from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. Our Inotera supply agreements involve numerous risks including the following:
higher costs for supply obtained under the Inotera supply agreements as compared to our wholly-owned facilities;
difficulties and delays in ramping production at Inotera;
difficulties in transferring technology to Inotera; and
difficulties in coming to an agreement with Nanya regarding major corporate decisions, such as capital expenditures or capital structure.
In 2015 and in 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. For 2015, we purchased $2.37 billion of DRAM products from Inotera and our supply from Inotera accounted for 35% of our aggregate DRAM gigabit production. If our supply of DRAM from Inotera is impacted, our business, results of operations, or financial condition could be materially adversely affected.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, there are transactions and balances denominated in currencies other than the U.S. dollar (our reporting currency), primarily the British pound, euro, shekel, Singapore dollar, New Taiwan dollar, yen, and yuan. We recorded net losses from changes in currency exchange rates of $27 million for 2015, $28 million for 2014, and $229 million for 2013. Based on our foreign currency exposures from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $3 million as of September 3, 2015. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. In the event that exchange rates for the U.S. dollar adversely change against our foreign currency exposures, our results of operations or financial condition may be adversely affected.
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks including the following:
integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
increasing capital expenditures to upgrade and maintain facilities;
increased debt levels;
the assumption of unknown or underestimated liabilities;
the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
diverting management's attention from daily operations;
managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
hiring and retaining key employees;
requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability to realize synergies or other expected benefits;
failure to maintain customer, vendor, and other relationships;
inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business.
In previous years, supply of memory products has significantly exceeded customer demand resulting in significant declines in average selling prices offor DRAM, NAND Flash, and NOR Flash products and substantialproducts. Resulting operating losses by us and our 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.participants, including the liquidation of Qimonda and the 2012 bankruptcy filing by Elpida (now known as MMJ). These types of proceedings often lead to court-directed processes involving the sale of related businesses or assets. We believe the global memory industry is experiencing a period of consolidation as a result of these market conditions and other factors, and we may engage in discussions regarding potential acquisitions and similar opportunities arising out of these industry conditions. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, high-technology companies are inherently risky and may not be successful and may materially adversely affect our business, results of operations, or financial condition.
Breaches of our network security could expose us to losses.
We manage and store on our network systems various proprietary information and sensitive or confidential data relating to our operations. We also process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized users may be able to gain access to our network system and steal proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Attacks on our network systems could result in significant losses and damage our reputation with customers, and could expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised.
Compliance with regulations regarding the use of conflict minerals could limit the supply and increase the cost of certain metals used in manufacturing our products.
Increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and its implementing Securities and Exchange Commission regulations. The Dodd-Frank Act imposes supply chain diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and finance or benefit local armed groups. These "conflict minerals" are commonly found in materials used in the manufacture of semiconductors. The implementation of these new regulations may limit the sourcing and availability of some of these materials. This in turn may affect our ability to obtain materials necessary for the manufacture of our products in sufficient quantities and may affect related material pricing. Some of our competitorscustomers may tryelect to enhance their capacity and lower their cost structure through consolidation. In addition, some governments have provided, and may be considering providing, significant financial assistancedisqualify us as a supplier or reduce purchases from us if we are unable to some ofverify that our competitors. Consolidation of industry competitors could put us at a competitive disadvantage.products are DRC conflict free.
We may incur additional material restructure charges in future periods.tax expense or become subject to additional tax exposure.
In responseWe operate in a number of locations outside the U.S., including in Singapore, and, to severe downturnsa lesser extent, Taiwan, where we have tax incentive agreements that are, in part, conditional upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the distribution of our earnings among these different jurisdictions. Our provision for income taxes and cash tax liabilities in the semiconductor memory industryfuture could be adversely affected by numerous factors, including challenges by tax authorities to our tax structure, income before taxes being lower than anticipated in countries with lower statutory tax rates and global economic conditions, we implemented restructure planshigher than anticipated in prior periods and may need to implement restructure initiatives in future periods. As a result, we could incur restructure charges, lose production output, lose key personnel and experience disruptions in our operations and difficultiescountries with higher statutory tax rates, changes in the timely deliveryvaluation of products.deferred tax assets and liabilities, failure to meet performance obligations with respect to tax incentive agreements, and changes in tax laws and regulations. We file income tax returns with the U.S. federal government, various U.S. states, and various other jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 2011 through 2015. In addition, tax returns open to examination in multiple other taxing jurisdictions range from the years 2007 to 2015. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability.
We may not utilize all of our net deferred tax assets.
We have substantial deferred tax assets, which include, among others, net operating loss and credit carryforwards. As of September 3, 2015, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $4.02 billion and $2.05 billion, respectively, which, if not utilized, will expire at various dates from 2016 through 2035. As of September 3, 2015, our foreign net operating loss carryforwards were $5.15 billion, including $3.81 billion pertaining to Japan, which, if not utilized, substantially all will expire at various dates from 2017 through 2025. As of September 3, 2015, we had valuation allowances of $1.16 billion and $710 million against our net deferred tax assets in the U.S. and Japan, respectively.
The limited availability of raw materials, supplies, or capital equipment could materially adversely affect our business, results of operations, or financial condition.
Our operations require raw materials, and in certain cases, third party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials.materials and services. However, only a limited number of suppliers are capable of delivering certain raw materials and services that meet our standards. In some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of raw materials or components such as silicon wafers, controllers, photomasks, chemicals, gases, photoresist, lead frames, and molding compound. Shortages may occur from time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. 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 or services is disrupted or our lead times extended, our business, results of operations, or financial condition could be materially adversely affected.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. In recent periodsFrom time to time we have experienced difficulties in obtaining some equipment on a timely basis due to the supplier's limited capacity. Our inability to timely obtain this equipment timely could adversely affect our ability to transition to next generation manufacturing processes and reduce costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and increase our overall costs of the ramp. If we are unable to timely obtain advanced semiconductor manufacturing equipment in a timely manner, our business, results of operations, or financial condition could be materially adversely affected.
A downturn in the worldwide economy may harm our business.
Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, mobile devices, solid-state drives, and servers. Reduced demand for these products could result in significant decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could 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 loss on our accounts receivables due to credit defaults. As a result, our business, results of operations, or financial condition could be materially adversely affected.
Our results of operations could be affected by natural disasters and other events in the locations in which we or our customers or suppliers operate.
We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events including earthquakes or tsunamis that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may 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 U.S. net deferred tax assets. As of August 30, 2012, our federal, state and foreign net operating loss carryforwards were $3.5 billion, $2.2 billion and $737 million, respectively. If not utilized, substantially all of our federal and state net operating loss carryforwards will expire in 2023 to 2032 and the foreign net operating loss carryforwards will begin to expire in 2017. As of August 30, 2012, our federal and state tax credit carryforwards were $208 million and $203 million respectively. If not utilized, substantially all of our federal and state tax credit carryforwards will expire in 2013 to 2032. 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 these tax limitations is complex and requires a significant amount of judgment by us with respect to analysis of past transactions.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our multi-national operations, there are transactions and balances denominated in currencies other than the U.S. dollar (our reporting currency), primarily the Singapore dollar, euro, shekel and yen. We recorded net losses from changes in currency exchange rates of $6 million for 2012, $6 million for 2011 and $23 million for 2010. Based on our foreign currency exposures from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately U.S. $8 million as of August 30, 2012 and U.S. $9 million as of September 1, 2011. In the event that the U.S. dollar weakens significantly compared to the Singapore dollar, euro, shekel or yen, our results of operations or financial condition may be adversely affected.
In connection with the Elpida sponsor agreement and Rexchip share purchase agreement, we entered into currency option transactions to mitigate the risk that increases in exchange rates have on our planned yen and New Taiwan dollar payments. We estimate that, as of August 30, 2012, a 10% decrease in exchange rates for the yen and New Taiwan dollar compared with U.S. dollar would result in losses of approximately U.S. $108 million for these currency options. Additionally, we estimate that, as of August 30, 2012, a 10% decrease in exchange rates for the yen and New Taiwan dollar compared with U.S. dollar would result in a decrease of U.S. $239 million of our planned payments under the Elpida sponsor agreement and Rexchip share purchase agreement.
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 85%84% of our consolidated net sales for 2012.2015. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore.Singapore, Taiwan, and Japan. Our international sales and operations are subject to a variety of risks, including:
export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds;
compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act, export controland import laws, and similar rules and regulations;
protection of intellectual property;
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;
compliance with trade, technical standards, and other laws in a variety of jurisdictions;
contractual and regulatory limitations on our ability to maintain flexibility with our staffing levels;
disruptions to our manufacturing operations as a result of actions imposed by foreign governments;
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.
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 IMFT, Inotera and MP Mask joint ventures is limited by our agreements with our partners. From time to time, we have experienced 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.
Breaches of our network security could expose us to losses.
We manage and store on our network systems, various proprietary information and sensitive or confidential data relating to our operations. We also process, store, and transmit large amounts of data for our customers, including sensitive personal information. Computer programmers and hackers may be able to gain unauthorized access to our network system and steal proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Attacks on our network systems could result in significant losses and damage our reputation with customers.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, foreign currency option and forward contracts, and capped-call contracts on our stock.stock, and derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A counterparty may default rapidly and withoutnot comply with their contractual commitments which could then lead to their defaulting on their obligations with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceeding. In the event of such default, we could incur significant losses, which could adversely impact our business, results of operations, or financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Boise, Idaho. The following is a summary of our principal facilities as of August 30, 2012:September 3, 2015:
|
| | |
| Location | | Principal Operations |
| Boise, Idaho | | R&D, including wafer fabrication; reticle manufacturing; test and module assembly |
| Lehi, Utah | | Wafer fabrication |
| Manassas, Virginia | | Wafer fabrication |
| Singapore | | Three wafer fabrication facilities and a test, assembly and module assembly facility |
Avezzano, Italy | | Wafer fabrication |
Aguadilla, Puerto Rico | | Module assembly and test |
| Xi’an, China | | Module assembly and test |
Kiryat Gat, Israel | | Wafer fabrication |
| Muar, Malaysia | | Assembly and test |
Agrate, ItalyTaichung City, Taiwan | | Wafer fabrication |
| Hiroshima, Japan | | Wafer fabrication and R&D including wafer fabrication |
| Akita, Japan | | Module assembly and test |
Substantially all of the capacity of the facilities listed above is fully utilized. Our Inotera joint venture has a 300mm wafer fabrication facility in Kueishan, Taiwan. Under our supply agreement with Inotera, we purchase all of the output of Inotera. We also own and lease a number of other facilities in locations throughout the world that are used for design, research and development,R&D, and sales and marketing activities.
Our facility in Lehi is owned and operated by our IMFT joint venture with Intel. (See "Item"Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable Interest EntitiesEquity – IM Flash" note.Noncontrolling Interests in Subsidiaries – IMFT.")
In December 2014, we announced plans to add approximately 255,000 square feet of clean room space to our fabrication facility in Singapore to implement 3D NAND Flash production. Construction of the additional space began in 2015 with initial manufacturing output likely in 2017.
We believe that our existing facilities are suitable and adequate for our present purposes. We do not identify or allocate assets by operating segment. (See "Item"Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information" note.Information.")
ITEM 3. LEGAL PROCEEDINGS
Patent Matters
Reorganization Proceedings of the MMJ Companies
On July 31, 2013, we completed the acquisition of Elpida, now known as MMJ, a Japanese corporation, pursuant to the terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that we entered into on July 2, 2012 with the trustees of the MMJ Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan.
The MMJ Companies filed petitions for commencement of corporate reorganization proceedings with the Japan Court under the Corporate Reorganization Act of Japan on February 27, 2012, and the Japan Court issued an order to commence the reorganization proceedings (the "Japan Proceedings") on March 23, 2012. On July 2, 2012, we entered into the Sponsor Agreement with the legal trustees of the MMJ Companies and the Japan Court approved the Sponsor Agreement. Under the Sponsor Agreement, we agreed to provide certain support for the reorganization of the MMJ Companies and the trustees agreed to prepare and seek approval from the Japan Court and the MMJ Companies' creditors of plans of reorganization consistent with such support.
The trustees initially submitted the proposed plans of reorganization for the MMJ Companies to the Japan Court on August 21, 2012 and submitted final proposed plans on October 29, 2012. On October 31, 2012, the Japan Court approved submission of the trustees' proposed plans of reorganization to creditors for approval. On February 26, 2013, the MMJ Companies' creditors approved the reorganization plans and on February 28, 2000, we2013, the Japan Court issued an order approving the plans of reorganization. Appeals filed by certain creditors of MMJ in Japan challenging the plan approval order issued by the Japan Court were denied.
In a related action, MMJ filed a complaint against RambusVerified Petition for Recognition and Chapter 15 Relief in the U.S. DistrictUnited States Bankruptcy Court for the District of Delaware seeking declaratory(the "U.S. Court") on March 19, 2012 and, injunctive relief. Among other things, our 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 (1) that we did not infringe on certain of Rambus' patents or that such patents are invalid and/or are unenforceable, (2) that we have an implied license to those patents, and (3) that Rambus is estopped from enforcing those patents against us. On February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying that we are entitled to relief, alleging infringement of the eight Rambus patents (later amended to add four additional patents) named in our declaratory judgment claim, and seeking monetary damages and injunctive relief. In the Delaware action, we subsequently added claims and defenses based on Rambus' 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. On January 9, 2009, Judge Robinson entered an opinion in our favor holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the decision toApril 24, 2012, the U.S. Court of Appeals for the Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for further analysis of the appropriate remedy. On January 13, 2006, Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California. Rambus allegesentered an order that, certain of our DDR2, DDR3, RLDRAM, and RLDRAM II products infringe as many as fourteen 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, antitrustrecognized MMJ's corporate reorganization proceeding as a foreign main proceeding pursuant to 11 U.S.C. § 1517(b). On June 25, 2013, the U.S. Court issued a recognition order, which recognized the order of the Japan Court approving MMJ's plan of reorganization. On November 19, 2013, the U.S. Court closed the U.S. Chapter 15 proceeding.
The plans of reorganization provide for payments by the MMJ Companies to their secured and fraudunsecured creditors in an aggregate amount of 200 billion yen, less certain expenses of the reorganization proceedings and certain other items. The plans of reorganization also provided for the investment by us pursuant to the Sponsor Agreement of 60 billion yen ($615 million) paid at closing in cash into MMJ in exchange for 100% ownership of MMJ's equity and the use of such investment to fund the initial installment payment by the MMJ Companies to their creditors of 60 billion yen, subject to reduction for certain items specified in the Sponsor Agreement and plans of reorganization.
Under MMJ's plan of reorganization, secured creditors will recover 100% of the amount of their fixed claims and unsecured creditors will recover at least 17.4% of the amount of their fixed claims. The Northern Districtactual recovery of California Court stayedunsecured creditors will be higher, however, based, in part, on events and circumstances occurring following the trialplan approval. The remaining portion of the patent phaseunsecured claims will be discharged, without payment, over the period that payments are made pursuant to the plans of reorganization. The secured creditors will be paid in full on or before the sixth installment payment date, while the unsecured creditors will be paid in seven installments. MAI's plan of reorganization provides that secured creditors will recover 100% of the Northern Districtamount of California case upon appealtheir claims, whereas unsecured creditors will recover 19% of the Delaware spoliation issue toamount of their claims. The secured creditors of MAI were paid in full on the Federal Circuit.first installment payment date, while the unsecured creditors will be paid in seven installments.
ABecause the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of the MMJ acquisition, the Japan Proceedings are continuing and the MMJ Companies remain subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee makes decisions in relation to the operation of the businesses of the MMJ Companies, other than decisions in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. The Japan Proceedings and oversight of the Japan Court will continue until the final creditor payment is made under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. The MMJ Companies may petition the Japan Court for an early termination of the Japan Proceedings once two-thirds of all payments under the plans of reorganization are made. Although such early terminations are customarily granted, there can be no assurance that the Japan Court will grant any such petition in these particular cases.
During the pendency of the Japan Proceedings, the MMJ Companies are obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of other suits involving Rambus are currently pending in Europe allegingsignificant actions relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that certainwould likely have a material impact on the operations or assets of the MMJ Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of the plans of reorganization of the MMJ Companies. Accordingly, during the pendency of the Japan Proceedings, our ability to effectively integrate the MMJ Companies as part of our SDRAM and DDR SDRAM products infringeglobal operations or to cause the MMJ Companies to take certain actions that we deem advisable for their businesses could be adversely affected if the Japan Court or the legal trustee is unwilling to consent to various of Rambus' country counterpartsactions that we may wish to its European patent 525 068, including: on September 1, 2000, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against us and Reptronic (a distributor of our products) in the Court of First Instance of Paris, France; on September 29, 2000, we filed suit against Rambus in the Civil Court of Milan, Italy, alleging invalidity and non-infringement. In addition, on December 29, 2000, we filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging invalidity and non-infringement of the Italian counterpart to European patent 1 004 956. Additionally, on August 14, 2001, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany alleging that certain of our DDR SDRAM products infringe Rambus' country counterparts to its European patent 1 022 642. In the European suits against us, Rambus is seeking monetary damages and injunctive relief. Subsequent to the filing of the various European suits, the European Patent Office (the "EPO") declared Rambus' 525 068, 1 022 642, and 1 004 956 European patents invalid and revoked the patents. The declaration of invaliditytake with respect to the '068 and '642 patents 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.MMJ Companies.
On March 6, 2009, Panavision Imaging, LLC ("Panavision") filed suit against us and Aptina Imaging Corporation, thenFor a wholly-owned subsidiary, in the U.S. District Court for the Central District of California. The complaint alleged that certain of our and Aptina's image sensor products infringed four Panavision U.S. patents and sought injunctive relief, damages, attorneys' fees, and costs. On February 7, 2011, the Court ruled that one of the four patents in suit was invalid for indefiniteness. On March 10, 2011, claims relating to the remaining three patents in suit were dismissed with prejudice. Panavision subsequently filed a motion for reconsideration of the Court's decision regarding invalidity of the first patent, and we filed a motion for summary judgment of non-infringement of such patent. On July 8, 2011, the Court issued an order that rescinded its prior indefiniteness decision, and held that the disputed term does not render the claims in suit indefinite. On February 3, 2012, the Court granted our motion for summary judgment of non-infringement. On March 20, 2012, we executed a settlement agreement with Panavision pursuant to which the parties agreed to a settlement and release of all claims and a dismissal with prejudice of the litigation, which did not have a material effect on our business, results of operations or financial condition.
On September 1, 2011, HSM Portfolio LLC and Technology Properties Limited LLC filed a patent infringement action in the U.S. District Court for the District of Delaware against us and seventeen other defendants. The complaint alleges that certain of our DRAM and image sensor products infringe two U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On September 9, 2011, Advanced Data Access LLC filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Tyler) against us and seven other defendants. On November 16, 2011, Advanced Data Access filed an amended complaint. The amended complaint alleges that certain of our DRAM products infringe two U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On September 14, 2011, Smart Memory Solutions LLC filed a patent infringement action in the U.S. District Court for the District of Delaware against us and Winbond Electronics Corporation of America. The complaint alleges that certain of our NOR Flash products infringe a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs.
On December 5, 2011, the Board of Trustees for the University of Illinois filed a patent infringement action against us in the U.S. District Court for the Central District of Illinois. The complaint alleges that unspecified semiconductor products of ours infringe three U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On March 26, 2012, Semiconductor Technologies, LLC filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Marshall) against us. The complaint alleges that certain of our DRAM products infringe five U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On March 28, 2012, Technology Partners Limited LLC (“TPL”) filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Tyler) against us. The complaint alleges that certain of our Lexar flash card readers infringe four U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs. On March 26, 2012, TPL filed a parallel complaint with the U.S. International Trade Commission under Section 337 of the Tariff Act of 1930 against us and numerous other companies alleging infringement of the same patents and seeking an exclusion order preventing the importation of certain flash card readers. The District Court action has been stayed pending the outcome of the ITC matter. The ITC matter was scheduled for trial on January 7, 2013. On October 8, 2012, we executed a settlement agreement with TPL pursuant to which the parties agreed to a settlement and release of all claims and a dismissal with prejudice of the litigation, which did not have a material effect on our business, results of operations or financial condition.
On April 17, 2012, Anu IP, LLC (“Anu”) filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Marshall) against us. The complaint alleges that certain of our Lexar USB drives infringe one U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. On April 18, 2012, Anu filed a parallel complaint with the U.S. International Trade Commission under Section 337 of the Tariff Act of 1930 against us and numerous other companies alleging infringement of the same patent and another related patent and seeking an exclusion order preventing the importation of certain USB drives. The District Court action has been stayed pending the outcome of the ITC matter. On August 27, 2012, we executed a settlement agreement with Anu pursuant to which the parties agreed to a settlement and release of all claims and a dismissal with prejudice of the litigation, which did not have a material effect on our business, results of operations or financial condition.
On April 27, 2012, Semcon Tech, LLC filed a patent infringement action against us in the U.S. District Court for the District of Delaware. The complaint alleges that our use of a Reflexion CMP polishing system purchased from Applied Materials infringes a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs.
We are unable to predict the outcome of these suits, except as noted in the discussion of the Panavision, TPLother legal proceedings, see "Part II Financial Information – Item 8. Financial Statements and Anu matters above. A court determination that our products or manufacturing processes infringe the product or process intellectual property rights of others could result in significant liability and/or require usSupplementary Data – Notes 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.
Antitrust Matters
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against usConsolidated Financial Statements – Contingencies" and other DRAM suppliers which alleged that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus' complaint alleged various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus sought a judgment for damages of approximately $3.9 billion, joint and several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the jury on September 21, 2011. On November 16, 2011, the jury found for us on all claims. On April 2, 2012, Rambus filed a notice of appeal to the California 1st District Court of Appeal.
A number of purported class action price-fixing lawsuits have been filed against us and other DRAM suppliers. Four cases have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class of individuals and entities that indirectly purchased DRAM and/or products containing DRAM from various DRAM suppliers during the time period from April 1, 1999 through at least June 30, 2002. The complaints allege a conspiracy to increase DRAM prices in violation of federal and state antitrust laws and state unfair competition law, and/or unjust enrichment relating to the sale and pricing of DRAM products. The complaints seek joint and several damages, trebled, 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. In July 2006, the Attorneys General for approximately forty U.S. states and territories filed suit in the U.S. District Court for the Northern District of California. The complaints allege, among other things, violations of the Sherman Act, Cartwright Act, and certain other states' consumer protection and antitrust laws and seek joint and several damages, trebled, as well as 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. On June 23, 2010, we executed a settlement agreement resolving these purported class-action indirect purchaser cases and the pending cases of the Attorneys General relating to alleged DRAM price-fixing in the United States. Subject to certain conditions, including final court approval of the class settlements, we agreed to pay approximately $67 million in aggregate in three equal installments over a two-year period. As of August 30, 2012, we had paid $45 million into an escrow account in accordance with the settlement agreement.
Three putative class action lawsuits alleging price-fixing of DRAM products also have been filed against us in Quebec, Ontario, and British Columbia, Canada, on behalf of direct and indirect purchasers, asserting violations of the Canadian Competition Act and other common law claims (collectively the "Canadian Cases"). The claims were initiated between December 2004 (British Columbia) and June 2006 (Quebec). The plaintiffs seek monetary damages, restitution, costs, and attorneys' fees. The substantive allegations in these cases are similar to those asserted in the DRAM antitrust cases filed in the United States. Plaintiffs' motion for class certification was denied in the British Columbia and Quebec cases in May and June 2008, respectively. Plaintiffs subsequently filed an appeal of each of those decisions. On November 12, 2009, the British Columbia Court of Appeal reversed, and on November 16, 2011, the Quebec Court of Appeal also reversed the denial of class certification and remanded the cases for further proceedings. On October 16, 2012, we entered into a settlement agreement resolving these three putative class action cases subject to certain conditions including final court approval of the settlement. The settlement amount did not have a material effect on our business, results of operations or financial condition.
On June 21, 2010, the Brazil Secretariat of Economic Law of the Ministry of Justice ("SDE") announced that it had initiated an investigation relating to alleged anticompetitive activities within the DRAM industry. The SDE's Notice of Investigation names various DRAM manufacturers and certain executives, including us, and focuses on the period from July 1998 to June 2002.
On September 24, 2010, Oracle America Inc. ("Oracle"), successor to Sun Microsystems, a DRAM purchaser that opted-out of a direct purchaser class action suit that was settled, filed suit against us in U.S. District Court for the Northern District of California. The complaint alleged a conspiracy to increase DRAM prices and other violations of federal and state antitrust and unfair competition laws based on purported conduct for the period from August 1, 1998 through at least June 15, 2002. Oracle sought joint and several damages, trebled, as well as restitution, disgorgement, attorneys' fees, costs and injunctive relief. On March 23, 2012, we entered into a settlement agreement with Oracle pursuant to which we agreed to make a payment of $58 million to Oracle for a settlement and full release of all claims and a dismissal with prejudice of the litigation. The settlement amount was paid in May 2012.
We are unable to predict the outcome of these matters, except as noted in the U.S. indirect purchasers cases, the Canadian Cases and Oracle matter above. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.
Commercial Matters
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit against us and Micron Semiconductor B.V., our Netherlands subsidiary, in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between us and Qimonda signed in fall 2008 pursuant to which we purchased all of Qimonda's shares of Inotera Memories, Inc. and seeks an order requiring us to retransfer the Inotera shares purchased from Qimonda to the Qimonda estate. The complaint also seeks to terminate under Sections 103 or 133 of the German Insolvency Code a patent cross license between us and Qimonda entered into at the same time as the share purchase agreement. A three-judge panel will render a decision after a series of hearings with pleadings, arguments and witnesses. A first hearing was held on September 25, 2012. The next hearing is scheduled for February 5, 2013. We are unable to predict the outcome of this lawsuit and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera shares or equivalent monetary damages and the termination of the patent cross license, which could have a material adverse effect on our business, results of operation or financial condition. As of August 30, 2012, the Inotera shares purchased from Qimonda had a net carrying value of $177 million.
(See "Item 1A. Risk Factors.")
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol "MU" and traded under the same symbol on the New York Stock Exchange through December 29, 2009."MU." The following table represents the high and low closing sales prices for our common stock for each quarter of 20122015 and 2011,2014, as reported by Bloomberg L.P.:
| | | | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| 2012 | | | | | | | | | |
| 2015: | | | | | | | | | |
| High | | $ | 6.89 |
| | $ | 8.83 |
| | $ | 8.88 |
| | $ | 7.20 |
| | $ | 26.59 |
| | $ | 29.52 |
| | $ | 36.49 |
| | $ | 36.10 |
|
| Low | | 5.39 |
| | 5.63 |
| | 5.45 |
| | 4.33 |
| | 14.27 |
| | 26.31 |
| | 28.35 |
| | 27.03 |
|
| | | | | | | | | | | | | | | | | |
| 2011 | | |
| | |
| | |
| | |
| |
| 2014: | | | | | | | | | |
| High | | $ | 9.16 |
| | $ | 11.80 |
| | $ | 11.80 |
| | $ | 8.66 |
| | $ | 34.64 |
| | $ | 28.61 |
| | $ | 25.49 |
| | $ | 21.17 |
|
| Low | | 5.25 |
| | 9.41 |
| | 7.75 |
| | 6.51 |
| | 28.59 |
| | 21.13 |
| | 20.67 |
| | 13.57 |
|
Holders of Record
As of October 18, 2012,21, 2015, there were 2,7312,378 shareholders of record of our common stock.
Dividends
We have not declared or paid cash dividends since 1996 and do not intend to pay cash dividends for the foreseeable future.
As a result of the Japan Proceedings, for so long as such proceedings continue, the MMJ Group is subject to certain restrictions on dividends, loans, and advances. Our ability to access IMFT's cash and other assets through dividends, loans, or advances, including to finance our other operations, is subject to agreement by Intel.
Equity Compensation Plan Information
The information required by this item is incorporated by reference from the information to be set forth in Item 12 of this Annual Report on Form 10-K.our 2015 Proxy Statement under the section entitled "Equity Compensation Plan Information," which will be filed with the Securities and Exchange Commission within 120 days after September 3, 2015.
Issuer Sales of Unregistered Securities
On May 7, 2010, we issued an aggregate of 137.7 million unregistered shares of common stock (with a fair value of $1,091 million on the issuance date) to Intel Corporation, Intel Technology Asia Pte Ltd, STMicroelectronics N.V., Redwood Blocker S.a.r.l. and PK Flash, LLC as consideration for all the outstanding shares of Numonyx Holdings, B.V. Each recipient represented and warranted to us that it was an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act, was acquiring the shares for investment purposes and not with a view to re-distribution and had access to sufficient information concerning us. The shares we issued were exempt from registration under Section 4(2) of the Securities Act of 1933.
Issuer Purchases of Equity Securities
Since the first quarter of 2015, our Board of Directors authorized the repurchase of up to $1.25 billion of our common stock, $250 million of which was authorized in the first quarter of 2016. Any repurchases under the authorization may be made in open market purchases, block trades, privately negotiated transactions, and/or derivative transactions, subject to market conditions and our ongoing determination that it is the best use of available cash. During the fourth quarter of 2015, we purchased 35,495,175 shares of our common stock through open market transactions.
During the fourth quarter of 2015, we also received 2,685,482 shares of our common stock from the share settlement for a portion of our 2031 Capped Calls.
|
| | | | | | | | | | | | | | | | |
| Period | | (a) Total number of shares purchased | | (b) Average price paid per share(1) | | (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(2) |
| June 5, 2015 | – | July 9, 2015 | | 2,196,500 |
| | $ | 18.67 |
| | 2,196,500 |
| | $ | 766,818,080 |
|
| July 10, 2015 | – | August 6, 2015 | | 19,961,832 |
| | 18.21 |
| | 18,507,698 |
| | 430,818,357 |
|
| August 7, 2015 | – | September 3, 2015 | | 16,022,325 |
| | 17.69 |
| | 14,790,977 |
| | 169,836,046 |
|
| | | | | 38,180,657 |
| | 18.02 |
| | 35,495,175 |
| | |
(1)2012 Excludes commissions.
(2), Does not include $250 million repurchase authorization received in the first quarter of 2016.
In our consolidated financial statements, we acquired,also treat shares of common stock withheld as payment of withholding taxes or exercise prices in connection with the vesting or exercise of restrictedequity awards as common stock and restricted stock unit awards, 4,715repurchases. Those withheld shares of our common stock atare not considered common stock repurchases under an average price per share of $5.97. We retired these shares inauthorized common stock repurchase plan and accordingly are excluded from the fourth quarter of 2012.
|
| | | | | | | | | | | | | |
| Period | | (a) Total number of shares purchased | | (b) Average price paid per share | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs |
| | | | | | | | | | | |
| June 1, 2012 | - | July 5, 2012 | | — |
| | $ | — |
| | N/A | | N/A |
| July 6, 2012 | - | August 2, 2012 | | 4,715 |
| | 5.97 |
| | N/A | | N/A |
| August 3, 2012 | - | August 30, 2012 | | — |
| | — |
| | N/A | | N/A |
| | | | | 4,715 |
| | 5.97 |
| | | | |
Performance Graph
The following graph illustrates a five-year comparison of cumulative total returns for our common stock, the S&P 500 Composite Index, and the Philadelphia Semiconductor Index (SOX) from August 30, 2007,31, 2010, through August 30, 2012.
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.
31, 2015. We operate on a 52 or 53 week fiscal year which ends on the Thursday closest to August 31. Accordingly, the last day of our fiscal year varies. For consistent presentation and comparison to the industry indices shown herein, we have calculated our stock performance graph assuming an August 31 year end.
Note: Management cautions that the stock price performance information shown in the graph above is provided as of August 31 for the years presented and may not be indicative of current stock price levels or future stock price performance.
The performance graph above assumes $100 was invested on August 31, 20072010 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 were assumed to be reinvested. The performance was plotted using the following data:
| | | | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 |
| Micron Technology, Inc. | | $ | 100 |
| | $ | 37 |
| | $ | 64 |
| | $ | 56 |
| | $ | 52 |
| | $ | 54 |
| | $ | 100 |
| | $ | 92 |
| | $ | 96 |
| | $ | 210 |
| | $ | 505 |
| | $ | 254 |
|
| S&P 500 Composite Index | | 100 |
| | 89 |
| | 73 |
| | 76 |
| | 90 |
| | 107 |
| | 100 |
| | 119 |
| | 140 |
| | 166 |
| | 208 |
| | 209 |
|
| Philadelphia Semiconductor Index (SOX) | | 100 |
| | 72 |
| | 63 |
| | 65 |
| | 76 |
| | 86 |
| | 100 |
| | 117 |
| | 132 |
| | 156 |
| | 223 |
| | 217 |
|
ITEM 6. SELECTED FINANCIAL DATA
| | | | | | | | | | | | | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | | | | | | | | | |
| | | (in millions) | | (in millions except per share amounts) |
| Net sales | | $ | 8,234 |
| | $ | 8,788 |
| | $ | 8,482 |
| | $ | 4,803 |
| | $ | 5,841 |
| | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 8,234 |
| | $ | 8,788 |
|
| Gross margin | | 968 |
| | 1,758 |
| | 2,714 |
| | (440 | ) | | (55 | ) | | 5,215 |
| | 5,437 |
| | 1,847 |
| | 968 |
| | 1,758 |
|
| Operating income (loss) | | (618 | ) | | 755 |
| | 1,589 |
| | (1,676 | ) | | (1,595 | ) | | 2,998 |
| | 3,087 |
| | 236 |
| | (612 | ) | | 761 |
|
| Net income (loss) | | (1,031 | ) | | 190 |
| | 1,900 |
| | (1,993 | ) | | (1,665 | ) | | 2,899 |
| | 3,079 |
| | 1,194 |
| | (1,031 | ) | | 190 |
|
| Net income (loss) attributable to Micron | | (1,032 | ) | | 167 |
| | 1,850 |
| | (1,882 | ) | | (1,655 | ) | | 2,899 |
| | 3,045 |
| | 1,190 |
| | (1,032 | ) | | 167 |
|
| Diluted earnings (loss) per share | | (1.04 | ) | | 0.17 |
| | 1.85 |
| | (2.35 | ) | | (2.14 | ) | | 2.47 |
| | 2.54 |
| | 1.13 |
| | (1.04 | ) | | 0.17 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Cash and short-term investments | | 2,559 |
| | 2,160 |
| | 2,913 |
| | 1,485 |
| | 1,362 |
| | 3,521 |
| | 4,534 |
| | 3,101 |
| | 2,559 |
| | 2,160 |
|
| Total current assets | | 5,758 |
| | 5,832 |
| | 6,333 |
| | 3,344 |
| | 3,779 |
| | 8,596 |
| | 10,245 |
| | 8,911 |
| | 5,758 |
| | 5,832 |
|
| Property, plant and equipment, net | | 7,103 |
| | 7,555 |
| | 6,601 |
| | 7,089 |
| | 8,819 |
| | 10,554 |
| | 8,682 |
| | 7,626 |
| | 7,103 |
| | 7,555 |
|
| Total assets | | 14,328 |
| | 14,752 |
| | 14,693 |
| | 11,459 |
| | 13,432 |
| | 24,143 |
| | 22,416 |
| | 19,068 |
| | 14,295 |
| | 14,730 |
|
| Total current liabilities | | 2,243 |
| | 2,480 |
| | 2,702 |
| | 1,892 |
| | 1,598 |
| | 3,905 |
| | 4,791 |
| | 4,122 |
| | 2,243 |
| | 2,480 |
|
| Long-term debt | | 3,038 |
| | 1,861 |
| | 1,648 |
| | 2,379 |
| | 2,106 |
| | 6,252 |
| | 4,893 |
| | 4,406 |
| | 3,005 |
| | 1,839 |
|
| Redeemable convertible notes | | | 49 |
| | 68 |
| | — |
| | — |
| | — |
|
| Total Micron shareholders’ equity | | 7,700 |
| | 8,470 |
| | 8,020 |
| | 4,953 |
| | 6,525 |
| | 12,302 |
| | 10,760 |
| | 9,142 |
| | 7,700 |
| | 8,470 |
|
| Noncontrolling interests in subsidiaries | | 717 |
| | 1,382 |
| | 1,796 |
| | 1,986 |
| | 2,865 |
| | 937 |
| | 802 |
| | 864 |
| | 717 |
| | 1,382 |
|
| Total equity | | 8,417 |
| | 9,852 |
| | 9,816 |
| | 6,939 |
| | 9,390 |
| | 13,239 |
| | 11,562 |
| | 10,006 |
| | 8,417 |
| | 9,852 |
|
On July 31, 2013, we completed the MMJ Acquisition, in which we acquired Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT. The MMJ Group's products include mobile DRAM targeted to mobile phones and tablets and computing DRAM targeted to desktop PCs, servers, notebooks, and workstations. The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan, and an assembly and test facility located in Akita, Japan. In connection with the MMJ Acquisition, we recorded net assets of $2.60 billion, noncontrolling interests of $168 million, and a gain on the transaction of $1.48 billion in 2013. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc.")
We partneredentered into a joint venture relationship with Intel to form IMFT in 2006 and IMFSIM Flash Singapore, LLP ("IMFS") in 2007 (collectively "IM Flash") to manufacture NAND Flash memory products for the exclusive use of the members. We have owned 51% of IMFT from inception through August 30, 2012September 3, 2015. Our ownership percentage of IMFS had increased from 51% at inception to 82% as of April 6, 2012 due to our making a series of contributions by us that were not fully matched by Intel. On April 6, 2012, we entered into a series of agreements with Intel to restructure IM Flash. WeIMFT and IMFS, in which we acquired Intel's remaining 18% interest in IMFS for $466 million. In addition, we acquired IMFT's assets located at our Virginia wafer fabrication facility, for which Intel received a distribution from IMFT of $139 million. For both transactions, the amounts Intel received approximated the book values of Intel's interests in the assets acquired. We consolidate IM FlashIMFT (and IMFS through April 6, 2012) and report Intel's ownership interests as noncontrolling interests in subsidiaries. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Consolidated Variable Interest EntitiesEquity – IM Flash" note.Noncontrolling Interests in Subsidiaries – IMFT.")
On May 7, 2010, we acquired Numonyx Holdings B.V. ("Numonyx"), which manufactured and sold primarily NOR Flash and NAND Flash memory products. The total fair value of the consideration paid for Numonyx was $1,112 million and consisted of 137.7 million shares of our common stock issued to the Numonyx shareholders and 4.8 million restricted stock units issued to employees of Numonyx. In connection with the acquisition, we recorded net assets of $1,549 million. Because the fair value of the net assets acquired exceeded the purchase price, we recognized a gain on the acquisition of $437 million in 2010. In addition, we recognized a $51 million income tax benefit in connection with the acquisition. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Numonyx" note.)
In the first quarter of 2009, we acquired a noncontrolling interest in Inotera, a publicly-traded DRAM manufacturer in Taiwan. In connection therewith, we entered into a supply agreement with Inotera to purchase 50% of Inotera’s wafer production capacity and substantially began purchasing product in the fourth quarter of 2009. As of August 30, 2012, our ownership interest was 39.7%. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Inotera" note.)
In 2008 through the 2011, we acquired in a series of transactions the noncontrolling interests in TECH Semiconductor Singapore Pte. Ltd. ("TECH"). (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – TECH Semiconductor Singapore Pte. Ltd.")
(See "Item 1A. Risk Factors" and "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements.")
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein, "we," "our," "us" and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise.
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 timing of the close of the Elpida transactions and expectations related to Elpida's future cash flows; "Operating Results by Business Segment" regarding growth in NAND Flash production for 2013; in "Operating Results by Product" regarding our share of future output from Inotera; in "Selling, General and Administrative" regarding SG&A costs for the first quarter of 2013; in "Research and Development" regarding R&D costs for the first quarter of 2013; and in "Liquidity and Capital Resources" regarding our pursuit of additional financing and debt restructuring, regarding capital spending in 2016, regarding the expansion of our clean room space in Singapore, regarding the sufficiency of our cash and investments, cash flows from operations, and available financing to meet our requirements for at least through 2013the next 12 months, and regarding our pursuit of additional financing, capital spending in 2013, the timing of payments for certain contractual obligationsobligations; and in "Recently Issued Accounting Standards" regarding the timingimpact of payments in connection with the Elpida transactions.adopting these new standards. Our actual results could differ materially from our 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"Part I, Item 1A. Risk Factors." This discussion should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and accompanying notes for the year ended August 30, 2012.September 3, 2015. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 3131. Our fiscal 2015 contains 53 weeks and our fiscal 2014 and fiscal 2012, 2011 and 20102013 each contained 52 weeks. All production data includes the production of our consolidated joint venturesIMFT and our other partnering arrangements.Inotera. All tabular dollar amounts are in millions.millions except per share amounts.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Overview: HighlightsOverview of key transactionsour operations and events.business.
Results of Operations: An analysis of our financial results consisting of the following:
| |
| ◦ | Operating results by business segment; |
| |
| ◦ | Operating results by product; and |
| |
| ◦ | Operating expenses and other. |
Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and potential sources of liquidity.
Off-Balance Sheet Arrangements: Description of off-balance sheet arrangements.
Critical Accounting Estimates: Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. Also includes changes in accounting standards.
Recently Adopted and Issued Accounting Standards
Overview
For an overview of our business, see "Item 1"Part I – Item 1. – Business – Overview." Our results of operations for 2012 were impacted by the following key transactions and events.
IM Flash Joint Ventures
On April 6, 2012, we entered into a series of agreements with Intel to restructure IM Flash. We acquired Intel's remaining 18% interest in IMFS for $466 million. In addition, we acquired IMFT's assets located at our Virginia wafer fabrication facility, for which Intel received a distribution from IMFT of $139 million. For both transactions, the amounts Intel received approximated the book values of Intel's interests in the assets acquired. Additionally, we received a $300 million deposit from Intel which will be applied to Intel's future purchases of NAND Flash under a supply agreement or, under certain circumstances, refunded.
The agreements also provided for the following:
expansion of the scope of the IMFT joint venture to include certain emerging memory technologies;
supply of NAND Flash memory products and certain emerging memory products to Intel on a cost-plus basis and termination of IMFS's supply agreement with us and Intel;
extension of IMFT's joint venture agreement through 2024;
certain buy-sell rights, commencing in 2015, pursuant to which Intel may elect to sell to us, or we may elect to purchase from Intel, Intel’s interest in IMFT (if Intel so elects, we would set the closing date of the transaction within two years following such election and could elect to receive financing from Intel for one to two years);
financing of $65 million provided by Intel to us under a two-year senior unsecured promissory note, payable with interest in approximately equal quarterly installments; and
termination of IMFT's lease to use approximately 50% of our Virginia fabrication facility.
We and Intel continue to share output of IMFT and certain research and development costs generally in proportion to our investments in IMFT, which was 51% Micron and 49% Intel as of August 30, 2012.
Elpida Memory, Inc.
Elpida Sponsor Agreement
On July 2, 2012, we entered into a sponsor agreement (the "Sponsor Agreement") with the trustees of Elpida Memory, Inc. (“Elpida”) and Elpida's wholly-owned subsidiary, Akita Elpida Memory, Inc. (“Akita”) (Elpida and Akita, collectively, the “Elpida Companies”). The Elpida Companies filed petitions for corporate reorganization proceedings with the Tokyo District Court under the Corporate Reorganization Act of Japan on February 27, 2012.
Under the Sponsor Agreement, we committed to support plans of reorganization for the Elpida Companies that would provide for payments to the secured and unsecured creditors of the Elpida Companies in an aggregate amount of 200 billion yen (or approximately $2.5 billion), less certain expenses of the reorganization proceedings and certain other items. As a condition of the Sponsor Agreement, we deposited 1.8 billion yen (or approximately $23 million) into an escrow account which will be applied to the share acquisition payments at closing. Of the aggregate amount, we will fund 60 billion yen (or approximately $750 million) through a cash payment to Elpida at the closing, in exchange for 100% ownership of Elpida's equity. The remaining 140 billion yen (or approximately $1.75 billion) of payments will be made by the Elpida Companies (using cash flows expected to be generated from our payment for foundry services provided by Elpida, as our subsidiary) in six annual installments payable at the end of each calendar year beginning in 2014, with payments of 20 billion yen (or approximately $250 million) in each of 2014 through 2017, and payments of 30 billion yen (or approximately $375 million) in each of 2018 and 2019.
We have agreed to provide additional support to Elpida, which may include a payment guarantee under certain circumstances, to facilitate its continued access to debtor-in-possession financing of up to 16 billion yen (or approximately $200 million) from third-party finance sources through the closing of the Elpida share purchase, and to use reasonable efforts to assist Elpida in obtaining up to 5 billion yen (or approximately $63 million) of continued debtor-in-possession financing from third parties for up to two months following the closing. In addition, we have agreed to use reasonable efforts to assist the Elpida Companies in financing up to 64 billion yen (or approximately $800 million) of capital expenditures through June 30, 2014, including up to 40 billion yen (or approximately $500 million) prior to June 30, 2013, either by providing a payment guarantee under certain circumstances, or by providing such financing directly.
Under applicable Japanese law, following the closing of the transaction, because a portion of the payments to creditors will be satisfied through the installment payments described above, the operation of the businesses of the Elpida Companies will remain subject to the oversight of the court in charge of the reorganization proceedings and of the trustees (including a trustee nominated by us upon the closing of the transaction).
The Sponsor Agreement contains certain termination rights, including our right to terminate the Sponsor Agreement if a change, taken together with all other changes, occurs that is or would reasonably be expected to be materially adverse to (i) the business, assets, etc. of Elpida and its subsidiaries, taken as a whole, or to the business, assets, etc. taken as a whole of Rexchip Electronics Corporation ("Rexchip"), a Taiwanese corporation formed as a manufacturing joint venture by Elpida and Powerchip Technology Corporation ("Powerchip"), a Taiwanese corporation; or (ii) our ability to operate Elpida's business immediately following closing in substantially the same manner as conducted by Elpida as of July 2, 2012. Elpida currently owns, directly and indirectly through a subsidiary, approximately 65% of Rexchip's outstanding common stock.
The trustees of the Elpida Companies submitted plans of reorganization to the court on August 21, 2012, which plans are subject to court and creditor approval under applicable Japanese law. The Sponsor Agreement provides that the plans of reorganization submitted by the trustees are to contain terms consistent with the provisions of the Sponsor Agreement.
Certain creditors of Elpida are challenging the proposed plan of reorganization submitted by the trustees and have proposed an alternative plan of reorganization. An examiner appointed by the court has reviewed both plans and is currently expected to make a recommendation to the court, on or about October 29, 2012, regarding whether to submit one or both plans of reorganization to creditors for approval.
The consummation of the Sponsor Agreement is subject to various closing conditions, including but not limited to approval by the Tokyo District Court, requisite creditor approval, receipt of approvals in bankruptcy proceedings in other jurisdictions and receipt of regulatory approvals, including the People's Republic of China. The transaction is currently anticipated to close in the first half of calendar 2013.
Rexchip Share Purchase Agreement
On July 2, 2012, we entered into a Share Purchase Agreement with Powerchip and certain of its affiliates (the "Rexchip Share Purchase Agreement"), under which we agreed to purchase approximately 714 million shares of Rexchip common stock, which represents approximately 24% of Rexchip's outstanding common stock, for approximately 10 billion New Taiwan dollars (or approximately $334 million). The consummation of this Rexchip Share Purchase Agreement is subject to various closing conditions, including the closing of the transactions contemplated by the Elpida Sponsor Agreement. At the closing of the Elpida Sponsor Agreement and the Rexchip share purchase agreement, our aggregate beneficial ownership interest in Rexchip will approximate 89%.
Currency Hedging
Elpida Hedges: On July 2, 2012, we executed a series of separate currency exchange transactions pursuant to which we purchased call options to buy 200 billion yen with a weighted-average strike price of 79.15 (yen per U.S. dollar). In addition, to reduce the cost of these call options, we sold put options to sell 100 billion yen with a strike price of 83.32 and we sold call options to buy 100 billion yen with a strike price of 75.57. The net cost of these call and put options, which expire on April 3, 2013, of $49 million is payable upon settlement. These currency options mitigate the risk of a strengthening yen for our yen-denominated payments under the sponsor agreement while preserving some ability for us to benefit if the value of the yen weakens relative to the U.S. dollar. These option contracts were not designated for hedge accounting and are remeasured at fair value each period with gains and losses reflected in our results of operations.
Rexchip Hedges: On July 25, 2012, we executed a series of separate currency exchange transactions pursuant to which we purchased call options to buy 10 billion New Taiwan dollars with a weighted-average strike price of 29.21 (New Taiwan dollar per U.S. dollar). The cost of these options, which expire on April 2, 2013, of $3 million is payable upon settlement. These currency options mitigate the risk of a strengthening New Taiwan dollar for our payments under the Rexchip share purchase agreement. These option contracts were not designated for hedge accounting and are remeasured at fair value each period with gains and losses reflected in our results of operations.
Results of Operations
Consolidated Results
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Net sales | | $ | 8,234 |
| | 100 | % | | $ | 8,788 |
| | 100 | % | | $ | 8,482 |
| | 100 | % | | $ | 16,192 |
| | 100 | % | | $ | 16,358 |
| | 100 | % | | $ | 9,073 |
| | 100 | % |
| Cost of goods sold | | 7,266 |
| | 88 | % | | 7,030 |
| | 80 | % | | 5,768 |
| | 68 | % | | 10,977 |
| | 68 | % | | 10,921 |
| | 67 | % | | 7,226 |
| | 80 | % |
| Gross margin | | 968 |
| | 12 | % | | 1,758 |
| | 20 | % | | 2,714 |
| | 32 | % | | 5,215 |
| | 32 | % | | 5,437 |
| | 33 | % | | 1,847 |
| | 20 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| SG&A | | 620 |
| | 8 | % | | 592 |
| | 7 | % | | 528 |
| | 6 | % | |
| R&D | | 918 |
| | 11 | % | | 791 |
| | 9 | % | | 624 |
| | 7 | % | |
| Selling, general and administrative | | | 719 |
| | 4 | % | | 707 |
| | 4 | % | | 562 |
| | 6 | % |
| Research and development | | | 1,540 |
| | 10 | % | | 1,371 |
| | 8 | % | | 931 |
| | 10 | % |
| Restructure and asset impairments | | | 3 |
| | — | % | | 40 |
| | — | % | | 126 |
| | 1 | % |
| Other operating (income) expense, net | | 48 |
| | 1 | % | | (380 | ) | | (4 | )% | | (27 | ) | | — | % | | (45 | ) | | — | % | | 232 |
| | 1 | % | | (8 | ) | | — | % |
| Operating income (loss) | | (618 | ) | | (8 | )% | | 755 |
| | 9 | % | | 1,589 |
| | 19 | % | |
| Operating income | | | 2,998 |
| | 19 | % | | 3,087 |
| | 19 | % | | 236 |
| | 3 | % |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | |
| Interest income (expense), net | | (171 | ) | | (2 | )% | | (101 | ) | | (1 | )% | | (160 | ) | | (2 | )% | | (336 | ) | | (2 | )% | | (329 | ) | | (2 | )% | | (217 | ) | | (2 | )% |
| Gain on acquisition of Numonyx | | — |
| | — | % | | — |
| | — | % | | 437 |
| | 5 | % | |
| Gain on MMJ Acquisition | | | — |
| | — | % | | (33 | ) | | — | % | | 1,484 |
| | 16 | % |
| Other non-operating income (expense), net | | 35 |
| | — | % | | (103 | ) | | (1 | )% | | 54 |
| | 1 | % | | (53 | ) | | — | % | | 8 |
| | — | % | | (218 | ) | | (2 | )% |
| Income tax (provision) benefit | | 17 |
| | — | % | | (203 | ) | | (2 | )% | | 19 |
| | — | % | | (157 | ) | | (1 | )% | | (128 | ) | | (1 | )% | | (8 | ) | | — | % |
| Equity in net loss of equity method investees | | (294 | ) | | (4 | )% | | (158 | ) | | (2 | )% | | (39 | ) | | — | % | |
| Equity in net income (loss) of equity method investees | | | 447 |
| | 3 | % | | 474 |
| | 3 | % | | (83 | ) | | (1 | )% |
| Net income attributable to noncontrolling interests | | (1 | ) | | — | % | | (23 | ) | | — | % | | (50 | ) | | (1 | )% | | — |
| | — | % | | (34 | ) | | — | % | | (4 | ) | | — | % |
| Net income (loss) attributable to Micron | | $ | (1,032 | ) | | (13 | )% | | $ | 167 |
| | 2 | % | | $ | 1,850 |
| | 22 | % | |
| Net income attributable to Micron | | | $ | 2,899 |
| | 18 | % | | $ | 3,045 |
| | 19 | % | | $ | 1,190 |
| | 13 | % |
Business Segments
We have the following four business units, which are our reportable segments:
OurCompute and Networking Business Unit ("CNBU"): Includes memory products sold into compute, networking, graphics, and cloud server markets.
Mobile Business Unit ("MBU"): Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"): Includes memory products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Embedded Business Unit ("EBU"): Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.
Acquisition of Micron Memory Japan, Inc.
On July 31, 2013, we completed the MMJ Acquisition, in which we acquired Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT. In 2014, we purchased additional interests in MMT, increasing our ownership interest to 99.5%. In connection with the MMJ Acquisition, we recorded net income (loss) attributableassets of $2.60 billion, noncontrolling interests of $168 million and a gain on the transaction of $1.48 billion in 2013. In the second quarter of 2014, the provisional amounts recorded in connection with the MMJ Acquisition were adjusted, primarily for pre-petition liabilities. As a result, other non-operating expense for 2014 included these measurement period adjustments of $33 million. (See "Item 8. Financial Statements – Notes to Consolidated Financial Statements – Micron shareholdersMemory Japan, Inc.")
The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan, and an assembly and test facility located in Akita, Japan. These wafer fabrication facilities together represented approximately 30% of our total wafer capacity for 2012 declined2015. The MMJ Group's products include mobile DRAM targeted to mobile phones and tablets, and computing DRAM targeted to desktop PCs, servers, notebooks, and workstations. The operations from 2011the MMJ Acquisition are included primarily in the MBU and CNBU segments.
Net Sales
|
| | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| CNBU | | $ | 6,725 |
| | 42 | % | | $ | 7,333 |
| | 45 | % | | $ | 3,462 |
| | 38 | % |
| MBU | | 3,692 |
| | 23 | % | | 3,627 |
| | 22 | % | | 1,214 |
| | 13 | % |
| SBU | | 3,687 |
| | 23 | % | | 3,480 |
| | 21 | % | | 2,824 |
| | 31 | % |
| EBU | | 1,999 |
| | 12 | % | | 1,774 |
| | 11 | % | | 1,275 |
| | 14 | % |
| All Other | | 89 |
| | 1 | % | | 144 |
| | 1 | % | | 298 |
| | 3 | % |
| | | $ | 16,192 |
| |
| | $ | 16,358 |
| |
|
| | $ | 9,073 |
| |
|
|
Percentages reflect rounding and may not total 100%.
Total net sales for 2015 decreased 1% as compared to 2014 primarily due to significant decreases in average selling prices for our principal products. Market selling prices for NAND Flash products declined for 2012 as compared to 2011 primarily due to large increases in supply from improvements in product and process technologies as well as expansions in production capacity which outpaced relatively healthy growth in demand. Market selling prices for DRAM products declined for 2012 as compared to 2011 primarily due to relatively low demand growth, particularly for high-volume DDR3 DRAM,lower CNBU sales as a result of weaknessdecreases in the personal computer market. Our improvements in product and process technologies in 2012 enabled significant increases inDRAM sales volumes that mitigated reductions in net sales from price declines. Our improvements in product and process technologies and our cost structure in 2012 produced cost reductions for NAND Flash products sold to trade customers and for DRAM products, partially offsetting the impact of theas declines in average selling prices on our operating margins. In 2011, we recognized gains of $275 million from a 10-year patent cross-license agreement with Samsung Electronics Co. Ltd. ("Samsung").
Net Sales
|
| | | | | | | | | | | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| NSG | | $ | 2,853 |
| | 35 | % | | $ | 2,196 |
| | 25 | % | | $ | 2,113 |
| | 25 | % |
| DSG | | 2,691 |
| | 33 | % | | 3,203 |
| | 36 | % | | 4,638 |
| | 55 | % |
| WSG | | 1,184 |
| | 14 | % | | 1,959 |
| | 22 | % | | 778 |
| | 9 | % |
| ESG | | 1,054 |
| | 13 | % | | 1,002 |
| | 11 | % | | 521 |
| | 6 | % |
| All Other | | 452 |
| | 5 | % | | 428 |
| | 6 | % | | 432 |
| | 5 | % |
| | | $ | 8,234 |
| | 100 | % | | $ | 8,788 |
| | 100 | % | | $ | 8,482 |
| | 100 | % |
Total netoutpaced increases in gigabit sales decreased 6%volumes. SBU and MBU sales for 20122015 increased as compared to 2011, reflecting declines in average selling prices across all reportable segments partially offset by increases in sales volumes. WSG sales decreased for 2012 as compared to 2011 primarily due to declines in average selling prices and in NOR Flash sales volumes,2014 as a result of weakness in market demand and our customer group in particular, as well as a continued transition by customers from NORhigher NAND Flash to NAND Flash. DSG sales decreased primarily due to lower average selling prices partially offset by increases in sales volumes. NSG and ESG sales increased due to increases in gigabit sales volumes partially offset by declines in average selling prices. EBU sales for 2015 increased as compared to 2014 due to higher sales volumes as a result of increases in market demand. The increases in gigabit sales volumes for 2015 were primarily attributable to higher manufacturing output due to improvements in product and process technologies.
Total net sales for 20112014 increased 4%80% as compared to 20102013 primarily due to higher CNBU and MBU sales resulting from the MMJ Acquisition. Net sales for all segments in 2014 also benefitted, as compared to 2013, from increases in WSGDRAM and ESGNAND Flash sales volumes driven primarily by higher manufacturing output as a result of the acquisitionimprovements in product and process technology and an increased share of Numonyx in May 2010. DSG sales for 2011 decreased 31% as compared to 2010 primarily due to declines in average selling prices mitigated by increases in gigabit sales. NSG sales for 2011 increased 4% as compared to 2010 primarily due to increases in gigabit sales partially offset by declines in average selling prices.output from Inotera.
Gross Margin
Our overall gross margin percentage declined to 32% for 2015 from 20%33% for 2011 to 12% for 20122014 primarily due to decreases in the gross margin percentage for DSG and WSG as a result of significant declines in average selling prices. Cost reductions from improvements in product and process technologies in 2012 mitigated the effect of significant declines in average selling prices partially offset by manufacturing cost reductions. CNBU and SBU experienced declines in gross margin percentage for 2015 as compared to 2014 as declines in average selling price outpaced manufacturing cost reductions. MBU's gross margin percentage for 2015 improved as compared to 2014 as manufacturing cost reductions outpaced declines in average selling prices.
Since January 2013, we have purchased all reportable operating segments. Costs of Inotera's DRAM output at prices reflecting discounts from market prices for our underutilizedcomparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity primarily associated with decreased productionwould decline over the wind-down period. In 2015 and 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our NOR Flash fabricationwholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. Under the rampmarket conditions prevailing in the fourth quarter of our IMFS NAND Flash fabrication facility,2015, costs of products purchased under the current agreement were $141 million, $133 millionhigher than they would have been under the pricing formula of the 2016 Supply Agreement. We purchased $2.37 billion, $2.68 billion, and $98 million for 2012, 2011$1.26 billion of DRAM products from Inotera in 2015, 2014, and 2010,2013, respectively.
Our overall gross margin percentage declinedimproved to 33% for 2014 from 32% for 2010 to 20% for 20112013 primarily due to a significant declineimprovements in the gross margin percentage for DSGCNBU and MBU as a result of the dramatic decreases in average selling prices mitigated by a reduction in costs per gigabit. Declines in the grosshigher margins of NSG, WSG and ESG, primarily due to decreases in average selling prices, also contributed to the overall decline infor DRAM products. The gross margin improvements for 2011CNBU and MBU for 2014 as compared to 2010. The impact of declines in2013 resulted primarily from the MMJ Acquisition, manufacturing cost reductions, and higher average selling prices for 2011 wasCNBU. Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process technologies and the comparatively lower manufacturing costs of the MMJ Group, partially offset by higher costs for product obtained under the Inotera supply agreement. For 2014 and the fourth quarter of 2013, our costs of goods sold for DRAM products included the sale of the MMJ Group's inventories recorded at fair value in the MMJ Acquisition, which was higher than the manufacturing cost reductions.of such inventories. This increased our costs of goods sold by approximately $153 million for 2014 and $41 million for 2013.
Operating Results by Business Segments
NAND Solutions Group ("NSG")CNBU
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Net sales | | $ | 2,853 |
| | $ | 2,196 |
| | $ | 2,113 |
| | $ | 6,725 |
| | $ | 7,333 |
| | $ | 3,462 |
|
| Operating income | | 198 |
| | 269 |
| | 240 |
| | 1,481 |
| | 1,957 |
| | 160 |
|
NSGCNBU sales and operating results track closely with ourare significantly impacted by average selling prices, gigabit sales volumes, and cost per gigabit of our DRAM products. (See "Operating Results by Product – DRAM" for further detail.) CNBU sales for 2015 decreased 8% as compared to 2014 primarily due to declines in average selling prices as a result of continued weakness in the PC sector, partially offset by increases in gigabits sold. CNBU operating income for 2015 declined from 2014 as decreases in average selling prices outpaced manufacturing cost reductions.
CNBU sales for 2014 increased 112% as compared to 2013 primarily due to (1) the MMJ Acquisition, (2) higher average selling prices, (3) increased DRAM supply from Inotera as a result of the restructuring of our consolidatedsupply agreement, and (4) higher output due to improvements in product and process technologies. CNBU sales for 2014 as compared to 2013 were adversely impacted by the transition of production at one of our Singapore wafer fabrication facilities from DRAM to NAND Flash. CNBU operating income for 2014 improved from 2013 primarily due to the MMJ Acquisition, higher average selling prices, and manufacturing cost reductions.
MBU
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Net sales | | $ | 3,692 |
| | $ | 3,627 |
| | $ | 1,214 |
|
| Operating income (loss) | | 1,126 |
| | 683 |
| | (265 | ) |
In 2015 and 2014, MBU sales were comprised primarily of DRAM, NAND Flash, and NOR Flash, in decreasing order of revenue, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for 2015 increased 2% as compared to 2014 primarily due to significant increases in gigabit sales volumes for managed NAND Flash and MCP products partially offset by lower sales of mobile DRAM products as a result of declines in average selling prices and sales volumes. MBU operating income for 2015 improved from 2014 as manufacturing cost reductions outpaced declines in average selling prices.
MBU sales for 2014 increased 199% as compared to 2013 primarily due to significant increases in mobile DRAM sales as a result of the MMJ Acquisition. MBU operating margin for 2014 also improved from 2013 primarily due to the MMJ Acquisition and manufacturing cost reductions, which significantly outpaced declines in average selling prices.
SBU
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Net sales | | $ | 3,687 |
| | $ | 3,480 |
| | $ | 2,824 |
|
| Operating income (loss) | | (89 | ) | | 255 |
| | 173 |
|
SBU sales and operating results are significantly impacted by average selling prices, gigabit sales volumes, and cost per gigabit of our NAND Flash products. (See "Operating Results by Product – NAND Flash"Non-Volatile Memory" for further detail.details.) NSGSBU sales for 20122015 increased 30%6% from 20112014 primarily due to increases in gigabits sold partially offset by declines in average selling prices. Increases in gigabits sold for 2012 were primarily due to the continued ramp of our new wafer fabrication facility in Singapore and from improvements in product and process technologies. NSGSBU sells a portion of its products to Intel through IM Flashour IMFT joint venture at long-term negotiated prices approximating cost. SBU sales of products to Intel under this arrangement were $420 million, $423 million, and $387 million for 2015, 2014, and 2013, respectively. All other NSGSBU products are sold to OEMs, resellers, retailers, and other customers (including Intel), which we collectively refer to as "trade customers."
SBU sales of NAND Flash products to trade customers for 2015 increased 50% for 20127% as compared to 20112014 primarily due to increases in gigabits sold partially offset by declines in average selling prices. Increases in gigabits sold for 2015 as compared to 2014 were primarily due to higher manufacturing output. SBU operating margin for 2015 declined from 2014 as decreases in average selling prices outpaced manufacturing cost reductions and R&D costs increased in connection with increased spending on controllers, firmware, and engineering for SSDs and managed NAND Flash products.
SBU sales for 2014 increased 23% from 2013 primarily due to increases in gigabits sold partially offset by declines in average selling prices. Increases in gigabits sold for 2014 were primarily due to the transition in 2014 of production at one of our wafer fabrication facilities in Singapore from DRAM to NAND Flash and improvements in product and process technologies. SBU sales of NAND Flash products to trade customers for 2014 increased 26% as compared to 2013 primarily due to an increase in gigabits sold partially offset by declines in average selling prices. NSGSBU operating income declinedfor 2014 improved from 2011 to 20122013 primarily due to decreases in average selling prices mitigated byhigher gigabit sales volumes as manufacturing cost reductions. Cost reductions resulted primarily from improvements in product and process technologies. NSG operating income for 2011 benefited from a $57 million gain from an allocated portion of the Samsung patent cross-license agreement.
NSG sales of NAND Flash products to trade customers for 2011 decreased 2% from 2010 primarily due to declines in average selling prices partiallywere essentially offset by increases in gigabits sold. NSG operating income for 2011 benefited from cost reductions and the $57 million gain from the license agreement with Samsung, which were partially offset by the declines in average selling prices.
The ramp of production at our new wafer fabrication facility in Singapore significantly increased our NAND Flash production in 2012 and 2011. Due to the completion of the first phase of the ramp, we expect slower growth in our NAND Flash production for 2013. Initially the new wafer fabrication facility in Singapore was operated under our IMFS joint venture with Intel and our share of the operating costs and supply of NAND Flash from IMFS was adjusted for changes in our ownership share in IMFS. Our share of IMFS output grew from 51% in the first quarter of 2011 to 78% in the second quarter of 2012. On April 6, 2012, we acquired Intel's remaining ownership interest in IMFS and the assets of IMFT located at our Virginia fabrication facility and terminated the IMFS supply agreement. Accordingly, we now obtain all of the NAND Flash output from our Singapore and Virginia wafer fabrication facilities.
On April 6, 2012, we also entered into a new supply agreement with Intel under which Intel purchases NAND Flash products from us on a cost-plus basis. Margins on products sold to Intel on a cost-plus basis were not significantly different than margins on sales for other trade customers for 2012. Aggregate NSG sales to Intel (including sales by IMFT at prices approximating cost and sales by us under the new cost-plus supply agreement) were $986 million for 2012, $884 million for 2011 and $764 million for 2010.
DRAM Solutions Group ("DSG")EBU
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Net sales | | $ | 2,691 |
| | $ | 3,203 |
| | $ | 4,638 |
|
| Operating income (loss) | | (500 | ) | | 290 |
| | 1,269 |
|
DSG sales and operating results track closely with our average selling prices, gigabit sales volumes and cost per gigabit for our consolidated sales of DRAM products. (See "Operating Results by Product – DRAM" for further detail.) DSG sales for 2012 decreased 16% as compared to 2011 primarily due to declines in average selling prices partially offset by increases in gigabits sold. DSG's operating margin declined from 2011 to 2012 due to decreases in average selling prices mitigated by cost reductions as a result of improved product and process technologies. DSG sales and operating margins for 2012 were adversely impacted by a $58 million charge for a settlement with a customer. In addition, DSG operating income for 2011 benefited from a $75 million gain from an allocated portion of the Samsung patent cross-license agreement.
The significant declines in DSG sales and margins for 2011 compared to 2010 was primarily attributable to a severe decrease in demand for PC DRAM, particularly for DDR3 DRAM, due to overall weakness in the PC market. Decreases in PC DRAM margins for 2011 were mitigated by the relatively higher margins in our server and other premium markets.
DSG operating income for 2011 benefited from the following items as compared to the corresponding periods of 2010:
lower SG&A costs primarily due to costs recognized in the third quarter of 2010 from the settlement of litigation in DRAM antitrust matters;
lower R&D costs primarily due to the DRAM R&D cost-sharing agreement with Nanya that commenced in the third quarter of 2010; and
the $75 million gain in 2011 from a license arrangement with Samsung.
Wireless Solutions Group ("WSG")
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Net sales | | $ | 1,184 |
| | $ | 1,959 |
| | $ | 778 |
| | $ | 1,999 |
| | $ | 1,774 |
| | $ | 1,275 |
|
| Operating income (loss) | | (370 | ) | | 20 |
| | (23 | ) | |
| Operating income | | | 435 |
| | 331 |
| | 227 |
|
In 2012, WSG2015 and 2014, EBU sales were comprised of NOR Flash, NAND Flash and DRAM in decreasing order of revenue. The 40% decrease in WSG sales for 2012 as compared to 2011 was primarily due to declines in sales of wireless NOR Flash products as a result of weakness in market demand and our customer group in particular, as well as a continued transition by customers to NAND Flash. WSG sales in 2012 were also adversely impacted by lower sales of NAND Flash products sold in multi-chip packages. The decline in WSG operating margin for 2012 was primarily due to the reductions in average selling prices and in NOR Flash sales volumes. In addition, WSG operating margin for 2011 benefited from a $95 million gain from an allocated portion of the Samsung patent cross-license agreement.
The 152% increase in WSG sales for 2011 as compared to 2010 was primarily due to the acquisition of Numonyx in May 2010. WSG experienced pricing pressure in 2011 due to weakness in demand from certain customers. During 2011 and 2010, a portion of the NAND Flash sold by WSG was obtained from Hynix at market prices and by the end of 2011, substantially all of this supply was obtained from lower-cost Micron production. The improvement in WSG operating margin for 2011 was primarily due to the $95 million gain from the license agreement with Samsung.
Embedded Solutions Group ("ESG")
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Net sales | | $ | 1,054 |
| | $ | 1,002 |
| | $ | 521 |
|
| Operating income | | 156 |
| | 237 |
| | 152 |
|
In 2012, ESG sales were comprised of NOR Flash, DRAM and NAND Flash in decreasing order of revenue. The 5% increase in ESG sales for 2012 as compared to 2011 was primarily due to increased sales volume of DRAM, NAND Flash, and NOR Flash in decreasing order of revenue. EBU sales for 2015 increased 13% as compared to 2014 primarily due to higher sales volumes of DRAM and NAND Flash products as ESG continueda result of increases in demand. EBU operating income for 2015 improved as compared to expand its customer base,2014 primarily due to the higher sales volumes.
EBU sales for 2014 increased 39% as compared to 2013 primarily due to increased sales volumes of DRAM and NAND Flash products partially offset by declines in average selling prices. ESGEBU operating income for 2012 declined2014 improved as compared to 2011 due to decreases in average selling prices and higher costs associated with underutilized capacity in our NOR Flash facilities. In addition, ESG operating margin for 2011 benefited from a $33 million gain from an allocated portion of the Samsung patent cross-license agreement.
The 92% increase in ESG sales for 2011 as compared to 2010 was2013 primarily due to the acquisitionhigher margins on sales of Numonyx in May 2010. Absent impacts from the Numonyx acquisition, ESG's performance in the automotive, industrialDRAM and networking markets was relatively stable from 2010 to 2011. In addition, during 2011 and 2010,NAND Flash products as a portionresult of the NAND Flash sold by ESG was obtained from Hynix at market prices and by the end of 2011, the majority of this supply was obtained from lower-cost Micron production. The increase in ESG's operating income for 2011 is primarily due to the acquisition of Numonyx. In addition, ESG operating income for 2011 benefited from the $33 million gain from the license agreement with Samsung.sales and cost reductions.
Operating Results by Product
Net Sales by Product
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| NAND Flash | | $ | 3,627 |
| | 44 | % | | $ | 3,193 |
| | 36 | % | | $ | 2,555 |
| | 30 | % | |
| DRAM | | 3,178 |
| | 39 | % | | 3,620 |
| | 41 | % | | 5,052 |
| | 60 | % | | $ | 10,339 |
| | 64 | % | | $ | 11,164 |
| | 68 | % | | $ | 4,361 |
| | 48 | % |
| NOR Flash | | 977 |
| | 12 | % | | 1,547 |
| | 18 | % | | 451 |
| | 5 | % | |
| Non-Volatile Memory | | | 5,274 |
| | 33 | % | | 4,468 |
| | 27 | % | | 3,589 |
| | 40 | % |
| Other | | 452 |
| | 5 | % | | 428 |
| | 5 | % | | 424 |
| | 5 | % | | 579 |
| | 4 | % | | 726 |
| | 4 | % | | 1,123 |
| | 12 | % |
| | | $ | 8,234 |
| | 100 | % | | $ | 8,788 |
| | 100 | % | | $ | 8,482 |
| | 100 | % | | $ | 16,192 |
| | | | $ | 16,358 |
| | | | $ | 9,073 |
| | |
Percentages reflect rounding and may not total 100%.
Non-Volatile Memory includes NAND Flash and 3D XPoint memory. Through 2015, substantially all of our Non-Volatile Memory sales were from NAND Flash products. Sales of NOR Flash products are included in Other. Information regarding our MCP products, which combine both NAND Flash and DRAM components, is reported within Non-Volatile Memory.
We sellDRAM
|
| | | | | | |
| For the year ended | | 2015 | | 2014 |
| | | | | |
| | | (percentage change from prior period) |
| Net sales | | (7 | )% | | 156 | % |
| Average selling prices per gigabit | | (11 | )% | | 6 | % |
| Gigabits sold | | 4 | % | | 142 | % |
| Cost per gigabit | | (12 | )% | | (20 | )% |
The increase in gigabit sales volumes of DRAM products for 2015 as compared to 2014 was primarily due to increases in gigabit production despite our continued preparation of fabrication facilities for production of the next technology node, which constrained output. DRAM gigabit production growth in 2015 was also impacted by a portionshift to a higher mix of mobile and DDR4 products, which have larger die sizes and therefore produce fewer bits per wafer. The increase in gigabit sales of DRAM products for 2014 as compared to 2013 was primarily due to higher production volumes resulting from the MMJ Acquisition, increased supply under the Inotera supply agreement, and improved product and process technologies, partially offset by the transition of one of our outputwafer fabrication facilities in Singapore from DRAM to NAND Flash. In 2014, DRAM products produced by facilities acquired in the MMJ Acquisition constituted 54% of our aggregate DRAM gigabit production as compared to 9% in 2013.
In 2015 and 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. Under the market conditions prevailing in the fourth quarter of 2015, costs of products purchased under the current agreement were higher than they would have been under the pricing formula of the 2016 Supply Agreement. DRAM products acquired from Inotera accounted for 35% of our aggregate DRAM gigabit production for 2015 as compared to 38% for 2014 and 54% for 2013.
Our gross margin percentage on sales of DRAM products for 2015 improved from 2014 as manufacturing cost reductions outpaced declines in average selling prices. Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process technologies and the comparatively lower manufacturing costs of the MMJ Group partially offset by higher costs for product obtained under the Inotera supply agreement and the sale of the MMJ Group's inventories recorded in the MMJ Acquisition.
Non-Volatile Memory
The following discussion focuses on sales of NAND Flash products which constituted substantially all of Non-Volatile Memory sales through 2015. This discussion of NAND Flash excludes NAND Flash products manufactured and sold to Intel through IM FlashIMFT at long-term negotiated prices approximating cost. (See "Operating Results by Business Segments – NAND Solutions Group" for further detail.) We sell the remainder of our NAND Flash products to trade customers.
| | | For the year ended | | 2012 | | 2011 | | 2015 | | 2014 |
| | | | | | |
| | | (percentage change from prior period) | | (percentage change from prior period) |
| Sales to trade customers: | | | | | | | | |
| Net sales | | 19 | % | | 31 | % | | 20 | % | | 27 | % |
| Average selling prices per gigabit | | (55 | )% | | (12 | )% | | (17 | )% | | (23 | )% |
| Gigabits sold | | 164 | % | | 50 | % | | 45 | % | | 65 | % |
| Cost per gigabit | | (54 | )% | | 2 | % | | (10 | )% | | (23 | )% |
The increase in NAND Flash gigabits sold to trade customers for 2015 as compared to 2014 was primarily due to higher production from improved product and process technologies and the transition of our wafer fabrication facility in Singapore from DRAM to NAND Flash production. Increases in gigabit production of NAND Flash products for 2015 as compared to 2014 were limited by a shift in product mix to higher levels of managed NAND Flash and MCP products, which have both higher average selling prices and costs per gigabit. Increases in NAND Flash gigabits sold to trade customers for 20122014 as compared to 2011 was2013 were primarily due to the ramptransition of the IMFSour wafer fabrication facility in Singapore from DRAM to NAND Flash production and improvedimprovements in product and process technologies. The new cost-plus supply agreement with Intel also contributed to the increase in gigabits sold to trade customers for 2012.
The gross margin percentage on sales of NAND Flash products to trade customers declined slightly from 2011 to 2012 primarily due to decreases in average selling prices mitigated by cost reductions.
DRAM
|
| | | | | | |
| For the year ended | | 2012 | | 2011 |
| | | (percentage change from prior period) |
| Net sales | | (12 | )% | | (28 | )% |
| Average selling prices per gigabit | | (45 | )% | | (39 | )% |
| Gigabits sold | | 59 | % | | 19 | % |
| Cost per gigabit | | (32 | )% | | (23 | )% |
The increase in gigabit sales of DRAM products for 2012 as compared to 2011 was primarily due to increased output obtained from our Inotera joint venture, the effects of a shift in mix to higher-density products and improved product and process technologies. The gross margin percentage on sales of DRAM products declined from 2011 to 2012 primarily due to the decreases in average selling prices mitigated by cost reductions. DRAM sales and gross margins for 2012 were adversely impacted by the effects of the $58 million charge to revenue in 2012 for a settlement with a customer.
We have the right and obligation to purchase 50% of Inotera's wafer production capacity under the Inotera Supply Agreement. As a result of our March 7, 2012 equity contribution to Inotera, we expect to receive a higher share of Inotera's 30-nanometer output when it becomes available as a result of Inotera capital investments enabled by this investment. DRAM products acquired from Inotera accounted for 46% of our DRAM gigabit production for 2012 as compared to 33% for 2011 and 23% for 2010. The higher level of production from Inotera was achieved through Inotera's continued transition to advanced product and process technologies. We primarily obtained DDR3 DRAM products for the PC market from Inotera in 2012 and 2011. Our cost of wafers purchased under the Inotera Supply Agreement is based on a margin-sharing formula among Nanya, Inotera and us. Under such formula, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers acquired from Inotera. Our cost of products purchased under the Inotera Supply Agreement in 2012 were lower than our cost of similar products manufactured in our wholly-owned facilities.
Due to significant market declines in the selling prices of DRAM, Inotera incurred net losses of $259 million for its six-month period ended June 30, 2012 and $737 million for its fiscal year ended December 31, 2011. Under generally accepted accounting principles in the Republic of China, Inotera reported a loss for its quarter ended September 30, 2012 of an additional New Taiwan dollars 4,390 million (approximately $150 million U.S. dollars). In addition, Inotera's current liabilities exceeded its current assets by $1.85 billion as of June 30, 2012, which exposes Inotera to liquidity risk. As of June 30, 2012 and December 31, 2011, Inotera was also not in compliance with certain loan covenants and had not been in compliance for the past several years, which may result in its lenders requiring repayment of such loans during the next year. Inotera obtained a waiver from complying with its financial covenants through June 30, 2012 and has requested an additional waiver from these requirements. Inotera's management has developed plans to improve its liquidity. There can be no assurance that Inotera will be successful in obtaining an additional waiver or improving its liquidity.
NOR Flash
Sales of NOR Flash products for 2012 declined from 2011 primarily due to decreases in sales of wireless NOR Flash
products, as a result of weakness in demand from certain customers and the continued transition of wireless applications to
NAND Flash products that led to significant declines in average selling prices and sales volume. Our gross margin percentage on sales of NORtrade NAND Flash products for 2015 declined from 2011 to 2012 primarily due to decreases2014 as the declines in average selling prices inventory write-downsoutpaced manufacturing cost reductions resulting from improvements in product and costs of underutilized capacity.
Sales of NOR Flash products increased for 2011as compared to 2010 primarily due to our acquisition of Numonyx in May 2010 as all of our sales of NOR Flash originated from this acquisition.process technologies. Our gross margin percentage on sales of NORtrade NAND Flash products for 2011 improved slightly2014 was relatively unchanged from 2013 as manufacturing cost reductions offset declines in average selling prices. Manufacturing cost reductions for 2014 as compared to 20102013 primarily due to cost reductions.resulted from improvements in product and process technologies.
Operating Expenses and Other
Selling, General and Administrative
Selling, general and administrative ("SG&A")&A expenses for 20122015 increased 5%2% as compared to 20112014 primarily due to a $13 million contribution to a university programan additional week in 2015 and stock-based compensation and other amounts related to the death benefits of our former Chief Executive Officer in 2012.higher legal costs.
SG&A expenses for 20112014 increased 12%26% as compared to 20102013 primarily due to increasedthe incremental costs associated with Numonyx operationsresulting from the MMJ Acquisition and higher payroll costs partially offset by a reduction in legal costs. The reduction in legal costsresulting primarily from 2010 to 2011 was primarily due to $64 millionthe reinstatement of costs in 2010 for settlements of an indirect purchasers antitrust case and other matters. We expect that SG&A expenses will approximate $135 million to $145 million for the first quarter of 2013.variable pay plans.
Research and Development
R&D expenses for 20122015 increased 16%12% from 20112014 primarily due to a higher volume of development wafers processed, higher personnel costs associated with increased salary and wage rates and additional headcount for our expandedan increase in depreciation expense due to R&D operations,capital expenditures, higher payroll costs, higher subcontracted engineering and higher softwareother professional service costs, and materials costs.an additional week in 2015. Increases in R&D expenses for 2015 as compared to 2014 were partly attributable to increased spending on controllers, firmware, and engineering to support system level products, including SSD, managed NAND Flash, and HMC products.
R&D expenses for 20112014 increased 27%47% from 20102013 primarily due to increasedthe incremental costs associated with R&D activities for acquired Numonyx operations,resulting from the MMJ Acquisition, higher payroll costs resulting primarily from the reinstatement of variable pay plans, and a higher volume of pre-qualification wafers processed.increased resources dedicated to development efforts.
AsWe generally share with Intel the costs of product design and process development activities for NAND Flash memory and 3D XPoint memory. Our R&D expenses reflect net reductions of $231 million, $162 million, and $176 million in 2015, 2014, and 2013, respectively, as a result of amounts reimbursable from Nanyareimbursements under a DRAM R&Dour Intel and other cost-sharing arrangement, R&D expenses were reduced by $138 million, $141 million and $51 million for 2012, 2011 and 2010, respectively. The April 6, 2012 agreements with Intel expanded our NAND Flash R&D cost-sharing agreement to include certain emerging memory technologies, but did not change the cost-sharing percentage. As a result of amounts reimbursable from Intel, R&D expenses were reduced by $87 million, $95 million and $104 million for 2012, 2011 and 2010, respectively. We expect that R&D expenses, net of amounts reimbursable from our R&D partners, will be approximately $220 million to $230 million for the first quarter of 2013.arrangements.
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies which are designed to facilitate our transition to next generation memory 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 our core semiconductor expertise, and the development of new manufacturing materials. Product design and development efforts include our high density DDR3 and DDR4 DRAM, and Mobile Low Power DDR DRAMLPDRAM products, as well as high density and mobile NAND Flash memory (including multi-level3D NAND and triple-level cellMLC and TLC technologies), 3D XPoint memory, SSDs, Hybrid Memory Cubes, specialty memory, NOR Flash memory, specialty memory, phase-change memory, solid-state drives and other memory technologies and systems.
Restructure and Asset Impairments
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Loss on impairment of LED assets | | $ | 1 |
| | $ | (6 | ) | | $ | 33 |
|
| Loss on impairment of MIT assets | | — |
| | (5 | ) | | 62 |
|
| Gain on termination of lease to Transform | | — |
| | — |
| | (25 | ) |
| Loss on restructure of ST consortium agreement | | — |
| | — |
| | 26 |
|
| Other | | 2 |
| | 51 |
| | 30 |
|
| | | $ | 3 |
| | $ | 40 |
| | $ | 126 |
|
In order to optimize operations, improve efficiency, and increase our focus on our core memory operations, we have entered into various restructure activities. For 2014 and 2013, other restructure included charges associated with our efforts to wind down our 200mm operations primarily in Agrate, Italy and Kiryat Gat, Israel and charges associated with workforce optimization activities, primarily related to our MBU and EBU operating segments. As of September 3, 2015, we do not anticipate incurring any significant additional costs for these restructure activities. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Restructure and Asset Impairments.")
Interest Income (Expense)
InterestNet interest expense for 20122015, 20112014, and 2010,2013, included aggregate amounts of non-cash amortization of debt discount and other costs of $83$138 million, $60$167 million, and $76$122 million, respectively. Interest expense
Income Taxes
Our effective tax rates were 6.0%, 4.7%, and 0.6% for 2012 also included 2015, 2014, and 2013, respectively. Our effective tax rates reflect the following:
operations in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and the effective tax rates in these jurisdictions are significantly lower than the U.S. statutory rate;
operations outside the U.S., including Singapore$9 million of "make-whole premium" paidand, to holdersa lesser extent Taiwan, where we have tax incentive arrangements that decrease our effective tax rates; and
a valuation allowance against substantially all of our U.S. net deferred tax assets.
Income taxes for 2015 and 2014 included $80 million and $59 million, respectively, related to changes in amounts of net deferred tax assets associated with the MMJ Group. Income taxes for 2013 Notes. (Seeincluded benefits of $19 million from the favorable resolution of prior year tax matters and a change in tax laws applicable to prior years. The remaining tax provision for 2015, 2014, and 2013 primarily reflects taxes on our other non-U.S. operations. Income taxes on U.S. operations for 2015, 2014, and 2013 were substantially offset by changes in the valuation allowance.
We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. Management continues to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowances. The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.
We operate in a number of locations outside the U.S., including Singapore and, to a lesser extent, Taiwan, where we have tax incentive agreements that are conditional upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements, which expire in whole or in part at various dates through 2030, reduced our tax provision for 2015, 2014, and 2013 by $338 million (benefitting our diluted earnings per share by $0.29), $286 million ($0.24 per diluted share), and $141 million ($0.13 per diluted share), respectively.
(See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt" note.Income Taxes.")
Equity in Net Income (Loss) of Equity Method Investees
We recognize our share of earnings or losses from equity method investments, generally on a two-month lag. Equity in net income (loss) of equity method investees, net of tax, included the following:
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Inotera | | $ | 445 |
| | $ | 465 |
| | $ | (79 | ) |
| Tera Probe | | 1 |
| | 11 |
| | — |
|
| Other | | 1 |
| | (2 | ) | | (4 | ) |
| | | $ | 447 |
| | $ | 474 |
| | $ | (83 | ) |
Our share of earnings for 2015 included $49 million for the net effect of Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward and the resulting tax provision in subsequent periods. As a result of the release, Inotera's future net income is subject to tax provisions. Our equity in net income of Inotera declined for 2015 as compared to 2014 due to a decrease in Inotera's operating results as a result of declines in average selling prices.
Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting a discount from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed the 2016 Supply Agreement, to be effective beginning on January 1, 2016, which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. In 2015 and in 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. Under the market conditions prevailing in the fourth quarter of 2015, costs of products purchased under the current agreement were higher than they would have been under the pricing formula of the 2016 Supply Agreement.
Other Operating and Non-Operating
In 2014, we settled all pending litigation between us and Rambus, including all antitrust and patent matters, and entered into a patent cross-license agreement. As a result, other operating expense for 2014 included a $233 million charge to accrue a liability, which reflects the discounted value of amounts due under this arrangement.
Other non-operating expense for 2015, 2014, and 2013 included losses from the restructure of our debt of $49 million, $184 million, and $31 million, respectively. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.")
Other non-operating expense included losses from changes in currency exchange rates of $27 million, $28 million, and $229 million for 2015, 2014, and 2013, respectively. The loss for 2013 included a $228 million loss for currency contracts to hedge our yen-denominated obligations in connection with the MMJ Acquisition.
On August 15, 2014, ON Semiconductor Corporation acquired Aptina for approximately $433 million and we recognized a non-operating gain of $119 million on the sale of our shares based on our diluted ownership interest of approximately 27%.
On May 15, 2014, Inotera issued 400 million common shares in a public offering at a price equal to 31.50 New Taiwan dollars per share, which was in excess of our carrying value per share. As a result of the issuance, our ownership interest decreased from 35% to 33% and we recognized a non-operating gain of $93 million in 2014. On May 28, 2013, Inotera issued 634 million common shares to Nanya and certain of its affiliates in a private placement at a price equal to 9.47 New Taiwan dollars per share, which was in excess of our carrying value per share. As a result of the issuance, our ownership interest decreased from 40% to 35% and we recognized a non-operating gain of $48 million in 2013.
Further discussion of other operating and non-operating income and expenses can be found in the following notes contained in "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements":
Equity Method Investments
Equity Plans
Patent Cross-License Agreement
Other Operating (Income) Expense, Net
Other Non-Operating Income (Expense), Net
Income Taxes
TECH Semiconductor Singapore Pte. Ltd.
Liquidity and Capital Resources
|
| | | | | | | | |
| As of | | 2012 | | 2011 |
| Cash and equivalents and short-term investments: | | | | |
| Money market funds | | $ | 2,159 |
| | $ | 1,462 |
|
| Bank deposits | | 239 |
| | 543 |
|
| Government securities | | 56 |
| | — |
|
| Corporate bonds | | 31 |
| | — |
|
| Commercial paper | | 39 |
| | — |
|
| Certificates of deposit | | 31 |
| | 155 |
|
| Asset-backed securities | | 4 |
| | — |
|
| | | $ | 2,559 |
| | $ | 2,160 |
|
| | | | | |
| Long-term marketable investments | | $ | 374 |
| | $ | 52 |
|
CashOur primary sources of liquidity are cash generated from operations and equivalentsfinancing obtained from capital markets. We generated cash from operations of $5.21 billion in the table above included $157 million held by IMFT as of August 30, 20122015 and $327 million held by both IMFT and IMFS as of September 1, 2011. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by the other member and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
To mitigate credit risk, we invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting investments with any single obligor. As of August 30, 2012, the effect of repatriating cash held by foreign subsidiaries where undistributed earnings have been indefinitely reinvested would not be significant.
$5.70 billion in 2014. Cash generated byfrom operations is our primary source of liquidity. Our liquidity is highly dependent on selling prices for our products, and the timing and level of our capital expenditures, both of which can vary significantly from period to period. Depending on conditions in the semiconductor memory market, our cash flowsWe obtained $2.50 billion from operations and current holdings of cash and investments may not be adequate to meet our needs for capital expenditures and operations. In 2012 we obtained $1,065 million of proceeds from issuance of debt and $609lease financing in 2015 and $2.23 billion in 2014. As of September 3, 2015, we had (1) revolving credit facilities available that provide for up to $842 million of proceeds from equipment sale-leaseback financing. In the first quarter of 2013 we entered into additional financing arrangements as detailed under "Financing Activities" belowbased on eligible receivables and we expect to pursue additional financing in the future as cost effective and strategic opportunities arise. We expect our cash and investments, cash flows from operations and available financing, will be sufficient to meet our requirements at least through 2013.
Operating Activities
Net cash provided by operating activities was $2,114 million for 2012, which reflected approximately $1,572 million generated from the production and sales of our products and a net $542 million effect from changes in the amount invested in net working capital. For 2012, inventories decreased by $258 million due to our efforts to manage our business at a lower level of inventories and negotiated changes in the IM Flash wafer supply(2) a term loan agreement with Intel.
Investing Activities
Net cash used for investing activities was $2,312 million for 2012, which consisted primarily of cash expenditures of $1,699 million foravailable to obtain financing collateralized by certain property, plant, and equipment in the amount of 6.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $213 million as of September 3, 2015), of which we drew $40 million on June 18, 2015. We are continuously evaluating alternatives for efficiently funding capital expenditures, dilution-management activities (including repurchases of convertible notes and $412 millionour common stock), and ongoing operations. We expect, from time to time in the future, to engage in a variety of transactions for such purposes, including the acquisitionissuance or incurrence of available-for-sale securities (netsecured and unsecured debt and the refinancing and restructuring of proceeds from sales and maturities of $152 million). We believe that toexisting debt.
To develop new product and process technologies, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and capital equipment, and R&D. As a result of the MMJ acquisition and our expansion in Singapore, we expect our future capital spending will be higher than our historical levels. We estimate that capital spendingcash expenditures in 2016 for 2013property, plant, and equipment will be approximately $1.6$5.3 billion to $1.9 billion.$5.8 billion, which includes amounts we expect to be funded by our partners. The actual amounts for 20132016 will vary depending on market conditions. Investments in capital expenditures for 2015 were $4.12 billion. Total additions to property, plant, and equipment were $4.46 billion, which, in comparison to cash expenditures, reflects differences in timing of receipts and payments for equipment as well as non-cash additions such as equipment leases. As of August 30, 2012,September 3, 2015, we had commitments of approximately $550 million$1.62 billion for the acquisition of property, plant, and equipment, substantially all of which is expected to be paid within one year.
In December 2014, we announced plans to add approximately 255,000 square feet of clean room space to our fabrication facility in Singapore. This expansion facilitates efficient implementation of 3D NAND Flash production at the Singapore facility and gives us the flexibility to gradually add incremental capacity in response to market requirements. Construction of the additional space began in 2015 with initial manufacturing output likely in 2017. Subject to market conditions, we estimate capital expenditures of approximately $1.93 billion in 2016 related to this facility.
Since the first quarter of 2015, our Board of Directors has authorized the discretionary repurchase of up to $1.25 billion of our outstanding common stock, $250 million of which was authorized in the first quarter of 2016. Any repurchases under the authorization may be made in open market purchases, block trades, privately-negotiated transactions, and/or derivative transactions. Repurchases are subject to market conditions and our ongoing determination of the best use of available cash. During 2015, we repurchased 42 million shares for $831 million (including commissions) in the open market.
We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months.
|
| | | | | | | | |
| As of | | 2015 | | 2014 |
| Cash and equivalents and short-term investments: | | | | |
| Bank deposits | | $ | 1,684 |
| | $ | 2,445 |
|
| Corporate bonds | | 618 |
| | 154 |
|
| Government securities | | 449 |
| | 136 |
|
| Certificates of deposit | | 339 |
| | 410 |
|
| Commercial paper | | 255 |
| | 107 |
|
| Money market funds | | 168 |
| | 1,281 |
|
| Asset-backed securities | | 8 |
| | 1 |
|
| | | $ | 3,521 |
| | $ | 4,534 |
|
| | | | | |
| Long-term marketable investments | | $ | 2,113 |
| | $ | 819 |
|
As of September 3, 2015, $2.17 billion of our cash and equivalents and short-term investments was held by foreign subsidiaries, of which $149 million was denominated in currencies other than the U.S. dollar. To mitigate credit risk, we invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor.
Limitations on the Use of Cash and Investments
MMJ Group: Cash and equivalents and short-term investments in the table above included an aggregate of $748 million held by the MMJ Group as of September 3, 2015. As a result of the corporate reorganization proceedings of the MMJ Companies entered into in March 2012 and for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ Companies may be considered outside of the ordinary course of business and subject to approval of the legal trustee and Japan Court. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Moreover, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
IMFT: Cash and equivalents and short-term investments in the table above included $134 million held by IMFT as of September 3, 2015. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
InIndefinitely Reinvested: As of September 3, 2015, we had $1.48 billion of cash and equivalents and short-term investments, including substantially all of the second quarteramounts held by the MMJ Group, that were held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of 2012, we loaned $133 millionthese funds to Inotera under a 90-day note with a stated annual interest ratethe U.S. would subject these funds to U.S. federal income taxes. Determination of 2%the amount of unrecognized deferred tax liabilities related to facilitate the purchaseinvestments in these foreign subsidiaries is not practicable.
Operating Activities
Net cash provided by operating activities was $5.21 billion for 2015. Cash provided by operating activities was due primarily to net income generated by our operations, adjusted for certain non-cash items.
Investing Activities
Net cash used for investing activities was $6.23 billion for 2015, which consisted primarily of capitalcash expenditures of $4.02 billion for property, plant, and equipment necessary to implement new process technology. The loan was repaid to us with accrued interestand $2.14 billion of net outflows for investments in March 2012. Also, in March 2012, we contributed $170 million to Inotera, which increased our ownership percentage from 29.7% to 39.7%.available-for-sale securities.
Financing Activities
Net cash providedused by financing activities was $497718 million for 2012,2015, which included outflows of $1,065 million of proceeds from issuance of debt, $609 million of proceeds from equipment sale-leaseback financing transactions partially offset by $194 million of net distributions to noncontrolling interests, $203 million2.33 billion for repayments of debt (including $932 million for the amount in excess of principal of our convertible notes), $831 million for the open-market repurchases of 42 million shares of our common stock, and $172$95 million of payments on equipment purchase contracts. Cash outflows for financing activities in 2015 were partially offset by inflows of $2.00 billion in aggregate from the issuance of the 2023 Notes, 2024 Notes, and 2026 Notes, $291 million from the proceeds of sale-leaseback transactions, $125 million from draws on our revolving credit facilities, and $87 million from term loans.
On April 18, 2012,2015 Debt Activity
Throughout 2015, we issued $550reduced the dilutive effects of our convertible notes through conversions and repurchases. As a result, we eliminated convertible notes that were convertible into approximately 37 million shares of 2.375%our common stock. The following table summarized our debt restructure activities in 2015.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Increase (Decrease) in Principal | | Increase (Decrease) in Carrying Value | | Increase (Decrease) in Cash | | (Decrease) in Equity | | Loss(1) |
| Conversions and settlements | | $ | (121 | ) | | $ | (367 | ) | | $ | (408 | ) | | $ | (15 | ) | | $ | (22 | ) |
| Repurchases | | (368 | ) | | (319 | ) | | (1,019 | ) | | (676 | ) | | (22 | ) |
| Issuances | | 2,000 |
| | 1,979 |
| | 1,979 |
| | — |
| | — |
|
| Early repayment | | (121 | ) | | (115 | ) | | (122 | ) | | — |
| | (5 | ) |
| | | $ | 1,390 |
| | $ | 1,178 |
| | $ | 430 |
| | $ | (691 | ) | | $ | (49 | ) |
| |
(1) | Included in other non-operating expense. |
Potential Settlement Obligations of Convertible SeniorNotes
Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ended September 30, 2015 exceeded 130% of the conversion price per share of our 2032 Notes due May 2032 (the "2032C Notes") and $450 million2033 Notes, holders of 3.125% Convertible Senior Notes due May 2032 (the "2032D Notes" and together withthose notes have the 2032C Notes,right to convert their notes at any time through December 31, 2015. For all of our convertible notes, we have either: (1) the "2032 Notes") at face value. Issuance costsrequirement to pay cash for the 2032 Notes totaled $21 million and we paid $103 million to purchase capped calls to partially offset the potential dilutive effect if the 2032 Notes are converted into shares, resulting in net proceeds of $876 million from issuance of the 2032 Notes.
On April 6, 2012, we entered into a series of agreements with Intel relating to our IMFS and IMFT joint ventures. In connection therewith, we acquired Intel's 18% interest in IMFS for $466 million. In addition, we acquired the assets of IMFT located at our Virginia wafer fabrication facility for which Intel received a distribution from IMFT of $139 million. Additionally, Intel deposited $300 million with us, which will be applied to Intel's future purchases of NAND Flash under a supply agreement or, under certain circumstances, refunded. As of August 30, 2012, $45 million of the deposit had been applied. We also entered into a senior unsecured promissory note with Intel in April 2012. Under the terms of the note, we borrowed $65 million, payable with interest in eight approximately equal quarterly installments.
In 2012, IM Flash distributed $391 million to Intel, and Intel made contributions to IM Flash of $177 million.
On September 5, 2012, we entered into a three-year revolving credit facility. Under this credit facility, we can draw up to the lesser of $255 million or 80% of the net outstanding balance of a pool of certain accounts receivable. We granted a security interest in such receivables to collateralize the facility. The availability of the facility is subject to certain customary conditions, including the absence of any event or circumstance that has a material adverse effect on our business or financial condition. Interest is payable monthly on any outstanding principal balance at a variable rate equal to the 30-day Singapore Interbank Offering Rate ("SIBOR") plus 2.8% per annum.
On October 2, 2012, we entered into a facility agreement to obtain financing collateralized by semiconductor production equipment. Subject to customary conditions, we can draw up to $214 million under the facility agreement prior to April 4, 2013. Amounts drawn are payable in 10 equal semi-annual installments beginning six months after the draw date. On October 18, 2012, we drew $173 million with interest at 2.38% per annum. Additional amounts drawn will bear interest, at our option, at either (i) a fixed rate negotiated at the time of the draw request or (ii) a floating rate equal to the six-month LIBOR rate plus 1.6% per annum. The facility agreement contains customary covenants.
Elpida Memory, Inc.
On July 2, 2012, we entered into the Sponsor Agreementamount and the Rexchip Share Purchase Agreement that require aggregate payments by usoption to pay either cash, shares of approximately 60 billion yen and 10 billion New Taiwan dollars (approximately $1.1 billion atour common stock, or any combination thereof for any remaining conversion obligation, or (2) the closingoption to pay cash, issue shares of the transactions, which we expect to occur in the first half of calendar 2013), plus additional installment payments by the Elpida Companies of 140 billion yen (or approximately $1.75 billion) incommon stock, or any combination thereof for the aggregate from 2014 through 2019. In addition, capital expenditures will be required in furtherance of the planned technology road maps for the Elpida and Rexchip operations. We are obligated to provided financial support, subject to certain conditions, which may include guarantees of Elpida's financing for up to $200 million of working capital and up to $800 million for capital expenditures. We may be required to provide these obligations even if the transactions do not close. (See "Overview – Elpida Memory, Inc.”)amount due upon conversion.
The following table summarizes the potential settlements, as of September 3, 2015, that we could be required to make if all holders converted their 2032 Notes and 2033 Notes:
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Conversion Price Per Share | | Settlement Option for Principal Amount | | Outstanding Principal | | If Settled With Minimum Cash Required(1) | | If Settled Entirely With Cash(2) |
| | | | | | Cash | | Remainder in Shares | | Cash |
| 2032C Notes | | $ | 9.63 |
| | Cash and/or shares | | $ | 224 |
| | $ | — |
| | 23 |
| | $ | 385 |
|
| 2032D Notes | | 9.98 |
| | Cash and/or shares | | 177 |
| | — |
| | 18 |
| | 294 |
|
| 2033E Notes | | 10.93 |
| | Cash | | 233 |
| | 233 |
| | 7 |
| | 354 |
|
| 2033F Notes | | 10.93 |
| | Cash | | 297 |
| | 297 |
| | 9 |
| | 451 |
|
| | | | | | | $ | 931 |
| | $ | 530 |
| | 57 |
| | $ | 1,484 |
|
| |
(1) | We are required to settle the principal amount of the 2033 Notes in cash. The remaining conversion obligation paid in shares is based on our closing share price of $16.59 as of September 3, 2015. |
| |
(2) | Based on our closing share price of $16.59 as of September 3, 2015. Assumes we elect cash settlement for the entire obligation. |
Contractual Obligations
| | | | | Payments Due by Period | | Payments Due by Period |
| As of August 30, 2012 | | Total | | Less than 1 year | | 1-3 years |
| | 3-5 years |
| | More than 5 years | |
| As of September 3, 2015 | | | Total | | Less than 1 year | | 1-3 years |
| | 3-5 years |
| | More than 5 years |
Notes payable (1)(2) | | $ | 3,225 |
| | $ | 93 |
| | $ | 1,076 |
| | $ | 259 |
| | $ | 1,797 |
| | $ | 9,429 |
| | $ | 556 |
| | $ | 1,315 |
| | $ | 1,712 |
| | $ | 5,846 |
|
Capital lease obligations (1)(2) | | 996 |
| | 231 |
| | 442 |
| | 251 |
| | 72 |
| | 852 |
| | 349 |
| | 304 |
| | 123 |
| | 76 |
|
Operating leases | | 90 |
| | 25 |
| | 25 |
| | 16 |
| | 24 |
| | 682 |
| | 218 |
| | 402 |
| | 27 |
| | 35 |
|
| Purchase obligations | | 1,349 |
| | 1,187 |
| | 148 |
| | 6 |
| | 8 |
| | 2,545 |
| | 2,189 |
| | 335 |
| | 11 |
| | 10 |
|
Other long-term liabilities (2) (3) | | 620 |
| | 123 |
| | 379 |
| | 53 |
| | 65 |
| |
Other long-term liabilities(4) | | | 716 |
| | 222 |
| | 304 |
| | 152 |
| | 38 |
|
| Total | | $ | 6,280 |
| | $ | 1,659 |
| | $ | 2,070 |
| | $ | 585 |
| | $ | 1,966 |
| | $ | 14,224 |
| | $ | 3,534 |
| | $ | 2,660 |
| | $ | 2,025 |
| | $ | 6,005 |
|
(1) Amounts represent principal and interest cash payments over the life of the debt obligation, including anticipated interest payments that are not recorded on our consolidated balance sheet. Any future redemption or conversion of convertible debt could impact our cash payments. | |
(2) Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet, including $262 million for the short-term portion of these long-term liabilities. | |
(3) We are unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $83 million of long-term income taxes payable has been excluded from the preceding table. However, long-term income taxes payable recorded on our consolidated balance sheet included these uncertain tax positions. | |
(1) Amounts include MMJ Creditor Installment Payments, convertible notes, and other notes. Any future redemptions, repurchases, or conversions of convertible debt could impact the amount and timing of our cash payments.
The obligations disclosed above do not(2) Amounts include contractual obligationsprincipal and interest.
(3) Amounts include contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year.
(4) Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet, as current liabilities exceptincluding $222 million for the current portion of these long-term debt. liabilities. We are unable to reliably estimate the timing of future payments related to uncertain tax positions and noncurrent deferred tax liabilities; therefore, $91 million in aggregate of long-term income taxes payable and noncurrent deferred tax liabilities has been excluded from the preceding table. However, other noncurrent liabilities recorded on our consolidated balance sheet included these uncertain tax positions and noncurrent deferred tax liabilities.
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, changes to agreed-upon amounts, or timing of certain events for some obligations. The contractual obligations in the table above include the current portions of the related long-term obligations. All other current liabilities are excluded.
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 noncancellable,noncancelable, (2) we would incur a penalty if the agreement was canceled, or (3) we must make specified minimum payments even if we do not take delivery of the contracted products or services ("take-or- pay"take-or-pay"). If the obligation to purchase goods or services is noncancellable,noncancelable, the entire value of the contract was included in the above table. If the obligation is cancellable,cancelable, but we would incur a penalty if canceled, 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,Agreements: Since January 2013, we have an obligationpurchased all of Inotera's DRAM output at prices reflecting discounts from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed the 2016 Supply Agreement, to purchase 50% of Inotera’s semiconductor memory capacity subjectbe effective beginning on January 1, 2016, which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to specific terms and conditions. As purchase quantities areus will be based on qualified production output,a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the Inoterainitial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. We purchased $2.37 billion of DRAM products from Inotera in 2015 under the current agreement. The current agreement does not contain a fixed or minimum purchase quantity as quantities are based on qualified production output and thereforepricing fluctuates as it is based on market prices. Therefore, we did not include our obligationsany amounts under the Inotera Supply Agreementcurrent agreement in the contractual obligations table above. Our obligationUnder the 2016 Supply Agreement, payments are primarily based on fluctuating quantities and prices, but a portion of the expected costs under the Inotera Supply Agreement also fluctuates due to pricing which is based on manufacturing costsagreement meet the criteria of a minimum lease payment under an operating lease and revenues associated withare included in the resale of DRAM products. We purchased $646 million of DRAM products from Inotera in 2012 under the Inotera Supply Agreement.table above.
Off-Balance Sheet Arrangements
Concurrent with the offering of the 2032C and 2032D Notes in April 2012, weWe have entered into capped call transactions that have an initial strike price of approximately $9.80 and $10.16 per share, respectively, subject to certain adjustments,calls, which was set to be slightly higher than the initial conversion prices of approximately $9.63 for the 2032C Notes and $9.98 for the 2032D Notes, and cap prices that range from $14.26 per share to $16.04 per share (the "2012 Capped Calls"). The 2012 Capped Calls cover, subject to anti-dilution adjustments similar to those contained in the 2032 Notes, an approximate combined total of 100.6 million shares of common stock. The 2012 Capped Calls expire on various dates between May 2016 and May 2018. The 2012 Capped Calls are intended to reduce the effect of potential dilution upon conversionfrom our convertible notes. The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the 2032C and 2032D Notes.
Concurrent with the offeringtrading price of the 2031 Notes in July 2011, we entered into capped call transactions (the "2011 Capped Calls") that have anour stock is above a specified initial strike price of approximately $9.50 per share, subject to certain adjustments, which was set toat the initial conversionexpiration dates. The amounts receivable varies based on the trading price of the 2031 Notes.our stock, up to specified cap prices. The 2011 Capped Calls are in four equal tranches, have cap prices of $11.40, $12.16, $12.67 and $13.17 per share, and cover, subject to anti-dilution adjustments similar to those contained in the 2031 Notes, an approximate combined total of 72.6 million shares of common stock. The 2011 Capped Calls expire on various dates between July 2014 and February 2016. The 2011 Capped Calls are intended to reduce the potential dilution upon conversiondollar value of the 2031 Notes.
Concurrent withcash or shares that we would receive from the offeringcapped calls on their expiration dates ranges from $0 if the trading price of our stock is below the 4.25% Convertible Senior Notes due 2013 (the "2013 Notes") in April 2009, we paid approximately $25 million for three capped call instruments that have an initial strike price for all of approximately $5.08 per share (the "2009 Capped Calls"). The 2009 Capped Calls have athe capped calls to $814 million if the trading price of our stock is at or above the cap price of $6.64 per share and cover an aggregate of approximately 45.2 million shares of common stock. The 2009 Capped Calls expire in October and November of 2012.
Concurrent with the offeringfor all of the 2014 Notescapped calls. We paid $57 million in May 2007, we2011, $103 million in 2012, and $48 million in 2013 to purchase capped calls. The amounts paid approximately $151 million for three Capped Call transactions (the "2007 Capped Calls") with various expiration dates between November 2011 and December 2012. The 2007 Capped Calls cover an aggregatewere recorded as charges to additional capital. For further details of approximately 91.3 million shares of common stock. The 2007 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. In the first six months of 2012, 2007 Capped Calls covering 30.4 million shares expired according to their terms. In April 2012, we settled the remaining 2007 Capped Calls, covering 60.9 million shares, and received a de minimis payment.
(Seeour capped call arrangements, see "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Supplemental Balance Sheet InformationEquity – Micron Shareholders' Equity – Capped Call Transactions" note.)Calls."
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 events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and requires management's most difficult, subjective, or complex judgments.
Business Acquisitions: Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, which involves a number of judgments, assumptions, and estimates that could materially affect the amount and timing of costs recognized. Accounting for acquisitions can also involve significant judgment to determine when control of the acquired entity is transferred. We typically obtain independent third party valuation studies to assist in determining fair values, including assistance in determining future cash flows, appropriate discount rates, and comparable market values. The items involving the most significant assumptions, estimates, and judgments included determining the fair value of the following:
Property, plant, and equipment, including determination of values in a continued-use model;
Deferred tax assets, including projections of future taxable income and tax rates;
Inventory, including estimated future selling prices, timing of product sales, and completion costs for work in process;
Debt, including discount rate and timing of payments; and
Intangible assets, including valuation methodology, estimations of future revenue and costs, profit allocation rates attributable to the acquired technology, and discount rates.
Consolidations: We have interests in joint venture entities that are Variable Interest Entities ("VIEs").VIEs. Determining whether to consolidate a VIE may requirerequires judgment in assessing (1) whether an entity is a VIE and (2) if we are the entity's primary beneficiary. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (a) the power to direct the activities that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, and financing, and other applicable agreements and circumstances. Our assessment of whether we are the primary beneficiary of our VIEs requires significant assumptions and judgment.
Contingencies: We are 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. We accrue a liability and charge operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date. In accounting for the resolution of contingencies, considerable judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution, and amounts related to future periods.
Income Taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve judgment and 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. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve numerous judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.
Inventories: Inventories are stated at the lower of average cost or marketnet realizable value. Cost includes depreciation, labor, material and overhead costs, including product and process technology costs. Determining marketnet realizable value of inventories involves numerous judgments, including projecting future 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, we review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends, and other information. When these analyses reflect estimated market valuesnet realizable value below our manufacturing costs, we record 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 marketnet realizable value 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 marketnet realizable value of our memory inventory by approximately $129$195 million as of August 30, 2012.September 3, 2015. Due to the volatile nature of the semiconductor memory industry, actual selling prices and volumes often vary significantly from projected prices and volumes and,volumes; 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 marketnet realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. Our inventories have been generallyInventories are primarily categorized as memory (primarily(including DRAM, NAND Flashnon-volatile, and NOR Flash) and imaging products.other memory) for purposes of determining lower of average cost or net realizable value. The major characteristics we consider in determining inventory categories are product type and markets.
Property, Plant and Equipment: We review 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 us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products and future production and sales volumes. In addition, judgment is required 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 R&D as incurred. Determining when product development is complete requires judgment by us. We deem 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: Stock-based compensation is estimated at the grant date based on the fair-valuefair value of the award and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-based stock awards, the expense recognized is dependent on the probability of the performance measure being achieved. We utilize 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. We develop these 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. We use the Black-Scholes option valuation model to value employee stock awards. We estimate stock price volatility based on an average of its historical volatility and the implied volatility derived from traded options on our stock.
Recently Adopted Accounting Standards
In June 2011, theSee "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards Board ("FASB") issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted this standard in the fourth quarter of 2012. The adoption of this standard did not have a material impact on our financial statements.
In May 2011, the FASB issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. We adopted this standard in the third quarter of 2012. The adoption of this standard did not have a material impact on our financial statements. Standards."
Recently Issued Accounting Standards
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of August 30, 2012, $3,087 millionWe are exposed to interest rate risk related to our indebtedness and our investment portfolio. Substantially all of our $3,262 million of debt wasindebtedness is at fixed interest rates. As a result, the fair value of theour debt fluctuates based on changes in market interest rates. The estimated fair value of our debt was $3,622 million as of August 30, 2012 and $2,281 million as of September 1, 2011. We estimate that, as of September 3, 2015 and August 30, 2012,28, 2014, a 1%hypothetical decrease in market interest rates of 1% would changeincrease the fair value of our fixed-rate debt instrumentsnotes payable by approximately $88$366 million. As of August 30, 2012, $175 and $250 million, of the debt had variable interest rates. respectively. The increase in interest expense caused by a 1% increase in the interest rates of our variable-rate debt would not be approximately $2 million.significant.
As of September 3, 2015 and August 30, 2012,24, 2014, we held short-term debt investmentssecurities of $100 million$3.83 billion and long-term debt investments of $364 million$1.65 billion, respectively, that were subject to interest rate risk. We estimate that as of August 30, 2012, a 0.5% increase in market interest rates would decrease the fair value of our short-term and long-term debtthese instruments by approximately $3 million.$13 million as of September 3, 2015 and $6 million as of August 28, 2014.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with the information related to changes in the currency exchange rates of foreign currency in "Item"Part I – Item 1A. Risk Factors." Changes in foreign currency exchange rates could materially adversely affect our results of operations or financial condition.
The functional currency for all of our operationsconsolidated subsidiaries is the U.S. dollar. As a result of our foreign operations, we incur costs and carry assets and liabilities that are denominated in foreign currencies. The substantial majority of our revenues are transacted in the U.S. dollar; however, significant amounts of our operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the British pound, the euro, the shekel, the Singapore dollar, the New Taiwan dollar, the yen, and the yuan. We have established currency risk management programs for our operating expenditures and capital purchases to hedge against fluctuations in the fair value and the volatility of future cash flows caused by changes in currency exchange rates. We utilize currency forward and option contracts in these hedging programs. Our hedging programs, which reduce, but do not always entirely eliminate, the impact of currency exchange rate movements. We do not use derivative financial instruments for trading or speculative purposes.
To hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities, we utilize a rolling hedge strategy for our primary currency exposures with currency forward contracts that generally mature within 35 days. Based on our foreign currency exposures from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately U.S. $8 million as of August 30, 2012 and U.S. $9$3 million as of September 1, 2011.3, 2015 and $7 million as of August 28, 2014. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain capital expenditures, and forecasted operating cash flows, we utilize currency forward contracts that generally mature within 12 months and currency options that generally mature from 12 to 18 months.
In connection with the Elpida Sponsor Agreement and Rexchip share purchase agreement, we may be required to make aggregate payments of 200 billion yen and approximately 10 billion New Taiwan dollars. Of the aggregate amount, 60 billion yen and approximately 10 billion New Taiwan dollars will be due at the closing of the transactions and the remaining 140 billion yen amounts will be made by the Elpida Companies in annual installments from 2014 through 2019. (See "Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Elpida Memory, Inc.”) These payments are contingent upon the closing of the transaction and are therefore not recorded on our balance sheet as of August 30, 2012. Changes in the exchange rate between the U.S. dollar and the yen and the New Taiwan dollar could have a significant impact on our financial statements if the transactions are consummated.
To mitigate the risk that increases in exchange rates have on our planned yen and New Taiwan dollar payments, we entered into currency option transactions. These currency options did not qualify for hedge accounting treatment and are marked-to-market at the end of each reporting period and realized and unrealized gains and losses are included in other operating income (loss). (See "Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Derivative Financial Instruments.”) We estimate that, as of August 30, 2012, a 10% decrease in exchange rates for the yen and New Taiwan dollar compared with U.S. dollar would result in losses of approximately U.S. $108 million for these currency options. Additionally, we estimate that, as of August 30, 2012, a 10% decrease in exchange rates for the yen and New Taiwan dollar compared with U.S. dollar would result in a decrease of U.S. $239 million of our planned payments under the Elpida Sponsor Agreement and Rexchip share purchase agreement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
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Consolidated Financial Statements as of September 3, 2015 and August 30, 2012 and September 1, 201128, 2014 and for the fiscal years ended September 3, 2015, August 30, 2012, September 1, 201128, 2014, and September 2, 2010:August 29, 2013: | |
| | |
| Consolidated Statements of Operations | |
| | |
| Consolidated Statements of Comprehensive Income | |
| | |
| Consolidated Balance Sheets | |
| | |
| Consolidated Statements of Changes in Equity | |
| | |
| Consolidated Statements of Cash Flows | |
| | |
| Notes to Consolidated Financial Statements | |
| | |
| Report of Independent Registered Public Accounting Firm | |
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Financial Statement Schedule:Schedules: | |
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| Schedule I – Condensed Financial Information of the Registrant | |
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| Schedule II – Valuation and Qualifying Accounts | |
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
| | | For the year ended | | August 30,
2012 | | September 1,
2011 | | September 2, 2010 | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 |
| Net sales | | $ | 8,234 |
| | $ | 8,788 |
| | $ | 8,482 |
| | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
|
| Cost of goods sold | | 7,266 |
| | 7,030 |
| | 5,768 |
| | 10,977 |
| | 10,921 |
| | 7,226 |
|
| Gross margin | | 968 |
| | 1,758 |
| | 2,714 |
| | 5,215 |
| | 5,437 |
| | 1,847 |
|
| | | | | | | | | | | | | |
| Selling, general and administrative | | 620 |
| | 592 |
| | 528 |
| | 719 |
| | 707 |
| | 562 |
|
| Research and development | | 918 |
| | 791 |
| | 624 |
| | 1,540 |
| | 1,371 |
| | 931 |
|
| Restructure and asset impairments | | | 3 |
| | 40 |
| | 126 |
|
| Other operating (income) expense, net | | 48 |
| | (380 | ) | | (27 | ) | | (45 | ) | | 232 |
| | (8 | ) |
| Operating income (loss) | | (618 | ) | | 755 |
| | 1,589 |
| |
| Operating income | | | 2,998 |
| | 3,087 |
| | 236 |
|
| | | | | | | | | | | | | |
| Interest income | | 8 |
| | 23 |
| | 18 |
| | 35 |
| | 23 |
| | 14 |
|
| Interest expense | | (179 | ) | | (124 | ) | | (178 | ) | | (371 | ) | | (352 | ) | | (231 | ) |
| Gain on acquisition of Numonyx | | — |
| | — |
| | 437 |
| |
| Gain on MMJ Acquisition | | | — |
| | (33 | ) | | 1,484 |
|
| Other non-operating income (expense), net | | 35 |
| | (103 | ) | | 54 |
| | (53 | ) | | 8 |
| | (218 | ) |
| | | (754 | ) | | 551 |
| | 1,920 |
| | 2,609 |
| | 2,733 |
| | 1,285 |
|
| | | | | | | | | | | | | |
| Income tax (provision) benefit | | 17 |
| | (203 | ) | | 19 |
| | (157 | ) | | (128 | ) | | (8 | ) |
| Equity in net loss of equity method investees | | (294 | ) | | (158 | ) | | (39 | ) | |
| Net income (loss) | | (1,031 | ) | | 190 |
| | 1,900 |
| |
| Equity in net income (loss) of equity method investees | | | 447 |
| | 474 |
| | (83 | ) |
| Net income | | | 2,899 |
| | 3,079 |
| | 1,194 |
|
| | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | (1 | ) | | (23 | ) | | (50 | ) | | — |
| | (34 | ) | | (4 | ) |
| Net income (loss) attributable to Micron | | $ | (1,032 | ) | | $ | 167 |
| | $ | 1,850 |
| |
| Net income attributable to Micron | | | $ | 2,899 |
| | $ | 3,045 |
| | $ | 1,190 |
|
| | | | | | | | | | | | | |
| Earnings (loss) per share: | | | | | | | |
| Earnings per share: | | | | | | | |
| Basic | | $ | (1.04 | ) | | $ | 0.17 |
| | $ | 2.09 |
| | $ | 2.71 |
| | $ | 2.87 |
| | $ | 1.16 |
|
| Diluted | | (1.04 | ) | | 0.17 |
| | 1.85 |
| | 2.47 |
| | 2.54 |
| | 1.13 |
|
| | | | | | | | | | | | | |
| Number of shares used in per share calculations: | | | | | | | | | | | | |
| Basic | | 991.2 |
| | 988.0 |
| | 887.5 |
| | 1,070 |
| | 1,060 |
| | 1,022 |
|
| Diluted | | 991.2 |
| | 1,007.5 |
| | 1,050.7 |
| | 1,170 |
| | 1,198 |
| | 1,057 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
|
| | | | | | | | | | | | |
| For the year ended | | August 30, 2012 | | September 1, 2011 | | September 2, 2010 |
| Net income (loss) | | $ | (1,031 | ) | | $ | 190 |
| | $ | 1,900 |
|
| Other comprehensive income (loss), net of tax: | | | | | | |
| Net gain (loss) on foreign currency translation adjustments | | (16 | ) | | 63 |
| | 11 |
|
| Net unrealized gain (loss) on investments | | (24 | ) | | 11 |
| | 5 |
|
| Net gain (loss) on derivatives | | (18 | ) | | 48 |
| | — |
|
| Pension liability adjustments | | — |
| | 5 |
| | (2 | ) |
| Other comprehensive income (loss) | | (58 | ) | | 127 |
| | 14 |
|
| Total comprehensive income (loss) | | (1,089 | ) | | 317 |
| | 1,914 |
|
| Comprehensive (income) loss attributable to noncontrolling interests | | 5 |
| | (29 | ) | | (49 | ) |
| Comprehensive income (loss) attributable to Micron | | $ | (1,084 | ) | | $ | 288 |
| | $ | 1,865 |
|
|
| | | | | | | | | | | | |
| For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 |
| Net income | | $ | 2,899 |
| | $ | 3,079 |
| | $ | 1,194 |
|
| | | | | | | |
| Other comprehensive income (loss), net of tax: | | | | | | |
| Foreign currency translation adjustments | | (42 | ) | | (2 | ) | | (5 | ) |
| Gain (loss) on derivatives, net | | (18 | ) | | (9 | ) | | (9 | ) |
| Gain (loss) on investments, net | | (4 | ) | | 1 |
| | (1 | ) |
| Pension liability adjustments | | 20 |
| | 3 |
| | (1 | ) |
| Other comprehensive income (loss) | | (44 | ) | | (7 | ) | | (16 | ) |
| Total comprehensive income | | 2,855 |
| | 3,072 |
| | 1,178 |
|
| Comprehensive (income) loss attributable to noncontrolling interests | | 1 |
| | (34 | ) | | (5 | ) |
| Comprehensive income attributable to Micron | | $ | 2,856 |
| | $ | 3,038 |
| | $ | 1,173 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
|
| | | | | | | | |
| As of | | August 30,
2012 | | September 1,
2011 |
| Assets | | | | |
| Cash and equivalents | | $ | 2,459 |
| | $ | 2,160 |
|
| Short-term investments | | 100 |
| | — |
|
| Receivables | | 1,289 |
| | 1,497 |
|
| Inventories | | 1,812 |
| | 2,080 |
|
| Other current assets | | 98 |
| | 95 |
|
| Total current assets | | 5,758 |
| | 5,832 |
|
| Long-term marketable investments | | 374 |
| | 52 |
|
| Property, plant and equipment, net | | 7,103 |
| | 7,555 |
|
| Equity method investments | | 389 |
| | 483 |
|
| Intangible assets, net | | 371 |
| | 414 |
|
| Other noncurrent assets | | 333 |
| | 416 |
|
| Total assets | | $ | 14,328 |
| | $ | 14,752 |
|
| | | | | |
| Liabilities and equity | | | | |
| Accounts payable and accrued expenses | | $ | 1,641 |
| | $ | 1,830 |
|
| Deferred income | | 248 |
| | 443 |
|
| Equipment purchase contracts | | 130 |
| | 67 |
|
| Current portion of long-term debt | | 224 |
| | 140 |
|
| Total current liabilities | | 2,243 |
| | 2,480 |
|
| Long-term debt | | 3,038 |
| | 1,861 |
|
| Other noncurrent liabilities | | 630 |
| | 559 |
|
| Total liabilities | | 5,911 |
| | 4,900 |
|
| | | | | |
| Commitments and contingencies | |
|
| |
|
|
| | | | | |
| Micron shareholders' equity: | | | | |
| Common stock, $0.10 par value, 3,000 shares authorized, 1,017.7 shares issued and outstanding (984.3 as of September 1, 2011) | | 102 |
| | 98 |
|
| Additional capital | | 8,920 |
| | 8,610 |
|
| Accumulated deficit | | (1,402 | ) | | (370 | ) |
| Accumulated other comprehensive income | | 80 |
| | 132 |
|
| Total Micron shareholders' equity | | 7,700 |
| | 8,470 |
|
| Noncontrolling interests in subsidiaries | | 717 |
| | 1,382 |
|
| Total equity | | 8,417 |
| | 9,852 |
|
| Total liabilities and equity | | $ | 14,328 |
| | $ | 14,752 |
|
|
| | | | | | | | |
| As of | | September 3,
2015 | | August 28,
2014 |
| Assets | | | | |
| Cash and equivalents | | $ | 2,287 |
| | $ | 4,150 |
|
| Short-term investments | | 1,234 |
| | 384 |
|
| Receivables | | 2,507 |
| | 2,906 |
|
| Inventories | | 2,340 |
| | 2,455 |
|
| Other current assets | | 228 |
| | 350 |
|
| Total current assets | | 8,596 |
| | 10,245 |
|
| Long-term marketable investments | | 2,113 |
| | 819 |
|
| Property, plant and equipment, net | | 10,554 |
| | 8,682 |
|
| Equity method investments | | 1,379 |
| | 971 |
|
| Intangible assets, net | | 449 |
| | 468 |
|
| Deferred tax assets | | 597 |
| | 816 |
|
| Other noncurrent assets | | 455 |
| | 415 |
|
| Total assets | | $ | 24,143 |
| | $ | 22,416 |
|
| | | | | |
| Liabilities and equity | | | | |
| Accounts payable and accrued expenses | | $ | 2,611 |
| | $ | 2,864 |
|
| Deferred income | | 205 |
| | 309 |
|
| Current debt | | 1,089 |
| | 1,618 |
|
| Total current liabilities | | 3,905 |
| | 4,791 |
|
| Long-term debt | | 6,252 |
| | 4,893 |
|
| Other noncurrent liabilities | | 698 |
| | 1,102 |
|
| Total liabilities | | 10,855 |
| | 10,786 |
|
| | | | | |
| Commitments and contingencies | |
|
| |
|
|
| | | | | |
| Redeemable convertible notes | | 49 |
| | 68 |
|
| | | | | |
| Micron shareholders' equity: | | | | |
| Common stock, $0.10 par value, 3,000 shares authorized, 1,084 shares issued and outstanding (1,073 as of August 28, 2014) | | 108 |
| | 107 |
|
| Additional capital | | 7,474 |
| | 7,868 |
|
| Retained earnings | | 5,588 |
| | 2,729 |
|
| Treasury stock, 45 shares held as of September 3, 2015 | | (881 | ) | | — |
|
| Accumulated other comprehensive income | | 13 |
| | 56 |
|
| Total Micron shareholders' equity | | 12,302 |
| | 10,760 |
|
| Noncontrolling interests in subsidiaries | | 937 |
| | 802 |
|
| Total equity | | 13,239 |
| | 11,562 |
|
| Total liabilities and equity | | $ | 24,143 |
| | $ | 22,416 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Micron Shareholders | | | | |
| | | Common Stock | | Additional Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Micron Shareholders' Equity | Noncontrolling Interests in Subsidiaries | Total Equity |
| | | Number of Shares | Amount |
| Balance at September 3, 2009 | | 848.7 |
| | $ | 85 |
| | $ | 7,257 |
| | $ | (2,385 | ) | | $ | (4 | ) | | $ | 4,953 |
| | $ | 1,986 |
| | $ | 6,939 |
|
| Net income | | | | | | | | 1,850 |
| | | | 1,850 |
| | 50 |
| | 1,900 |
|
| Other comprehensive income (loss), net | | |
| | |
| | |
| | |
| | 15 |
| | 15 |
| | (1 | ) | | 14 |
|
| Stock issued in acquisition of Numonyx | | 137.7 |
| | 14 |
| | 1,098 |
| | | | | | 1,112 |
| | | | 1,112 |
|
| Stock-based compensation expense | | | | | | 93 |
| | | | | | 93 |
| | | | 93 |
|
| Stock issued under stock plans | | 6.6 |
| | | | 8 |
| | | | | | 8 |
| | | | 8 |
|
| Distributions to noncontrolling interests, net | | | | | | | | | | | | — |
| | (229 | ) | | (229 | ) |
| Repurchase and retirement of common stock | | (2.4 | ) | | | | (20 | ) | | (1 | ) | | | | (21 | ) | | | | (21 | ) |
| Exercise of stock rights held by Intel | | 3.9 |
| | | | | | | | | | — |
| | | | — |
|
| Acquisition of noncontrolling interests in TECH | | | | | 10 |
| | | | | | 10 |
| | (10 | ) | | — |
|
| Balance at September 2, 2010 | | 994.5 |
| | $ | 99 |
| | $ | 8,446 |
| | $ | (536 | ) | | $ | 11 |
| | $ | 8,020 |
| | $ | 1,796 |
| | $ | 9,816 |
|
| Net income | | | | | | | | 167 |
| | | | 167 |
| | 23 |
| | 190 |
|
| Other comprehensive income (loss), net | | | | | | |
| | |
| | 121 |
| | 121 |
| | 6 |
| | 127 |
|
| Issuance and repurchase of convertible debts | | | | | | 211 |
| | | | | | 211 |
| | | | 211 |
|
| Stock-based compensation expense | | | | | | 76 |
| | | | | | 76 |
| | | | 76 |
|
| Stock issued under stock plans | | 11.1 |
| | 1 |
| | 27 |
| | | | | | 28 |
| | | | 28 |
|
| Distributions to noncontrolling interests, net | | | | | | | | | | | | — |
| | (217 | ) | | (217 | ) |
| Repurchase and retirement of common stock | | (21.3 | ) | | (2 | ) | | (160 | ) | | (1 | ) | | | | (163 | ) | | | | (163 | ) |
| Acquisition of noncontrolling interests in TECH | | | | | 67 |
| | | | | | 67 |
| | (226 | ) | | (159 | ) |
| Purchase of capped calls | | | | | | (57 | ) | | | | | | (57 | ) | | | | (57 | ) |
| Balance at September 1, 2011 | | 984.3 |
| | $ | 98 |
| | $ | 8,610 |
| | $ | (370 | ) | | $ | 132 |
| | $ | 8,470 |
| | $ | 1,382 |
| | $ | 9,852 |
|
| Net loss | | |
| | |
| | |
| | (1,032 | ) | | | | (1,032 | ) | | 1 |
| | (1,031 | ) |
| Other comprehensive income (loss), net | | | | | | | | | | (52 | ) | | (52 | ) | | (6 | ) | | (58 | ) |
| Issuance of convertible debts | | | | | | 191 |
| | | | | | 191 |
| | | | 191 |
|
| Conversion of 2013 Notes | | 27.3 |
| | 3 |
| | 135 |
| | | | | | 138 |
| | | | 138 |
|
| Stock-based compensation expense | |
|
| |
|
| | 87 |
| | | | | | 87 |
| | | | 87 |
|
| Stock issued under stock plans | | 7.1 |
| | 1 |
| | 5 |
| | | | | | 6 |
| | | | 6 |
|
| Acquisition of noncontrolling interest in IMFS | | | | | | | | | | | | — |
| | (466 | ) | | (466 | ) |
| Distributions to noncontrolling interests, net | | | | | | | | | | | | — |
| | (194 | ) | | (194 | ) |
| Purchase and settlement of capped calls | | | | | | (102 | ) | | | | | | (102 | ) | | | | (102 | ) |
| Repurchase and retirement of common stock | | (1.0 | ) | | — |
| | (6 | ) | | — |
| | | | (6 | ) | | | | (6 | ) |
| Balance at August 30, 2012 | | 1,017.7 |
| | $ | 102 |
| | $ | 8,920 |
| | $ | (1,402 | ) | | $ | 80 |
| | $ | 7,700 |
| | $ | 717 |
| | $ | 8,417 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Micron Shareholders | | | | |
| | | Common Stock | | Additional Capital | | Retained Earnings (Accumulated Deficit) | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Micron Shareholders' Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
| | | Number of Shares | | Amount | | | | | | | |
| Balance at August 30, 2012 | | 1,018 |
| | $ | 102 |
| | $ | 8,920 |
| | $ | (1,402 | ) | | $ | — |
| | $ | 80 |
| | $ | 7,700 |
| | $ | 717 |
| | $ | 8,417 |
|
| Net income | | |
| | | | | | 1,190 |
| | | | | | 1,190 |
| | 4 |
| | 1,194 |
|
| Other comprehensive income (loss), net | | | | | | | | | | | | (17 | ) | | (17 | ) | | 1 |
| | (16 | ) |
| Stock issued under stock plans | | 27 |
| | 2 |
| | 148 |
| | | | | | | | 150 |
| | | | 150 |
|
| Stock-based compensation expense | | | | | | 91 |
| | | | | | | | 91 |
| | | | 91 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | — |
| | 11 |
| | 11 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | — |
| | (37 | ) | | (37 | ) |
| Noncontrolling interests acquired in connection with business combination | | | | | | | | | | | | | | — |
| | 168 |
| | 168 |
|
| Repurchase and retirement of stock | | (1 | ) | | — |
| | (5 | ) | | | | | | | | (5 | ) | | | | (5 | ) |
| Purchase and settlement of capped calls | | | | | | (24 | ) | | | | | | | | (24 | ) | | | | (24 | ) |
| Issuance and repurchase of convertible notes | | | | | | 57 |
| | | | | | | | 57 |
| | | | 57 |
|
| Balance at August 29, 2013 | | 1,044 |
| | $ | 104 |
| | $ | 9,187 |
| | $ | (212 | ) | | $ | — |
| | $ | 63 |
| | $ | 9,142 |
| | $ | 864 |
| | $ | 10,006 |
|
| Net income | | | | | | | | 3,045 |
| | | | | | 3,045 |
| | 34 |
| | 3,079 |
|
| Other comprehensive income (loss), net | | | | | | | | | | | | (7 | ) | | (7 | ) | | | | (7 | ) |
| Stock issued under stock plans | | 36 |
| | 4 |
| | 262 |
| | | | | | | | 266 |
| | | | 266 |
|
| Stock-based compensation expense | | | | | | 115 |
| | | | | | | | 115 |
| | | | 115 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | — |
| | 102 |
| | 102 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | — |
| | (18 | ) | | (18 | ) |
| Acquisitions of noncontrolling interests | | | | | | 34 |
| | | | | | | | 34 |
| | (180 | ) | | (146 | ) |
| Repurchase and retirement of stock | | (4 | ) | | (1 | ) | | (33 | ) | | (42 | ) | | | | | | (76 | ) | | | | (76 | ) |
| Settlement of capped calls and share retirement | | (3 | ) | | — |
| | 62 |
| | (62 | ) | | | | | | — |
| | | | — |
|
| Redeemable convertible notes | | | | | | (68 | ) | | | | | | | | (68 | ) | | | | (68 | ) |
| Exchange, conversion and repurchase of convertible notes | | | | | | (1,691 | ) | | | | | | | | (1,691 | ) | | | | (1,691 | ) |
| Balance at August 28, 2014 | | 1,073 |
| | $ | 107 |
| | $ | 7,868 |
| | $ | 2,729 |
| | $ | — |
| | $ | 56 |
| | $ | 10,760 |
| | $ | 802 |
| | $ | 11,562 |
|
| Net income | | | | | | | | 2,899 |
| | | | | | 2,899 |
| | — |
| | 2,899 |
|
| Other comprehensive income (loss), net | | | | | | | | | | | | (43 | ) | | (43 | ) | | (1 | ) | | (44 | ) |
| Stock issued under stock plans | | 13 |
| | 1 |
| | 73 |
| | | | | | | | 74 |
| | | | 74 |
|
| Stock-based compensation expense | | | | | | 168 |
| | | | | | | | 168 |
| | | | 168 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | — |
| | 142 |
| | 142 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | — |
| | (6 | ) | | (6 | ) |
| Repurchase and retirement of stock | | (2 | ) | | — |
| | (13 | ) | | (40 | ) | | | | | | (53 | ) | | | | (53 | ) |
| Repurchase of treasury stock | | | | | | | | | | (831 | ) | | | | (831 | ) | | | | (831 | ) |
| Settlement of capped calls | | | | | | 50 |
| | | | (50 | ) | | | | — |
| | | | — |
|
| Redeemable convertible notes | | | | | | 19 |
| | | | | | | | 19 |
| | | | 19 |
|
| Conversion and repurchase of convertible notes | | | | | | (691 | ) | | | | | | | | (691 | ) | | | | (691 | ) |
| Balance at September 3, 2015 | | 1,084 |
| | $ | 108 |
| | $ | 7,474 |
| | $ | 5,588 |
| | $ | (881 | ) | | $ | 13 |
| | $ | 12,302 |
| | $ | 937 |
| | $ | 13,239 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
| | | | | | | | | | | | |
| For the year ended | | August 30,
2012 | | September 1,
2011 | | September 2,
2010 |
| Cash flows from operating activities | | | | | | |
| Net income (loss) | | $ | (1,031 | ) | | $ | 190 |
| | $ | 1,900 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
| | |
| | |
| Depreciation expense and amortization of intangible assets | | 2,141 |
| | 2,105 |
| | 1,922 |
|
| Amortization of debt discount and other costs | | 81 |
| | 57 |
| | 83 |
|
| Equity in net loss of equity method investees | | 294 |
| | 158 |
| | 39 |
|
| Stock-based compensation | | 87 |
| | 76 |
| | 93 |
|
| Loss on extinguishment of debt | | — |
| | 113 |
| | — |
|
| Gain from disposition of Japan Fab | | — |
| | (54 | ) | | — |
|
| Gain from acquisition of Numonyx | | — |
| | — |
| | (437 | ) |
| Change in operating assets and liabilities: | | |
| | |
| | |
| Receivables | | 238 |
| | 54 |
| | (516 | ) |
| Inventories | | 258 |
| | (357 | ) | | (121 | ) |
| Accounts payable and accrued expenses | | (83 | ) | | (88 | ) | | 201 |
|
| Customer prepayments | | 254 |
| | 4 |
| | (147 | ) |
| Deferred income | | (56 | ) | | 146 |
| | 84 |
|
| Deferred income taxes, net | | 3 |
| | 103 |
| | (45 | ) |
| Other | | (72 | ) | | (23 | ) | | 40 |
|
| Net cash provided by operating activities | | 2,114 |
| | 2,484 |
| | 3,096 |
|
| | | | | | | |
| Cash flows from investing activities | | |
| | |
| | |
| Expenditures for property, plant and equipment | | (1,699 | ) | | (2,550 | ) | | (616 | ) |
| Purchases of available-for-sale securities | | (564 | ) | | (9 | ) | | (3 | ) |
| Additions to equity method investments | | (187 | ) | | (31 | ) | | (165 | ) |
| Proceeds from sales and maturities of available-for-sale securities | | 152 |
| | 1 |
| | 3 |
|
| Proceeds from sales of property, plant and equipment | | 67 |
| | 127 |
| | 94 |
|
| (Increase) decrease in restricted cash | | 5 |
| | 330 |
| | (240 | ) |
| Return of equity method investment | | 1 |
| | 48 |
| | — |
|
| Proceeds from sale of interest in Hynix JV | | — |
| | — |
| | 423 |
|
| Cash acquired from acquisition of Numonyx | | — |
| | — |
| | 95 |
|
| Other | | (87 | ) | | 42 |
| | (39 | ) |
| Net cash used for investing activities | | (2,312 | ) | | (2,042 | ) | | (448 | ) |
| | | | | | | |
| Cash flows from financing activities | | |
| | |
| | |
| Proceeds from issuance of debt | | 1,065 |
| | 690 |
| | 200 |
|
| Proceeds from equipment sale-leaseback transactions | | 609 |
| | 268 |
| | — |
|
| Cash received from noncontrolling interests | | 197 |
| | 8 |
| | 38 |
|
| Acquisition of noncontrolling interests | | (466 | ) | | (159 | ) | | — |
|
| Distributions to noncontrolling interests | | (391 | ) | | (225 | ) | | (267 | ) |
| Repayments of debt | | (203 | ) | | (1,215 | ) | | (840 | ) |
| Payments on equipment purchase contracts | | (172 | ) | | (322 | ) | | (330 | ) |
| Cash (paid) received for capped call transactions | | (102 | ) | | (57 | ) | | — |
|
| Cash paid to purchase common stock | | (6 | ) | | (163 | ) | | (21 | ) |
| Other | | (34 | ) | | (20 | ) | | — |
|
| Net cash provided by (used for) financing activities | | 497 |
| | (1,195 | ) | | (1,220 | ) |
| | | | | | | |
| Net increase (decrease) in cash and equivalents | | 299 |
| | (753 | ) | | 1,428 |
|
| Cash and equivalents at beginning of period | | 2,160 |
| | 2,913 |
| | 1,485 |
|
| Cash and equivalents at end of period | | $ | 2,459 |
| | $ | 2,160 |
| | $ | 2,913 |
|
| | | | | | | |
| Supplemental disclosures | | |
| | |
| | |
| Income taxes refunded (paid), net | | $ | 13 |
| | $ | (99 | ) | | $ | 2 |
|
| Interest paid, net of amounts capitalized | | (72 | ) | | (59 | ) | | (95 | ) |
| Noncash investing and financing activities: | | |
| | |
| | |
| Equipment acquisitions on contracts payable and capital leases | | 897 |
| | 469 |
| | 420 |
|
| Conversion of notes to stock, net of unamortized issuance cost | | 138 |
| | — |
| | — |
|
| Exchange of convertible notes | | — |
| | 175 |
| | — |
|
| Stock and restricted stock units issued in acquisition of Numonyx | | — |
| | — |
| | 1,112 |
|
| Acquisition of interest in Transform | | — |
| | — |
| | 65 |
|
|
| | | | | | | | | | | | |
| For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 |
| Cash flows from operating activities | | | | | | |
| Net income | | $ | 2,899 |
| | $ | 3,079 |
| | $ | 1,194 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
| Depreciation expense and amortization of intangible assets | | 2,667 |
| | 2,103 |
| | 1,804 |
|
| Amortization of debt discount and other costs | | 138 |
| | 167 |
| | 122 |
|
| Stock-based compensation | | 168 |
| | 115 |
| | 91 |
|
| (Gain) loss from currency hedges, net | | 64 |
| | 27 |
| | 222 |
|
| Loss on restructure of debt | | 49 |
| | 195 |
| | 31 |
|
| Noncash restructure and asset impairment, net | | 1 |
| | (17 | ) | | 106 |
|
| (Gain) on MMJ Acquisition | | — |
| | 33 |
| | (1,484 | ) |
| Equity in net (income) loss of equity method investees | | (447 | ) | | (474 | ) | | 83 |
|
| Gain from Inotera issuance of shares | | (3 | ) | | (97 | ) | | (48 | ) |
| Gain from disposition of interest in Aptina | | (1 | ) | | (119 | ) | | — |
|
| Change in operating assets and liabilities: | | |
| | |
| | |
| Receivables | | 393 |
| | (518 | ) | | (409 | ) |
| Inventories | | 116 |
| | 194 |
| | 83 |
|
| Accounts payable and accrued expenses | | (691 | ) | | 671 |
| | 28 |
|
| Deferred income taxes, net | | 168 |
| | 68 |
| | (7 | ) |
| Other noncurrent liabilities | | (16 | ) | | 243 |
| | (15 | ) |
| Other | | (297 | ) | | 29 |
| | 10 |
|
| Net cash provided by operating activities | | 5,208 |
| | 5,699 |
| | 1,811 |
|
| | | | | | | |
| Cash flows from investing activities | | |
| | |
| | |
| Purchases of available-for-sale securities | | (4,392 | ) | | (1,063 | ) | | (924 | ) |
| Expenditures for property, plant and equipment | | (4,021 | ) | | (3,107 | ) | | (1,442 | ) |
| Payments to settle hedging activities | | (132 | ) | | (26 | ) | | (253 | ) |
| (Increase) decrease in restricted cash | | (15 | ) | | 536 |
| | — |
|
| Proceeds from sales and maturities of available-for-sale securities | | 2,248 |
| | 557 |
| | 678 |
|
| Cash received from disposition of interest in Aptina | | 1 |
| | 105 |
| | — |
|
| Other | | 79 |
| | 96 |
| | 31 |
|
| Net cash provided by (used for) investing activities | | (6,232 | ) | | (2,902 | ) | | (1,910 | ) |
| | | | | | | |
| Cash flows from financing activities | | |
| | |
| | |
| Repayments of debt | | (2,329 | ) | | (3,843 | ) | | (743 | ) |
| Cash paid to acquire treasury stock | | (884 | ) | | (76 | ) | | (5 | ) |
| Payments on equipment purchase contracts | | (95 | ) | | (30 | ) | | (16 | ) |
| Proceeds from issuance of debt | | 2,212 |
| | 2,212 |
| | 1,121 |
|
| Proceeds from equipment sale-leaseback transactions | | 291 |
| | 14 |
| | 126 |
|
| Contributions from noncontrolling interests | | 142 |
| | 102 |
| | 11 |
|
| Proceeds from issuance of stock under equity plans | | 73 |
| | 265 |
| | 150 |
|
| Other | | (128 | ) | | (143 | ) | | (124 | ) |
| Net cash provided by (used for) financing activities | | (718 | ) | | (1,499 | ) | | 520 |
|
| | | | | | | |
| Effect of changes in currency exchange rates on cash and equivalents | | (121 | ) | | (28 | ) | | — |
|
| | | | | | | |
| Net increase (decrease) in cash and equivalents | | (1,863 | ) | | 1,270 |
| | 421 |
|
| Cash and equivalents at beginning of period | | 4,150 |
| | 2,880 |
| | 2,459 |
|
| Cash and equivalents at end of period | | $ | 2,287 |
| | $ | 4,150 |
| | $ | 2,880 |
|
| | | | | | | |
| Supplemental disclosures | | |
| | |
| | |
| Income taxes refunded (paid), net | | $ | (63 | ) | | $ | (43 | ) | | $ | 4 |
|
| Interest paid, net of amounts capitalized | | (226 | ) | | (163 | ) | | (107 | ) |
| Noncash investing and financing activities: | | |
| | |
| | |
| Exchange of convertible notes | | — |
| | 756 |
| | — |
|
| Acquisition of noncontrolling interest | | — |
| | 127 |
| | — |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
Significant Accounting Policies
Basis of PresentationPresentation:: We are a global manufacturer and marketerleader in advanced semiconductor systems. Our broad portfolio of semiconductor devices, principallyhigh-performance memory technologies, including DRAM, NAND Flash, and NOR Flash, is the basis for solid-state drives, modules, multi-chip packages, and other system solutions. Our memory as well as othersolutions enable the world's most innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, enterprise storage, networking, automotive, industrial,mobile, embedded, and mobile products. In addition, we manufacture components for CMOS image sensors and other semiconductor products.automotive applications. The accompanying consolidated financial statements include the accounts of Micron Technology, Inc. and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America.
Certain reclassifications none of which are material, have been made to prior period amounts to conform to current period presentation. The paymentIn addition, amounts for the acquisition of noncontrolling interests in 2011 has been corrected andcertain equipment purchases were reclassified infrom financing to investing within the statement of cash flows from an investing activity to better reflect the current nature of these transactions and to improve comparability with our industry peers. In the fourth quarter of 2015, we adopted, on a financing activity. Disclosuresretrospective basis, Accounting Standards Update 2015-03 – Simplifying the Presentation of certain deferred tax assets and liabilities in prior years were corrected with corresponding changes in the valuation allowance, resulting in no change to net deferred tax assets.Debt Issuance Costs. (See "Debt – Retrospective Application of a New Accounting Standard" note.)
Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. OurFiscal year 2015 contained 53 weeks and fiscal years 2012, 20112014 and 20102013 each contained 52 weeks. All period references are to our fiscal periods unless otherwise indicated.
Derivative and Hedging Instruments: We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities or future cash flows and to reduce volatility in our earnings caused by changes in interest rates that affect our variable-rate debt. Our derivatives have consisted of forward and option contracts and we have also entered into interest rate swap contracts. We do not use derivative instruments for trading or speculative purposes. Derivative instruments are measured at their fair values and recognized as either assets or liabilities. The accounting for changes in the fair value of derivative instruments is based on the intended use of the derivative and the resulting designation. For derivative instruments that are not designated as hedges for accounting purpose, gains or losses from changes in fair values are recognized in other non-operating income (expense). For derivative instruments designated as cash-flow hedges, the effective portion of the gain or loss is included as a component of other comprehensive income (loss), and the ineffective or excluded portion of the gain or loss is included in other non-operating income (expense). The amounts in accumulated other comprehensive income (loss) from these cash flow hedges are reclassified into earnings in the same line items of the consolidated statements of operation and in the same periods in which the underlying transactions affect earnings. Effectiveness is measured by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the forecasted cash flows of the hedged item. For the effectiveness assessment of our cash-flow hedges, changes in the time value are excluded for forward contracts.
We enter into master netting arrangements with our counterparties to mitigate credit risk in derivative hedge transactions. These master netting arrangements allow us and our counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled with each counterparty have been presented in our consolidated balance sheet on a net basis.
(See "Derivative Instruments" note.)
Financial Instruments: Cash equivalents include highly liquid short-term investments with original maturities to us of three months or less that are readily convertible to known amounts of cash. Investments with maturities greater than three months and less than one year are included in short-term investments. Investments with remaining maturities greater than one year are included in long-term marketable investments. The carrying value of investment securities sold is determined using the specific identification method.
Functional Currency: The U.S. dollar is the functional currency for all of our consolidated subsidiaries.
Inventories: Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves numerous judgments, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories. When net realizable value is below cost, we record a charge to cost of goods sold to write down inventories to their estimated net realizable value in advance of when the inventories are actually sold. Inventories are primarily categorized as memory (including DRAM, non-volatile, and other memory) for purposes of determining the lower of average cost or net realizable value. The major characteristics considered in determining inventory categories for purposes of determining the lower of cost or net realizable value are product type and markets. We remove amounts from inventory and charge such amounts to cost of goods sold on an average cost basis.
Product and Process Technology: Costs incurred to (1) acquire product and process technology, (2) patent technology, and (3) maintain patent technology are capitalized and amortized on a straight-line basis over periods ranging up to 12.5 years. We capitalize a portion of the costs incurred to patent technology based on historical and projected patents issued as a percent of patents we file. Capitalized product and process technology costs are amortized over the shorter of (1) the estimated useful life of the technology, (2) the patent term, or (3) the term of the technology agreement. Fully-amortized assets are removed from product and process technology and accumulated amortization.
Product Warranty: We generally provide a limited warranty that our products are in compliance with our specifications existing at the time of delivery. Under our 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, we provide more extensive limited warranty coverage than that provided under our general terms and conditions. Our warranty obligations are not significant.
Property, Plant and Equipment: Property, plant, and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally 10 to 30 years for buildings, 5 to 7 years for equipment, and 3 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, plant, or equipment is retired or otherwise disposed, the net book value is removed and we recognize any gain or loss in our results of operations.
We capitalize interest on borrowings during the period of time over which we carry out the activities necessary to bring the asset to the condition of its intended use and location. Capitalized interest becomes part of the cost of the underlying assets and amortized over the useful lives of the assets.
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. Development of a product is deemed complete once the product has been thoroughly reviewed and has passed tests for performance and reliability. Subsequent to product qualification, product costs are valued in inventory. Product design and other research and development costs for certain technologies are shared with our joint venture partners. Amounts receivable from cost-sharing arrangements are reflected as a reduction of research and development expense. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)
Revenue Recognition: We recognize product or license revenue when persuasive evidence that a sales arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. If we are unable to reasonably estimate returns or the price is not fixed or determinable, sales made under agreements allowing rights of return or price protection are deferred until customers have resold the product.
Stock-based Compensation: Stock-based compensation is measured at the grant date, based on the fair value of the award, and recognized as expense under the straight-line attribution method over the requisite service period. We issue new shares upon the exercise of stock options or conversion of share units. (See "Equity Plans" note.)
Treasury Stock: When we retire our treasury stock, any excess of the repurchase price paid over par value is allocated between additional capital and retained earnings.
Use of EstimatesEstimates:: The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires our 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 events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may differ under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Actual results could differ from estimates.
Product Warranty: We generally provide a limited warranty that our products are in compliance with our specifications existing at the time of delivery. Under our 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, we provide more extensive limited warranty coverage than that provided under our general terms and conditions. Our warranty obligations are not material.
Revenue Recognition: We recognize product or license revenue when persuasive evidence that a sales arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. Since we are unable to estimate returns and changes in market price, and therefore the price is not fixed or determinable, sales made under agreements allowing pricing protection or rights of return (other than for product warranty) are deferred until customers have resold 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. Development of a product is deemed 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, DRAM and certain emerging memory technologies are shared with our joint venture partners. Amounts receivable from these cost-sharing arrangements are reflected as a reduction of research and development expense. (See "Equity Method Investments" and "Consolidated Variable Interest Entities – IM Flash" notes.)
Stock-based Compensation: Stock-based compensation is measured at the grant date, based on the fair value of the award, and recognized as expense under the straight-line attribution method over the requisite service period. We issue new shares upon the exercise of stock options or conversion of share units. (See "Equity Plans" note.)
Stock Repurchases: When we repurchase and retire our common stock, any excess of the repurchase price paid over par value is allocated between paid-in capital and retained earnings.
Functional Currency: The U.S. dollar is the functional currency for all of our consolidated operations.
Financial Instruments: Cash equivalents include highly liquid short-term investments with original maturities to us 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 included in short-term investments. Investments with remaining maturities greater than one year are included in long-term marketable investments. The carrying value of investment securities sold is determined using the specific identification method.
Derivative and Hedging Instruments: We use derivative financial instruments, primarily forward and option contracts, to manage exposures to fluctuating currency exchange rates. We do not use financial instruments for trading or speculative purposes. Derivative instruments are measured at their fair values and recognized as either assets or liabilities. The accounting for changes in the fair value of derivative instruments is based on the intended use of the derivative and the resulting designation. For derivative instruments that are not designated as hedges for accounting purpose, gains or losses from changes in fair values are recognized in other income (expense). For derivative instruments designated as cash-flow hedges, the effective portion of the gain or loss is included as a component of other comprehensive income (loss), and the ineffective or excluded portion of the gain or loss is included in other operating income (expense). The amounts in accumulated other comprehensive income (loss) for these cash flow hedges are reclassified into earnings in the same line items of the consolidated statements of operation and in the same periods in which the underlying transactions affect earnings. Effectiveness is measured by comparing the cumulative change in the fair value of the hedge contract with the cumulative change in the forecasted cash flows of the hedged item. For the effectiveness assessment of our cash-flow hedges, changes in the time value are excluded for forward contracts and included for options. (See "Derivative Financial Instruments – Currency Derivatives with Hedge Accounting Designation" note.)
Inventories: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and overhead costs, including product and process technology costs. Determining market 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. When market values are below costs, we record a charge to cost of goods sold to write down inventories to their estimated market value in advance of when the inventories are actually sold. Inventories are generally categorized as memory (primarily DRAM and NAND Flash and NOR Flash) and imaging products for purposes of determining average cost and market value. The major characteristics considered 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 are capitalized and amortized on a straight-line basis over periods ranging up to 10 years. We capitalize a portion of costs incurred based on the historical and projected patents issued as a percent of patents we file. 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 generally 10 to 30 years for buildings, generally 5 to 7 years for equipment and 3 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, the net book value of the asset is removed and we recognize any gain or loss in our results of operations.
We capitalize interest on borrowings during the active construction period of capital projects. Capitalized interest is added to the cost of the underlying assets and amortized over the useful lives of the assets.
Variable Interest Entities
We have interests in joint venture entities that are Variable Interest Entities ("VIEs").VIEs. If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgment.judgments.
Unconsolidated Variable Interest EntitiesVIEs
Inotera: Inotera Memories, Inc. ("Inotera") is a VIE because (1) its equity is not sufficient to permit it to finance its activities without additional support from its shareholders and (2) of the terms of its supply agreement with us and our partner, Nanya Technology Corporation ("Nanya").us. We have determined that we do not have the power to direct the activities of Inotera that most significantly impact its economic performance, primarily due to (1) limitations on our governance rights that require the consent of other parties for key operating decisions and (2) ourdue to Inotera's dependence on our joint venture partnerNanya for financing and the ability of Inotera to operate in Taiwan. Therefore, we do not consolidate Inotera and we account for our interest in Inotera under the equity method. (See "Equity Method Investments – Inotera" note.)
Transform:EQUVO: Transform Solar Pty Ltd.EQUVO HK Limited ("Transform"EQUVO") is a special purpose entity created to facilitate an equipment sale-leaseback financing transaction between us and a consortium of financial institutions. Neither we nor the financing entities have an equity interest in EQUVO. EQUVO is a VIE because its equity is not sufficient to permit it to finance its activities without additional financial support from us or our partner, Origin Energy Limited ("Origin"). We have determined that we do not have the power to direct the activities of Transform that most significantly impact its economic performance, primarily due to limitations on our governance rights that require the consent of Origin for key operating decisions. Therefore, we account for our interest in Transform under the equity method. On May 25, 2012, the Board of Directors of Transform approved a liquidation plan. As of August 30, 2012, Transform's operations were substantially discontinued.
For further information regarding our VIEs that we account for under the equity method, see "Equity Method Investments" note.
EQUVO Entities:EQUVO HK Limited and EQUVA Capital 1 Pte. Ltd. (together the "EQUVO Entities") are special purpose entities created to facilitate equipment sale-leaseback financing transactions between us and a consortium of financial institutions. Neither we nor the financial institutions have an equity interest in the EQUVO Entities. The EQUVO Entities are VIEs because their equity is not sufficient to permit them to finance their activities without additional support from the financial institutionsfinancing entities and because the third-party equity holder lacks characteristics of a controlling financial interest. By design, the arrangement with the EQUVO Entities is merely a financing vehicle and we do not bear any significant risks from variable interests with the EQUVO Entities.EQUVO. Therefore, we have determined that we do not have the power to direct the activities of the EQUVO Entities that most significantly impact theirits economic performance and we do not consolidate EQUVO.
SC Hiroshima Energy Corporation: SC Hiroshima Energy Corporation ("SCHE") is an entity created to construct and operate a cogeneration, electrical power plant to support our wafer manufacturing facility in Hiroshima, Japan. SCHE is a VIE due to the EQUVO Entities.nature of its tolling agreements with us and our purchase and call options for SCHE's assets. We do not have an equity ownership interest in SCHE. We do not control the operation and maintenance of the plant, which we have determined are the activities of SCHE that most significantly impact its economic performance. Therefore, we do not consolidate SCHE.
Consolidated Variable Interest EntitiesVIEs
IMFT: IM Flash Technologies, LLC ("IMFT")IMFT is a VIE because all of its costs are passed to us and its other member, Intel, Corporation ("Intel"), through product purchase agreements and because IMFT is dependent upon us or Intel for any additional cash requirements. We determined that we have the power to direct the activities of IMFT that most significantly impact its economic performance. The primary activities of IMFT are driven by the constant introduction of product and process technology. Because we perform a significant majority of the technology development, we have the power to direct its key activities. In addition, IMFT manufactures certain products exclusively for us using our technology. We also determinedconsolidate IMFT because we have the power to direct the activities of IMFT that most significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to it. Therefore, we consolidate IMFT. In the third quarter of 2012, we entered into agreements with Intel to restructure IMFT.
IMFS: Prior to April 6, 2012, IM Flash Singapore, LLP ("IMFS") was a VIE because all of its costs were passed to us and its other member, Intel, through product purchase agreements and IMFS was dependent upon us or Intel for any additional cash requirements. Prior to April 6, 2012, we determined that we had the power to direct the activities of IMFS that most significantly impacted its economic performance. Additionally, since 2010, we had significantly greater economic exposure than Intel as a result of our significantly higher ownership interest in IMFS. Therefore, we consolidated IMFS. On April 6, 2012, we acquired Intel's remaining interests in IMFS and it ceased to be a VIE.
MP Mask: MP Mask Technology Center, LLC ("MP Mask") is a VIE because substantially all of its costs are passed to us and its other member, Photronics, Inc. ("Photronics"), through product purchase agreements and MP Mask is dependent upon us or Photronics for any additional cash requirements. We determined thathave tie-breaking voting rights over key operating decisions and nearly all key MP Mask activities are driven by our supply needs. We consolidate MP Mask because we have the power to direct the activities of MP Mask that most significantly impact its economic performance primarilyand because (1) of our tie-breaking voting rights over key operating decisions and (2) nearly all key MP Mask activities are driven by our supply needs. We also determined that we have the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to it. Therefore, we consolidate MP Mask.
For further information regarding our consolidated VIEs, see "Consolidated Variable Interest Entities"(See "Equity – Noncontrolling Interests in Subsidiaries" note.)
Recently Adopted Accounting Standards
In June 2011,July 2015, the Financial Accounting Standards Board ("FASB") issued a new accounting standardAccounting Standards Update ("ASU") 2015-11 – Simplifying the Measurement of Inventory, which changed the subsequent measurement guidance from the lower of cost or market to the lower of cost or net realizable value, with net realizable value defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.inventory measurement. We adopted this standard in the fourth quarter of 2012.2015. The adoption of this standard did not have a material impact on our financial statements.
In May 2011,April 2015, the FASB issued ASU 2015-03 – Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a new accounting standard on fair value measurementsrecognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements.debt liability, as appropriate, consistent with debt discounts, as opposed to an asset. We adopted this standard in the thirdfourth quarter of 2012. The adoption2015 on a retrospective basis. As a result of adopting this standard, did not havewe presented our debt issuance costs for recognized debt liabilities as a material impact on our financial statements. direct reduction of the related debt liability in the consolidated balance sheets for all periods presented. (See "Debt – Retrospective Application of a New Accounting Standard" note.)
Elpida Memory, Inc.Recently Issued Accounting Standards
Elpida Sponsor AgreementIn April 2015, the FASB issued ASU 2015-05
On July 2, 2012, we entered into– Customer's Accounting for Fees Paid in a sponsor agreement (the "Sponsor Agreement") with the trustees of Elpida Memory, Inc. ("Elpida") and its subsidiary, Akita Elpida Memory, Inc. ("Akita" and, together with Elpida, the "Elpida Companies"). The Elpida Companies filed petitions for corporate reorganization proceedings with the Tokyo District Court under the Corporate Reorganization Act of Japan on February 27, 2012.
Cloud Computing Arrangement, which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under the Sponsor Agreement, we committed to support plans of reorganizationASU 2015-05, if a software cloud computing arrangement contains a software license, customers should account for the Elpida Companies that would provide for payments to the secured and unsecured creditorslicense element of the Elpida Companiesarrangement in an aggregate amount of 200 billion yen (or approximately $2.5 billion), less certain expenses of the reorganization proceedings and certain other items. As a condition of the Sponsor Agreement, we deposited 1.8 billion yen (or approximately $23 million) into an escrow account in July 2012 which will be applied to the share acquisition payments at closing. Of the aggregate amount, we will fund 60 billion yen (or approximately $750 million) through a cash payment to Elpida at the closing, in exchange for 100% ownership of Elpida's equity. The remaining 140 billion yen (or approximately $1.75 billion) of payments will be made by the Elpida Companies in six annual installments payable at the end of each calendar year beginning in 2014, with payments of 20 billion yen (or approximately $250 million) in each of 2014 through 2017, and payments of 30 billion yen (or approximately $375 million) in each of 2018 and 2019.
We have agreed to provide additional support to Elpida, which may include a payment guarantee under certain circumstances, to facilitate its continued access to debtor-in-possession financing of up to 16 billion yen (or approximately $200 million) from third-party finance sources through the closing of the Elpida share purchase, and to use reasonable efforts to assist Elpida in obtaining up to 5 billion yen (or approximately $63 million) of continued debtor-in-possession financing from third parties for up to two months following the closing. In addition, we have agreed to use reasonable efforts to assist the Elpida Companies in financing up to 64 billion yen (or approximately $800 million) of capital expenditures through June 30, 2014, including up to 40 billion yen (or approximately $500 million) prior to June 30, 2013, either by providing payment guarantees under certain circumstances, or by providing such financing directly.
Under applicable Japanese law, following the closing of the transaction, because a portion of the payments to creditors will be satisfied through the installment payments described above, the operation of the businesses of the Elpida Companies will remain subject to the oversight of the court in charge of the reorganization proceedings and of the trustees (including a trustee nominated by us upon the closing of the transaction).
The Sponsor Agreement contains certain termination rights, including our right to terminate the Sponsor Agreement if a change, taken together with all other changes, occurs that is or would reasonably be expected to be materially adverse to (i) the business, assets, etc. of Elpida and its subsidiaries, taken as a whole, or to the business, assets, etc. taken as a whole of Rexchip Electronics Corporation ("Rexchip"), a Taiwanese corporation formed as a manufacturing joint venture by Elpida and Powerchip Technology Corporation ("Powerchip"), a Taiwanese corporation; or (ii) our ability to operate Elpida's business immediately following closing in substantially the same manner as conducted by Elpida as of July 2, 2012. Elpida currently owns, directly and indirectly through a subsidiary, approximately 65% of Rexchip's outstanding common stock.
The trustees of the Elpida Companies submitted plans of reorganization to the court on August 21, 2012, which plans are subject to court and creditor approval under applicable Japanese law. The Sponsor Agreement provides that the plans of reorganization submitted by the trustees are to contain terms consistent with the provisionsacquisition of other software licenses. If the Sponsor Agreement.
Certain creditors of Elpida are challengingarrangement does not contain a software license, customers should account for the proposed plan of reorganization submitted byarrangement as a service contract. ASU 2015-05 also removes the trustees and have proposed an alternative plan of reorganization. An examiner appointed by the court has reviewed both plans and is currently expectedrequirement to make a recommendationanalogize to the court, on or about October 29, 2012, regarding whether to submit one or both plans of reorganization to creditors for approval.
The consummation of the Sponsor Agreement is subject to various closing conditions, including but not limited to approval by the Tokyo District Court, requisite creditor approval, receipt of approvals in bankruptcy proceedings in other jurisdictions and receipt of regulatory approvals, including the People's Republic of China. The transaction is currently anticipated to close in the first half of calendar 2013.
Rexchip Share Purchase Agreement
On July 2, 2012, we entered into a share purchase agreement with Powerchip and certain of its affiliates, under which we will purchase approximatelyASC 840-10 714 million–Leases shares of Rexchip common stock, which represents approximately 24% of Rexchip's outstanding common stock for approximately 10 billion New Taiwan dollars (or approximately $334 million). The consummation of this share purchase agreement is subject to various closing conditions, includingdetermine the closing of the transactions contemplated by the Elpida Sponsor Agreement. At the closing of the Elpida Sponsor Agreement and the Rexchip share purchase agreement, our aggregate beneficial ownership interestasset acquired in Rexchipa software licensing arrangement. This ASU will approximate 89%.
Currency Hedging
Elpida Hedges: On July 2, 2012, we executed a series of separate currency exchange transactions pursuant to which we purchased call options to buy 200 billion yen with a weighted-average strike price of 79.15 (yen per U.S. dollar). In addition, to reduce the cost of these call options, we sold put options to sell 100 billion yen with a strike price of 83.32 and we sold call options to buy 100 billion yen with a strike price of 75.57. The net cost of these call and put options, which expire on April 3, 2013, of $49 million is payable upon settlement. These currency options mitigate the risk of a strengthening yen for our yen-denominated payments under the Sponsor Agreement while preserving some abilitybe effective for us to benefit if the value of the yen weakens relative to the U.S. dollar. These option contracts were not designated for hedge accounting and are remeasured at fair value each period with gains and losses reflectedbeginning in our resultsfirst quarter of operations.
Rexchip Hedges: On July 25, 2012, we executed a series of separate currency exchange transactions pursuant to which we purchased call options to buy 10 billion New Taiwan dollars with a weighted-average strike price of 29.21 (New Taiwan dollar per U.S. dollar). The cost of these options, which expire on April 2, 2013, of $3 million2017 and early adoption is payable upon settlement. These currency options mitigate the risk of a strengthening New Taiwan dollar for our payments under the Rexchip share purchase agreement. These option contracts were not designated for hedge accounting andpermitted. We are remeasured at fair value each period with gains and losses reflected in our results of operations.
Japan Fabrication Facility
On June 2, 2011, we sold our wafer fabrication facility in Japan (the "Japan Fab") to Tower Semiconductor Ltd. ("Tower"). Under the arrangement, Tower paid $40 million in cash, approximately 1.3 million ordinary shares of Tower (subsequent to a 1 for 15 reverse stock split on August 6, 2012), and $20 million in installment payments, which we received in the second and third quarters of 2012. The net carrying value of assets sold and liabilities transferred to Tower on the transaction date prior toevaluating the effects of the transaction wasadoption of this ASU on our financial statements.
In February 2015, the FASB issued ASU 2015-02 – $23 millionAmendments to the Consolidation Analysis, which amends the consolidation requirements in Accounting Standards Codification 810 –Consolidation. ASU 2015-02 makes targeted amendments to the current consolidation guidance for VIEs, which could change consolidation conclusions. This ASU will be effective for us beginning in our first quarter of 2017 and we recorded a gain of $54 million (net of transaction costs of $3 million) in connection withearly adoption is permitted. We are evaluating the saleeffects of the Japan Fab.adoption of this ASU on our financial statements.
In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the U.S. The core principal of this ASU is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Including the one-year extension of this ASU provided by ASU 2015-14, we are required to adopt this ASU beginning in our first quarter of 2019; however, we are permitted to adopt this ASU as early as our first quarter of 2018. This ASU allows for either full retrospective or modified retrospective adoption. We also recorded a tax provisionare evaluating the timing of $74 million related toour adoption, the gain ontransition method we will elect, and the sale and to write down certain deferred tax assets associated with the Japan Fab. In connection with the saleeffects of the Japan Fab, we entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014.adoption of this ASU on our financial statements.
NumonyxMicron Memory Japan, Inc.
On May 7, 2010,July 31, 2013, we acquired Numonyx, which manufacturedElpida, now known as MMJ, and sold primarily NOR Flasha controlling interest in Rexchip, now known as MMT, for an aggregate of $949 million in cash (collectively, "the MMJ Acquisition"). The MMJ Acquisition included (1) the acquisition of MMJ, including its 65% interest in MMT and NAND Flash memory products. We acquired Numonyx tofurther strengthen our portfolio(2) the acquisition of memory products, increase manufacturingan additional 24% interest in MMT from Powerchip Technology Corporation (the "MMT Share Purchase"). The MMJ Acquisition was treated as a single business combination because: (1) the two transactions were entered into and revenue scale, access Numonyx's customer baseclosed contemporaneously, and provide opportunities to increase multi-chip offerings(2) the MMT Share Purchase was negotiated in the embedded and mobile markets. The total fair valuecontemplation of the consideration paid for Numonyxacquisition of MMJ and its completion was contingent on the closing of the acquisition of MMJ.
In 2014, we purchased additional interests in MMT, increasing our ownership interest to 99.5%. (See "Equity – Noncontrolling Interest in Subsidiaries – MMT" note.)
The MMJ Acquisition included a $1,112 million300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility located in Taichung City, Taiwan, and consistedan assembly and test facility located in Akita, Japan. The operations from the MMJ Acquisition, which are included primarily in our MBU and CNBU segments, include the manufacture of 137.7 million shares of our common stock issuedmobile DRAM targeted to the Numonyx shareholdersmobile phones and 4.8 million restricted stock units issuedtablets and computing DRAM targeted to employees of Numonyx.desktop PCs, servers, notebooks, and workstations.
We determinedestimated the provisional fair valuevalues of the assets and liabilities of Numonyxthe MMJ Group as of May 7, 2010the July 31, 2013 acquisition date using an in-exchange model. Because the fairin-use model, which reflects its value of the netthrough its use in combination with other assets acquired of $1,549 million exceeded the purchase price,as a group and we recognized a gain onin 2013 of $1.48 billion. In the acquisition of $437 million in the thirdsecond quarter of 2010. We believe2014, the gain realized in acquisition accounting was the result of a number of factors, including the following: significant losses recognized by Numonyx during the recent downturn in the semiconductor memory industry; substantial volatility in Numonyx's primary markets; market perceptions that future opportunities for Numonyx products in certain markets were limited; the liquidity afforded to the sellers as a result of the limited opportunities to realize the value of their investment in Numonyx; and potential gains to the sellers through their investment in our equity from synergies we realize with Numonyx. In addition, we recognized a $51 million income tax benefitprovisional amounts recorded in connection with the acquisition.MMJ Acquisition were adjusted, primarily for pre-petition liabilities, and we recognized a charge in 2014 for these measurement period adjustments. The valuation of assets acquired and liabilities assumed were as follows:
|
| | | |
| Assets acquired and liabilities assumed: | |
| Cash and equivalents | $ | 999 |
|
| Receivables | 697 |
|
| Inventories | 962 |
|
| Restricted cash | 557 |
|
| Other current assets | 142 |
|
| Property, plant and equipment | 935 |
|
| Equity method investment | 40 |
|
| Intangible assets | 10 |
|
| Deferred tax assets | 811 |
|
| Other noncurrent assets | 66 |
|
| Accounts payable and accrued expenses | (409 | ) |
| Current portion of long-term debt | (673 | ) |
| Long-term debt | (1,461 | ) |
| Other noncurrent liabilities | (75 | ) |
| Total net assets acquired | 2,601 |
|
| Noncontrolling interest in MMJ | 168 |
|
| Consideration | 949 |
|
| Preliminary gain on acquisition recognized in 2013 | 1,484 |
|
| Adjustment for preliminary pre-petition liabilities | (33 | ) |
| Final gain on acquisition | $ | 1,451 |
|
Our results of operations for 2010 include2013 included $635355 million of net sales and $1446 million of operating lossesincome from the NumonyxMMJ Group's operations after the May 7, 2010July 31, 2013 acquisition date. Selling, general, and administrative expenses in our results of operations for 2013 included transaction costs of $50 million incurred in connection with the MMJ Acquisition.
The acquisition of MMJ was pursuant to the terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that we entered into in July 2012 with the trustees of the MMJ Companies pursuant to and in connection with the MMJ Companies' corporate reorganization proceedings under the Corporate Reorganization Act of Japan. As a result of the Japan Proceedings, for so long as such proceedings are continuing, the MMJ Companies are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions would also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends to us as any such dividends would have to be first paid to the MMJ Companies which are prohibited from repaying those amounts to us as dividends under the plans of reorganization. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary-course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ Companies may be considered outside the ordinary course of business and may require consent of MMJ's trustees or, in certain cases, approval by the Japan Court. As a result, the assets of the MMJ Companies, while available to satisfy the MMJ Companies' installment payments and other obligations, capital expenditures, and other operating needs of the MMJ Companies, are not available for use by us in our other operations. Certain uses of the assets of the MMJ Companies, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees or, in certain cases, approval by the Japan Court. Disposition of certain assets of the MMJ Companies may also require consent of one or more of the secured creditors.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations as if Numonyxthe MMJ Acquisition had been combined with us as of the beginning of 2009.occurred on September 2, 2011. The pro forma financial information includes the accounting effects of the business combination, including adjustments to the amortization of intangible assets,assets; depreciation of property, plant, and equipment,equipment; interest expenseexpense; and elimination of intercompany activities. The historical results of operations of the MMJ Group for the eleven months ended May 31, 2013 included a gain of $1.69 billion for the forgiveness of debt related to liabilities subject to compromise upon approval of the plans of reorganization by the creditors and the Japan Court. No adjustments were made to the unaudited pro forma financial information for this item, consistent with the requirements for preparation of the pro forma financial information. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had Numonyx been combined with us as of the beginning of 2009.MMJ Acquisition occurred on September 2, 2011.
| | | For the year ended | | 2010 | | 2013 |
| Net sales | | $ | 9,895 |
| | $ | 12,494 |
|
| Net income | | 1,923 |
| | 3,825 |
|
| Net income attributable to Micron | | 1,873 |
| | 3,770 |
|
| | | | |
| Earnings per share: | | | | |
| Basic | | $ | 1.90 |
| | $ | 3.69 |
|
| Diluted | | 1.72 |
| | 3.57 |
|
The unaudited pro forma financial information included thefor 2013 includes our results for the year ended September 2, 2010August 29, 2013, which includes one month of results from the MMJ Group following the closing of the MMJ Acquisition, and the results of Numonyx,the MMJ Group, including the adjustments described above, for the approximate fiscal yeareleven months ended September 2, 2010.May 31, 2013.
Cash and Investments
AsCash and the fair values of August 30, 2012 and September 1, 2011,our available-for-sale investments, including cash equivalents,which approximated amortized costs, were as follows:
| | | As of | | 2012 | | 2011 | | September 3, 2015 | | August 28, 2014 |
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Equivalents | | Short-term Investments | | Long-term Marketable Investments(3) | | Total Fair Value | | Cash and Equivalents | | Short-term Investments | | Long-term Marketable Investments(3) | | Total Fair Value |
| Cash | | | $ | 1,684 |
| | $ | — |
| | $ | — |
| | $ | 1,684 |
| | $ | 2,445 |
| | $ | — |
| | $ | — |
| | $ | 2,445 |
|
Level 1(1) | | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 2,159 |
| | $ | — |
| | $ | — |
| | $ | 2,159 |
| | $ | 1,462 |
| | $ | — |
| | $ | — |
| | $ | 1,462 |
| | 168 |
| | — |
| | — |
| | 168 |
| | 1,281 |
| | — |
| | — |
| | 1,281 |
|
| Marketable equity securities | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
| | | | 168 |
| | — |
| | — |
| | 168 |
| | 1,281 |
| | — |
| | 1 |
| | 1,282 |
|
Level 2(2) | | | | | | | | | | | | | | | | | |
| Corporate bonds | | 233 |
| | 1 |
| | — |
| | 234 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 616 |
| | 1,261 |
| | 1,879 |
| | — |
| | 154 |
| | 407 |
| | 561 |
|
| Government securities | | 144 |
| | — |
| | — |
| | 144 |
| | — |
| | — |
| | — |
| | — |
| | 58 |
| | 391 |
| | 254 |
| | 703 |
| | — |
| | 136 |
| | 284 |
| | 420 |
|
| Asset-backed securities | | 77 |
| | — |
| | — |
| | 77 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 575 |
| | 583 |
| | — |
| | 1 |
| | 127 |
| | 128 |
|
| Certificates of deposit | | | 311 |
| | 28 |
| | 23 |
| | 362 |
| | 402 |
| | 8 |
| | — |
| | 410 |
|
| Commercial paper | | 39 |
| | — |
| | — |
| | 39 |
| | — |
| | — |
| | — |
| | — |
| | 64 |
| | 191 |
| | — |
| | 255 |
| | 22 |
| | 85 |
| | — |
| | 107 |
|
| Certificates of deposit | | 31 |
| | — |
| | — |
| | 31 |
| | 155 |
| | — |
| | — |
| | 155 |
| |
| Marketable equity securities | | 10 |
| | — |
| | — |
| | 10 |
| | 27 |
| | 32 |
| | (7 | ) | | 52 |
| |
| | | $ | 2,693 |
| | $ | 1 |
| | $ | — |
| | $ | 2,694 |
| | $ | 1,644 |
| | $ | 32 |
| | $ | (7 | ) | | $ | 1,669 |
| | 435 |
| | 1,234 |
| | 2,113 |
| | 3,782 |
| | 424 |
| | 384 |
| | 818 |
| | 1,626 |
|
| | | | $ | 2,287 |
| | $ | 1,234 |
| | $ | 2,113 |
| | $ | 5,634 |
| | $ | 4,150 |
| | $ | 384 |
| | $ | 819 |
| | $ | 5,353 |
|
| |
(1) | The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets. |
| |
(2) | The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analysis to validate information obtained from these pricing services. As of September 3, 2015, no adjustments were made to such pricing information. |
| |
(3) | The maturities of our long-term marketable securities generally range from one to four years. |
Proceeds from sales of available-for-sale securities for 2015, 2014, and 2013 were $1.49 billion, $355 million, and $526 million, respectively. Gross realized gains and losses from sales of available-for-sale securities were not significant for any period presented. As of August 30, 2012, noSeptember 3, 2015, none of our available-for-sale securitysecurities had been in a loss position for longer than 12 months. During 2012, we recognized an other-than-temporary impairment on one of our marketable equity securities of $11 million.
The table below presents the amortized cost and fair value of available-for-sale debt securities as of August 30, 2012 by contractual maturity.
|
| | | | | | | | |
| | | Amortized Cost | | Fair Value |
| Money market funds not due at a single maturity date | | $ | 2,159 |
| | $ | 2,159 |
|
| Due in 1 year or less | | 161 |
| | 161 |
|
| Due in 1 - 2 years | | 157 |
| | 157 |
|
| Due in 2 - 4 years | | 188 |
| | 189 |
|
| Due after 4 years | | 18 |
| | 18 |
|
| | | $ | 2,683 |
| | $ | 2,684 |
|
Net unrealized holding gains reclassified out of accumulated other comprehensive income from sales of available-for-sale securities were $31 million for 2012. Proceeds from the sales of available-for-sale securities for 2012, 2011 and 2010 were $149 million, $1 million, and $3 million, respectively. Gross realized gains from sales of available-for-sale securities were $34 million for 2012 and gross realized gains and losses for all other periods presented were not significant.
Receivables
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
Trade receivables (net of allowance for doubtful accounts of $5 and $3, respectively) | | $ | 933 |
| | $ | 1,105 |
| |
| Trade receivables | | | $ | 2,188 |
| | $ | 2,524 |
|
| Income and other taxes | | 80 |
| | 137 |
| | 116 |
| | 104 |
|
| Related party receivables | | 63 |
| | 72 |
| |
| Other | | 213 |
| | 183 |
| | 203 |
| | 278 |
|
| | | $ | 1,289 |
| | $ | 1,497 |
| | $ | 2,507 |
| | $ | 2,906 |
|
As of August 30, 2012September 3, 2015 and September 1, 2011, related party receivables included $62 million and $67 million, respectively, due from Aptina Imaging Corporation ("Aptina") primarily for sales of image sensor products under a wafer supply agreement. (See "Equity Method Investments" note.)
As of August 30, 2012 and September 1, 201128, 2014, other receivables included $63120 million and $15 million, respectively, from our foreign currency hedges. As of August 30, 2012 and September 1, 2011, other receivables included $34 million and $3470 million, respectively, due from Intel for amounts related to NAND Flash and certain emerging memory technologies product design and process development activities under cost-sharing agreements. As of August 30, 2012agreements for NAND Flash memory and September 1, 2011, other receivables also included $17 million and $25 million, respectively, due from Nanya for amounts related to DRAM product design and process development activities under a cost-sharing agreement.3D XPoint memory. (See "Derivative Financial Instruments," "Consolidated Variable Interest Entities," "Equity Method Investments" notes.– Noncontrolling Interests in Subsidiaries – IMFT" note.)
Inventories
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| Finished goods | | $ | 512 |
| | $ | 596 |
| | $ | 785 |
| | $ | 898 |
|
| Work in process | | 1,148 |
| | 1,342 |
| | 1,315 |
| | 1,372 |
|
| Raw materials and supplies | | 152 |
| | 142 |
| | 240 |
| | 185 |
|
| | | $ | 1,812 |
| | $ | 2,080 |
| | $ | 2,340 |
| | $ | 2,455 |
|
Property, Plant and Equipment
| | | As of | | 2012 | | 2011 | 2014 | | Additions | | Retirements and Other | | 2015 |
| Land | | $ | 92 |
| | $ | 92 |
| $ | 86 |
| | $ | 2 |
| | $ | — |
| | $ | 88 |
|
| Buildings (includes $196 and $163, respectively, for capital leases) | | 4,714 |
| | 4,481 |
| |
| Equipment (includes $919 and $712, respectively, for capital leases) | | 15,653 |
| | 14,735 |
| |
| Buildings (includes $289 as of 2014 and $271 as of 2015 for capital leases) | | 5,093 |
| | 273 |
| | (8 | ) | | 5,358 |
|
Equipment(1) (includes $1,113 as of 2014 and $1,192 as of 2015 for capital leases) | | 17,781 |
| | 3,805 |
| | (566 | ) | | 21,020 |
|
Construction in progress | | 43 |
| | 155 |
| 114 |
| | 345 |
| | (23 | ) | | 436 |
|
| Software | | 323 |
| | 293 |
| 358 |
| | 39 |
| | (24 | ) | | 373 |
|
| | | 20,825 |
| | 19,756 |
| 23,432 |
| | 4,464 |
| | (621 | ) | | 27,275 |
|
| Accumulated depreciation (includes $253 and $430, respectively, for capital leases) | | (13,722 | ) | | (12,201 | ) | |
| Accumulated depreciation (includes $695 as of 2014 and $717 as of 2015 for capital leases) | | (14,750 | ) | | (2,550 | ) | | 579 |
| | (16,721 | ) |
| | | $ | 7,103 |
| | $ | 7,555 |
| $ | 8,682 |
| | $ | 1,914 |
| | $ | (42 | ) | | $ | 10,554 |
|
| |
(1) | Included costs related to equipment not placed into service of $928 million and $826 million, as of September 3, 2015 and August 28, 2014, respectively. |
| |
(2) | Included building-related construction and tool installation costs on assets not placed into service. |
Depreciation expense was $2,053 million2.55 billion, $2,026 million1.99 billion, and $1,826 million1.72 billion for 20122015, 20112014, and 20102013, respectively. Other noncurrent assets included buildings, equipment, and other assets classified asland held for saledevelopment of $25 million as of August 30, 2012 and $3558 million as of September 1, 20113, 2015 and $57 million as ofAugust 28, 2014.As of September 3, 2015, production equipment and buildings with an aggregate carrying value of $248 million and land with a carrying value of $42 million were pledged as collateral under various notes payable. (See "Debt – Other Facilities" note.)
Equity Method Investments
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| | | Investment Balance | | Ownership Percentage | | Investment Balance | | Ownership Percentage | | Investment Balance | | Ownership Percentage | | Investment Balance | | Ownership Percentage |
Inotera | | $ | 370 |
| | 39.7 | % | | $ | 388 |
| | 29.7 | % | | $ | 1,332 |
| | 33 | % | | $ | 914 |
| | 33 | % |
| Transform | | 7 |
| | 50.0 | % | | 87 |
| | 50.0 | % | |
| Tera Probe | | | 38 |
| | 40 | % | | 48 |
| | 40 | % |
| Other | | 12 |
| | Various |
| | 8 |
| | Various |
| | 9 |
| | Various |
| | 9 |
| | Various |
|
| | | $ | 389 |
| | |
| | $ | 483 |
| | |
| | $ | 1,379 |
| | |
| | $ | 971 |
| | |
|
(1) Entity is a variable interest entity.
57As of September 3, 2015, substantially all of our maximum exposure to loss from our VIEs that were not consolidated was the $1.33 billion carrying value of our investment in Inotera. We may also incur losses in connection with our rights and obligations to purchase all of Inotera's wafer production capacity under our supply agreements with Inotera.
We recognize our share of earnings or losses from these entities under theour equity method investees generally on a two-month lag. Our share of earnings for 2015 included $49 million for the net effect of Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward and the resulting tax provision in subsequent periods. Equity in net lossincome (loss) of equity method investees, net of tax, included the following:
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Inotera: | | | | | | |
| Equity method loss | | $ | (227 | ) | | $ | (154 | ) | | $ | (56 | ) |
| Inotera Amortization | | 48 |
| | 48 |
| | 55 |
|
| Other | | (10 | ) | | (6 | ) | | (5 | ) |
| | | (189 | ) | | (112 | ) | | (6 | ) |
| Transform | | (99 | ) | | (31 | ) | | (12 | ) |
| Other | | (6 | ) | | (15 | ) | | (21 | ) |
| | | $ | (294 | ) | | $ | (158 | ) | | $ | (39 | ) |
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Inotera | | $ | 445 |
| | $ | 465 |
| | $ | (79 | ) |
| Tera Probe | | 1 |
| | 11 |
| | — |
|
| Other | | 1 |
| | (2 | ) | | (4 | ) |
| | | $ | 447 |
| | $ | 474 |
| | $ | (83 | ) |
The summarized financial information in the tables below reflects aggregate amounts for all of our equity method investees. Financial information is presented for equity method investments as of the respective dates and for the periods through which we recorded our proportionate share of each investee's results of operations, generally on a two-month lag.operations. Summarized results of operations are presented only for the periods subsequent to the acquisition or through the disposition of our acquisition of an ownership interest.interests.
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| Current assets | | $ | 724 |
| | $ | 942 |
| | $ | 1,980 |
| | $ | 2,233 |
|
| Noncurrent assets | | 3,024 |
| | 4,189 |
| | 3,038 |
| | 2,502 |
|
| Current liabilities | | 2,519 |
| | 3,201 |
| | 436 |
| | 1,417 |
|
| Noncurrent liabilities | | 155 |
| | 173 |
| | 119 |
| | 254 |
|
|
| | | | | | | | | | | | |
| For the years ended | | 2012 | | 2011 | | 2010 |
| Net sales | | $ | 1,798 |
| | $ | 1,839 |
| | $ | 1,927 |
|
| Gross margin | | (451 | ) | | (268 | ) | | 73 |
|
| Operating loss | | (751 | ) | | (559 | ) | | (181 | ) |
| Net loss | | (793 | ) | | (594 | ) | | (237 | ) |
In June 2012, Transform began using the liquidation basis of accounting. Transform's statement of net assets (liabilities) in liquidation included $29 million of assets and $14 million of liabilities, which were excluded from the tables above. Additionally, Transform's statement of changes in net assets (liabilities) in liquidation included a decrease in the estimated fair values of net assets of $67 million. (See "Transform" below.)
Our maximum exposure to loss from our involvement with our equity method investments that were VIEs was $329 million and primarily included our Inotera investment balance as well as related translation adjustments in accumulated other comprehensive income and receivables, if any. We may also incur losses in connection with our rights and obligations to purchase a portion of Inotera's wafer production capacity under a supply agreement with Inotera. As a result of our March 2012 equity contribution to Inotera, our obligation to purchase Inotera's capacity may increase when additional output results from Inotera's capital investments enabled by our equity investment. |
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Net sales | | $ | 2,647 |
| | $ | 3,382 |
| | $ | 1,788 |
|
| Gross margin | | 1,253 |
| | 1,576 |
| | 1 |
|
| Operating income (loss) | | 1,191 |
| | 1,371 |
| | (203 | ) |
| Net income (loss) | | 1,361 |
| | 1,339 |
| | (188 | ) |
Inotera
We have partnered with Nanya in Inotera, a TaiwaneseTaiwan DRAM memory company, since the first quarter2009. In 2013, Inotera issued 634 million common shares to Nanya and certain of 2009.its affiliates in a private placement at a price equal to 9.47 New Taiwan dollars per share, which was in excess of our carrying value per share. As a result of Inotera's salethe issuance, our ownership interest decreased from 40% to 35% and we recognized a non-operating gain of $48 million in 2013. In 2014, Inotera issued 400 million common shares in a public offering at a price equal to 31.50 New Taiwan dollars per share, which was in excess of our equitycarrying value per share. As a result of the issuance, our ownership interest decreased from our initial interest of 35.5%35% to 29.8%33% and we recognized a non-operating gain of $56$93 million in the first quarter of 2010. In the second quarter of 2010, as part of another Inotera offering of common shares, we and Nanya each paid $138 million to purchase additional shares, slightly increasing our equity ownership interest to 29.9%. In 2011, our ownership interest was reduced by shares issued under Inotera's employee stock plans and as2014. As of September 1, 2011,3, 2015, we held a 29.7% ownership interest in Inotera. In March 2012, we contributed $170 million to Inotera, which increased our ownership percentage to 39.7%. As of August 30, 2012, we held a 39.7%33% ownership interest in Inotera, Nanya and certain of its affiliates held a 26.3%33% ownership interest, and the remaining ownership interest in Inotera was publicly held.
In the second quarter of 2012, we loaned $133 million to Inotera under a 90-day note with a stated annual interest rate of 2% to facilitate the purchase of capital equipment necessary to implement new process technology. The loan was repaid to us with accrued interest in March 2012.
The net carrying value of our initial and subsequent investments was less than our proportionate share of Inotera's equity at the time of those investments. These differences are being amortized as a net credit to earnings through equity in net loss of equity method investees (the "Inotera Amortization"). As of August 30, 2012, $19 million of Inotera Amortization remained to be recognized, of which $7 million is estimated to be amortized in 2013 with the remaining amount to be amortized through 2034. The $56 million gain recognized in the first quarter of 2010 on Inotera's issuance of shares included $33 million of accelerated Inotera Amortization.
Due to significant market declines in the selling prices of DRAM, Inotera incurred net losses of $259 million for its six-month period ended June 30, 2012 and $737 million for its fiscal year ended December 31, 2011. Also, Inotera's current liabilities exceeded its current assets by $1.85 billion as of June 30, 2012, which exposes Inotera to liquidity risk. As of June 30, 2012 and December 31, 2011, Inotera was not in compliance with certain loan covenants, and had not been in compliance for the past several years, which may result in its lenders requiring repayment of such loans during the next year. Inotera obtained a waiver from complying with its financial covenants through June 30, 2012 and has requested an additional waiver from these requirements. Inotera's management has developed plans to improve its liquidity. There can be no assurance that Inotera will be successful in obtaining an additional waiver or improving its liquidity.
As of August 30, 2012September 3, 2015, based on the closing trading price of Inotera's shares in an active market, the market value of our equity interest in Inotera was $370 million1.53 billion, which exceeded our net carrying value based on the closing trading price of $321 million. The net carrying value is our investment balance less cumulative translation adjustments23.20 New Taiwan dollars per share in accumulated other comprehensive income (loss).an active market. As of August 30, 2012September 3, 2015 and September 1, 2011August 28, 2014, there were gains of $4913 million and $6544 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera.
WeSince January 2013, we have purchased all of Inotera's DRAM output at prices reflecting discounts from market prices for our comparable components under a supply agreement with Inotera, under which Nanya is also a party, for the rights and obligations to purchase 50% of Inotera's wafer production capacity (the "Inotera Supply Agreement"). As a result of our March 2012 $170 million equity contribution to Inotera, we expect to receive a higher share of Inotera's 30-nanometer output when it becomes available as a result of Inotera capital investments enabled by our contribution. Our cost of wafers purchased under the Inotera Supply Agreement is based on a margin-sharing formula among Nanya, Inotera and us. Under such formula, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our and Nanya's revenue for the resale of products from wafers supplied by Inotera, are considered in determining costs for wafers acquired from Inotera. Under the Inotera Supply Agreement, we purchased $646 million, $641 million, and $693 million of DRAM products in 2012, 2011 and 2010 respectively. In 2012, we recognized losses on our purchase commitment under the Inotera Supply Agreement of $17 million, $19 million and $40 million in our fourth, second and first quarters, respectively. In 2011, we recognized purchase commitment losses of $28 million, $3 million, $12 million and $11 million in the fourth, third, second and first quarters, respectively.
We recognized $65 million to net sales in 2010 from a licensing arrangement with Nanya, which ceased in April 2010. Under a cost-sharing arrangement beginning in April 2010, we generally share DRAM development costs with Nanya. As a result of the cost-sharing arrangement, our research and development ("R&D") costs were reduced by $138 million, $141 million, and $51 million in 2012, 2011 and 2010, respectively. In addition, we recognized royalty revenue from Nanya of $11 million, $25 million, and $6 million in 2012, 2011 and 2010, respectively, for sales of DRAM products manufactured by or for Nanya on process nodes of 50nm or higher. We recognized $13 million of revenue in 2010 under a technology transfer agreement with Inotera.
Transform
agreement. In the second quarter of 2010,2015, we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. In 2015 and 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities. We purchased $2.37 billion, $2.68 billion and $1.26 billion of DRAM products in 2015, 2014, and 2013 respectively.
Tera Probe
In 2013, as part of the MMJ Acquisition, we acquired a 50%40% interest in Transform,Tera Probe, which provides semiconductor wafer testing and probe services to us and others. The initial net carrying value of our investment was less than our proportionate share of Tera Probe's equity and the difference is being amortized as a developer, manufacturercredit to our earnings through equity in net income (loss) of equity method investees (the "Tera Probe Amortization"). As of September 3, 2015, the remaining balance of the Tera Probe Amortization was $27 million and marketeris expected to be amortized over a weighted-average period of photovoltaic technology and solar panels, from Origin. In exchange forseven years. Based on closing trading prices, the market value of our equity interest in Transform,Tera Probe was $32 million as of September 3, 2015 and $41 million as of June 30, 2015 (the other-than-temporary impairment measurement date for our fourth quarter, commensurate with our lag period). We evaluated our investment in Tera Probe and concluded that the decline in the market value did not indicate an other-than-temporary impairment primarily because of the limited amount of time of the decline and historical volatility of Tera Probe's stock price. In the first quarter of 2015, we contributed nonmonetary assets, which consistedrecorded an impairment charge of manufacturing facilities, equipment, intellectual property and a fully-paid lease$10 million within equity in net income of equity method investees to a portionwrite down the carrying value of our Boise, Idahoinvestment in Tera Probe to its fair value, based on its trading price (Level 1 fair value measurement). We incurred manufacturing facilities. Ascosts for 2015, 2014, and 2013 of August 30, 2012, we$90 million, $117 million, and Origin each held a 50% ownership interest in Transform. During 2012, 2011 and 2010, we and Origin each contributed $17$13 million, $30 million and $26 million, respectively, of cash to Transform. We recognized net sales of $13 million, $20 million and $15 million in 2012, 2011 and 2010, respectively, for transition services provided to Transform. Revenue on our sales to Transform approximated costs.
As of August 30, 2012 and September 1, 2011, other noncurrent assets included $26 million and $29 million, respectively, for the manufacturing facilities leased to Transform and other noncurrent liabilities included $26 million and $29 million for deferred rent revenue on the fully-paid lease.
As a result of the ongoing challenging global environment in the solar industry and unfavorable worldwide supply and demand conditions, on May 25, 2012, the Board of Directors of Transform approved a liquidation plan. As a result of the liquidation plan, we recognized a charge of $69 million in the third quarter of 2012. As of August 30, 2012, Transform's operations were substantially discontinued.performed by Tera Probe.
Other
Other equity method investments includes our Aptina:35% We held an equity interest in Aptina. In 2009,Aptina until August 15, 2014. On August 15, 2014, ON Semiconductor Corporation acquired Aptina for approximately $433 million and we soldrecognized a 65%non-operating gain of $119 million based on our diluted ownership interest in Aptina, previously a wholly-owned subsidiary. A portion of the 65% interest we sold is in the form of convertible preferred shares that have a liquidation preference over Aptina's common shares. We recognizeapproximately 27%. The gain approximated our share of Aptina's earnings or losses based on our common stock ownership percentage, which was 64% asthe consideration because the carrying value of August 30, 2012. During the second quarter of 2012, the amount of cumulative loss we recognized from our investment had been reduced to zero in Aptina reduced our investment balance to zero and2012, at which time we ceased recognizing our proportionate share of Aptina's losses. We will resume recognizing our proportionate share of Aptina's earnings only when our proportionate share of its earnings exceeds the amount of cumulative net losses not recognized.
We manufactureThrough May 3, 2013, we manufactured components for CMOSComplementary Metal-Oxide Semiconductor ("CMOS") image sensors for Aptina under a wafer supply agreement. Subsequent to May 3, 2013, we provided various services for Aptina under a service agreement. For 2012, 20112014 and 2010,2013, we recognized net sales of $372$43 million, $349 and $182 million, and $372 million, respectively, from products sold to and services performed for Aptina, and cost of goods sold of $395$37 million, $358 and $219 million, respectively. In 2013, we assigned to LFoundry Marsica L.r.l. ("LFoundry") our supply agreement with Aptina to manufacture components for image sensors. (See "Restructure and $385 million, respectively.
Other equity method investments also included our 50% investment in MeiYa Technology Corporation ("MeiYa"Asset Impairments" note.). In connection with our acquisition of an equity interest in Inotera, we entered into agreements with Nanya pursuant to which both parties ceased future funding of, and resource commitments to, MeiYa. Additionally, MeiYa sold substantially all of its assets to Inotera. In the second quarter of 2011, we and Nanya each received a distribution from MeiYa of $48 million as a return of capital, representing substantially all of MeiYa's assets. In May 2012, we received $1 million as a return of our remaining MeiYa investment.
Intangible Assets
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| Product and process technology | | $ | 575 |
| | $ | (234 | ) | | $ | 571 |
| | $ | (203 | ) | | $ | 864 |
| | $ | (416 | ) | | $ | 809 |
| | $ | (341 | ) |
| Customer relationships | | 127 |
| | (98 | ) | | 127 |
| | (82 | ) | |
| Other | | 1 |
| | — |
| | 1 |
| | — |
| | 2 |
| | (1 | ) | | 1 |
| | (1 | ) |
| | | $ | 703 |
| | $ | (332 | ) | | $ | 699 |
| | $ | (285 | ) | | $ | 866 |
| | $ | (417 | ) | | $ | 810 |
| | $ | (342 | ) |
During 20122015 and 2011,2014, we capitalized $47$98 million and $170$177 million,, respectively, for product and process technology with weighted-average useful lives of 10seven years and 7six years, respectively. Amortization expense was $88117 million, $79110 million, and $96 million for 2012, 2011 and 2010, respectively. Annual amortization expense is estimated to be $83 million for 2013, $76 million for 2014, $58 million for 2015, 2014, and 2013, respectively. The expected annual amortization expense for intangible assets held as of September 3, 2015 is $118 million for 2016, $50102 million for 20162017 and, $4093 million for 20172018, $43 million for 2019, and $26 million for 2020.
Accounts Payable and Accrued Expenses
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| Accounts payable | | $ | 818 |
| | $ | 1,187 |
| | $ | 1,020 |
| | $ | 996 |
|
| Property, plant and equipment payables | | | 577 |
| | 289 |
|
| Related party payables | | | 338 |
| | 673 |
|
| Salaries, wages and benefits | | 290 |
| | 304 |
| | 321 |
| | 456 |
|
| Income and other taxes | | | 85 |
| | 71 |
|
| Customer advances | | 141 |
| | 7 |
| | 15 |
| | 98 |
|
| Related party payables | | 130 |
| | 141 |
| |
| Income and other taxes | | 25 |
| | 30 |
| |
| Other | | 237 |
| | 161 |
| | 255 |
| | 281 |
|
| | | $ | 1,641 |
| | $ | 1,830 |
| | $ | 2,611 |
| | $ | 2,864 |
|
As of August 30, 2012September 3, 2015 and September 1, 2011August 28, 2014, related party payables included $130327 million and $139660 million, respectively, due to Inotera primarily for the purchase of DRAM products under the Inotera Supply Agreement.products. As of September 3, 2015 and August 28, 2014, related party payables also included $11 million and $13 million, respectively, due to Tera Probe for probe services performed. (See "Equity Method Investments" note.)
As of August 30, 2012,28, 2014, customer advances included $139$90 million, and other noncurrent liabilities also included $90 million, for amounts received from Intel to bea customer in 2014 under a DRAM supply agreement, all of which was applied to Intel's future purchases under a NAND Flash supply agreement. In addition, as of August 30, 2012, other noncurrent liabilities included $120 million from this agreement. (See "Consolidated Variable Interest Entities – IM Flash" note.)
As of August 30, 2012, other accounts payable and accrued expenses included $51 million of amounts payable for purchased currency options in connection with the Elpida Sponsor Agreement and Rexchip share purchase agreement. As of August 30, 2012 and September 1, 2011, other accounts payable and accrued expenses included $14 million and $17 million, respectively, due to Intel for NAND Flash product design and process development and licensing fees pursuant to cost-sharing agreements. (See "Derivative Financial Instruments" and "Consolidated Variable Interest Entities – IM Flash" note.)during 2015.
Debt
|
| | | | | | | | |
| As of | | 2012 | | 2011 |
| Capital lease obligations | | $ | 883 |
| | $ | 423 |
|
| 2014 convertible senior notes | | 860 |
| | 815 |
|
| 2032C convertible senior notes | | 451 |
| | — |
|
| 2032D convertible senior notes | | 361 |
| | — |
|
| 2031A convertible senior notes | | 265 |
| | 255 |
|
| 2031B convertible senior notes | | 243 |
| | 234 |
|
| 2027 convertible senior notes | | 141 |
| | 135 |
|
| Intel senior note | | 58 |
| | — |
|
| 2013 convertible senior notes | | — |
| | 139 |
|
| | | 3,262 |
| | 2,001 |
|
| Less current portion | | (224 | ) | | (140 | ) |
| | | $ | 3,038 |
| | $ | 1,861 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2015 | | 2014 |
Instrument(1) | | Stated Rate | | Effective Rate | | Current | | Long-Term | | Total | | Current | | Long-Term | | Total |
| MMJ creditor installment payments | | N/A |
| | 6.25 | % | | $ | 161 |
| | $ | 701 |
| | $ | 862 |
| | $ | 192 |
| | $ | 939 |
| | $ | 1,131 |
|
Capital lease obligations(2) | | N/A |
| | N/A |
| | 326 |
| | 466 |
| | 792 |
| | 323 |
| | 588 |
| | 911 |
|
| 1.258% notes | | 1.258 | % | | 1.97 | % | | 87 |
| | 217 |
| | 304 |
| | 86 |
| | 305 |
| | 391 |
|
| 2022 senior notes | | 5.875 | % | | 6.14 | % | | — |
| | 589 |
| | 589 |
| | — |
| | 587 |
| | 587 |
|
| 2023 senior notes | | 5.250 | % | | 5.43 | % | | — |
| | 988 |
| | 988 |
| | — |
| | — |
| | — |
|
| 2024 senior notes | | 5.250 | % | | 5.38 | % | | — |
| | 545 |
| | 545 |
| | — |
| | — |
| | — |
|
| 2025 senior notes | | 5.500 | % | | 5.56 | % | | — |
| | 1,138 |
| | 1,138 |
| | — |
| | 1,137 |
| | 1,137 |
|
| 2026 senior notes | | 5.625 | % | | 5.73 | % | | — |
| | 446 |
| | 446 |
| | — |
| | — |
| | — |
|
2031B convertible senior notes(3) | | 1.875 | % | | 6.98 | % | | — |
| | — |
| | — |
| | 361 |
| | — |
| | 361 |
|
2032C convertible senior notes(4) | | 2.375 | % | | 5.95 | % | | — |
| | 197 |
| | 197 |
| | — |
| | 309 |
| | 309 |
|
2032D convertible senior notes(4) | | 3.125 | % | | 6.33 | % | | — |
| | 150 |
| | 150 |
| | — |
| | 284 |
| | 284 |
|
2033E convertible senior notes(4) | | 1.625 | % | | 4.50 | % | | 217 |
| | — |
| | 217 |
| | 272 |
| | — |
| | 272 |
|
2033F convertible senior notes(4) | | 2.125 | % | | 4.93 | % | | 264 |
| | — |
| | 264 |
| | 260 |
| | — |
| | 260 |
|
| 2043G convertible senior notes | | 3.000 | % | | 6.76 | % | | — |
| | 644 |
| | 644 |
| | — |
| | 631 |
| | 631 |
|
| Other notes payable | | 2.209 | % | | 2.38 | % | | 34 |
| | 171 |
| | 205 |
| | 124 |
| | 113 |
| | 237 |
|
| | | | | | | $ | 1,089 |
| | $ | 6,252 |
| | $ | 7,341 |
| | $ | 1,618 |
| | $ | 4,893 |
| | $ | 6,511 |
|
| |
(1) | We have either the obligation or the option to pay cash for the principal amount due upon conversion for all of our convertible notes. Since it is our current intent to settle in cash the principal amount of all of our convertible notes upon conversion, the dilutive effect of such notes on earnings per share is computed under the treasury stock method. |
(2) Weighted-average imputed rate of 3.7% and 4.3% as of September 3, 2015 and August 28, 2014, respectively.
| |
(3) | Amount recorded for 2014 included the debt and equity components. The equity component was reclassified to a debt liability as a result of our obligation to settle the conversions of the 2031B Notes in cash. |
| |
(4) | Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ending on June 30, 2015 exceeded 130% of the conversion price per share, holders had the right to convert their notes at any time during the calendar quarter ended September 30, 2015. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended September 30, 2015; therefore, these notes are convertible by the holders through December 31, 2015. The 2033 Notes are classified as current because the terms of these notes require us to pay cash for the principal amount of any converted notes. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2015 | | 2014 |
| As of | | Expected Remaining Term (Years)(1) | | Outstanding Principal | | Unamortized Discount and Debt Issuance Costs | | Net Carrying Amount | | Outstanding Principal | | Unamortized Discount and Debt Issuance Costs | | Net Carrying Amount |
| MMJ creditor installment payments | | 4 | | $ | 1,012 |
| | $ | (150 | ) | | $ | 862 |
| | $ | 1,369 |
| | $ | (238 | ) | | $ | 1,131 |
|
| Capital lease obligations | | 4 | | 792 |
| | — |
| | 792 |
| | 911 |
| | — |
| | 911 |
|
| 1.258% notes | | 3 | | 323 |
| | (19 | ) | | 304 |
| | 416 |
| | (25 | ) | | 391 |
|
| 2022 Notes | | 6 | | 600 |
| | (11 | ) | | 589 |
| | 600 |
| | (13 | ) | | 587 |
|
| 2023 Notes | | 8 | | 1,000 |
| | (12 | ) | | 988 |
| | — |
| | — |
| | — |
|
| 2024 Notes | | 8 | | 550 |
| | (5 | ) | | 545 |
| | — |
| | — |
| | — |
|
| 2025 Notes | | 9 | | 1,150 |
| | (12 | ) | | 1,138 |
| | 1,150 |
| | (13 | ) | | 1,137 |
|
| 2026 Notes | | 10 | | 450 |
| | (4 | ) | | 446 |
| | — |
| | — |
| | — |
|
2031B Notes(2) | | N/A | | — |
| | — |
| | — |
| | 114 |
| | (28 | ) | | 361 |
|
| 2032C Notes | | 4 | | 224 |
| | (27 | ) | | 197 |
| | 362 |
| | (53 | ) | | 309 |
|
| 2032D Notes | | 6 | | 177 |
| | (27 | ) | | 150 |
| | 344 |
| | (60 | ) | | 284 |
|
| 2033E Notes | | 2 | | 233 |
| | (16 | ) | | 217 |
| | 300 |
| | (28 | ) | | 272 |
|
| 2033F Notes | | 4 | | 297 |
| | (33 | ) | | 264 |
| | 300 |
| | (40 | ) | | 260 |
|
2043G Notes(3) | | 13 | | 1,025 |
| | (381 | ) | | 644 |
| | 1,025 |
| | (394 | ) | | 631 |
|
| Other notes payable | | 4 | | 205 |
| | — |
| | 205 |
| | 243 |
| | (6 | ) | | 237 |
|
| | | | | $ | 8,038 |
| | $ | (697 | ) | | $ | 7,341 |
| | $ | 7,134 |
| | $ | (898 | ) | | $ | 6,511 |
|
| |
(1) | Expected remaining term for amortization of the remaining unamortized discount and debt issuance costs as of September 3, 2015. The expected remaining term of the 2031B Notes was not applicable because the notes were not outstanding as of September 3, 2015. Expected remaining term for capital lease obligations is the weighted-average remaining term. |
(2) As holders had elected to convert these notes and we elected to settle the conversions in cash, the net carrying amount for 2014 included the debt component and equity component, which were reclassified to a debt liability as a result of our obligation to settle the conversions of the 2031B Notes in cash, resulting in an aggregate liability of $389 million. The outstanding principal reflects the original principal of the 2031B Notes.
(3) The 2043G Notes have an original principal amount of $820 million that accretes up to $917 million through the expected term on November 15, 2028 and $1.03 billion at maturity in 2043. The discount is based on the principal at maturity. See "2043G Notes" below.
Our convertible and senior notes are unsecured obligations rankingthat rank equally in right of payment with all of our other existing and future unsecured indebtedness, and are effectively subordinated to our capital lease obligations and all of our other existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. AllOur parent company, Micron, has $5.18 billion of debt (net of unamortized discount and debt issuance costs), including all of our debt obligations areconvertible notes and the 2022 Notes, 2023 Notes, 2024 Notes, 2025 Notes, and 2026 Notes, that is structurally subordinated to all indebtednessliabilities of its subsidiaries, including trade payables. Micron guarantees certain debt obligations of its subsidiaries. Micron does not guarantee the MMJ creditor installment payments. Micron's guarantees of its subsidiary debt obligations are unsecured obligations ranking equally in right of payment with all of Micron's other existing and future unsecured indebtedness.
2015 Debt Restructure
In 2015, we consummated a number of transactions to restructure our debt, including conversions and settlements, repurchases of convertible notes, issuances of non-convertible notes, and the early repayment of a note. The following table presents the effect of each of the actions in 2015:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Increase (Decrease) in Principal | | Increase (Decrease) in Carrying Value | | Increase (Decrease) in Cash | | (Decrease) in Equity | | (Loss) Gain(1) |
| Conversions and settlements: | | | | | | | | | | |
| 2031B Notes | | $ | (114 | ) | | $ | (361 | ) | | $ | (389 | ) | | $ | — |
| | $ | (24 | ) |
| 2033E Notes | | (7 | ) | | (6 | ) | | (19 | ) | | (15 | ) | | 2 |
|
| | | (121 | ) | | (367 | ) | | (408 | ) | | (15 | ) | | (22 | ) |
| | | | | | | | | | | |
| Repurchases: | | | | | | | | | | |
| 2032C Notes | | (139 | ) | | (121 | ) | | (415 | ) | | (283 | ) | | (10 | ) |
| 2032D Notes | | (166 | ) | | (140 | ) | | (492 | ) | | (341 | ) | | (11 | ) |
| 2033E Notes | | (60 | ) | | (56 | ) | | (107 | ) | | (49 | ) | | (1 | ) |
| 2033F Notes | | (3 | ) | | (2 | ) | | (5 | ) | | (3 | ) | | — |
|
| | | (368 | ) | | (319 | ) | | (1,019 | ) | | (676 | ) | | (22 | ) |
| | | | | | | | | | | |
| Issuances: | | | | | | | | | | |
| 2023 Notes | | 1,000 |
| | 988 |
| | 988 |
| | — |
| | — |
|
| 2024 Notes | | 550 |
| | 545 |
| | 545 |
| | — |
| | — |
|
| 2026 Notes | | 450 |
| | 446 |
| | 446 |
| | — |
| | — |
|
| | | 2,000 |
| | 1,979 |
| | 1,979 |
| | — |
| | — |
|
| | | | | | | | | | | |
| Early repayment | | (121 | ) | | (115 | ) | | (122 | ) | | — |
| | (5 | ) |
| | | | | | | | | | | |
| | | $ | 1,390 |
| | $ | 1,178 |
| | $ | 430 |
| | $ | (691 | ) | | $ | (49 | ) |
| |
(1) | Included in other non-operating expense. |
Conversions and Settlements: During 2015, we had the following debt conversions and settlements:
2031B Notes: On July 23, 2014, we called for the redemption of our subsidiaries.remaining 2031B Notes effective on August 22, 2014. Prior to such effective date, substantially all of the holders of our 2031B Notes exercised their option to convert their notes and, in each case, we elected to settle the amount due upon conversion entirely in cash. These notes were cash settled in 2015.
Convertible2033E Notes With: During 2015, holders converted a portion of our 2033E Notes, and we elected to settle the amounts due upon conversion entirely in cash.
As a result of our elections to settle the amounts due upon conversion in cash, each of the settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment. Under the terms of the indentures for the above notes, cash settlement amounts for these derivative debt liabilities were determined based on the shares underlying the converted notes multiplied by the volume-weighted-average price of our common stock over a period of 20 consecutive trading days. Therefore, at the dates of our election to settle the conversion in cash, we reclassified the fair values of the equity components of each of the converted notes from additional capital to derivative debt liabilities within current debt in our consolidated balance sheet.
Repurchases: During 2015, we repurchased portions of our convertible 2032C Notes, 2032D Notes, 2033E Notes, and 2033F Notes. The liability and equity components of the repurchased notes had previously been stated separately within debt and additional capital in our consolidated balance sheet. As a result, our accounting for the repurchased notes affected debt and equity.
Issuances: On April 30, 2015, we issued $550 million in principal amount of 2024 Notes due January 2024 and $450 million in principal amount of 2026 Notes due January 2026. On February 3, 2015, we issued $1.00 billion in principal amount of 2023 Notes due August 2023. Issuance costs for these notes totaled $21 million. (See further discussion in "Senior Notes" below.)
Early Repayment: On October 17, 2014, we repaid a note prior to its scheduled maturity.
2014 Debt Restructure
In 2014, we consummated a number of transactions to restructure our debt, including exchanges, conversions and Equity Componentssettlements, repurchases of convertible notes, issuances of non-convertible notes, and early repayments of notes. The following table presents the net effect of each of the actions:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Increase (Decrease) in Principal | | Increase (Decrease) in Carrying Value | | Increase (Decrease) in Cash | | (Decrease) in Equity | | Loss(1) |
| Exchanges | | $ | 585 |
| | $ | 282 |
| | $ | — |
| | $ | (238 | ) | | $ | 49 |
|
| Conversions and settlements | | (770 | ) | | (434 | ) | | (1,446 | ) | | (886 | ) | | 130 |
|
| Repurchases | | (320 | ) | | (264 | ) | | (857 | ) | | (567 | ) | | 23 |
|
| Issuances | | 2,212 |
| | 2,157 |
| | 2,157 |
| | — |
| | — |
|
| Early repayments | | (336 | ) | | (332 | ) | | (339 | ) | | — |
| | 3 |
|
| | | $ | 1,371 |
| | $ | 1,409 |
| | $ | (485 | ) | | $ | (1,691 | ) | | $ | 205 |
|
| |
(1) | $184 million included in other non-operating expense and $21 million included in interest expense |
Exchanges: Exchanged $440 million in aggregate principal amount of our 2027 Notes, 2031A Notes, and 2031B Notes into $1.03 billion principal amount at maturity of 2043G Notes.
Conversions and Settlements: Holders of substantially all of our remaining 2014 Notes, 2027 Notes, and 2031A Notes (with an aggregate principal amount of $770 million) converted their notes and we settled the conversions in cash for $1.45 billion. Holders of substantially all of our remaining 2031B Notes converted their notes in August 2014. As a result of our election to settle the conversion amounts entirely in cash, the settlement obligations became derivative debt liabilities, increasing the carrying value of the 2031B Notes by $275 million in 2014 before being cash settled in 2015.
Repurchases: Repurchased $320 million in aggregate principal amount of our convertible 2031B Notes, 2032C Notes, and 2032D Notes for an aggregate of $857 million in cash.
Issuances: Issued $600 million in principal amount of the 2022 Notes and $1.15 billion in principal amount of the 2025 Notes, and issued $462 million in principal amount of the 1.258% senior notes due 2019.
Early Repayments: Repaid $332 million of notes and capital leases prior to their scheduled maturities.
2013 Debt Restructure
During 2013, we repurchased $464 million in aggregate principal amount of our 2014 Notes for $477 million in cash. The liability and equity components of the 2014 Notes had previously been stated separately within debt and additional capital in our consolidated balance sheet. As a result, the repurchase resulted in the derecognition of $430 million in debt for the principal amount (net of $34 million of debt discount) and $15 million in additional capital for the equity component. We recognized a loss of $31 million in 2013, which was included in other non-operating expense.
MMJ Creditor Installment Payments
Under the MMJ Companies' plans of reorganization, which set forth the treatment of the MMJ Companies' pre-petition creditors and their claims, the MMJ Companies were required to pay 200 billion yen, less certain expenses of the reorganization proceedings and other items, to their secured and unsecured creditors in 7 annual installment payments (the "MMJ Creditor Installment Payments"). The MMJ Creditor Installment Payments do not provide for interest and were recorded at fair value in the MMJ Acquisition. The fair-value discount is accreted to interest expense over the term of the installment payments.
Under the MMJ Companies' corporate reorganization proceedings, the secured creditors of MMJ will recover 100% of their amount of their fixed claims in 6 annual installment payments through December 2018 and the unsecured creditors will recover at least 17.4% of the amount of their fixed claims in 7 annual installment payments through December 2019. In December 2014, we paid the second installment payment of 21 billion yen to the reorganization creditors of the MMJ Companies. The secured creditors of MAI were paid in full with a portion of the first installment payment made in October 2013, while the unsecured creditors of MAI will recover at least 19% of the amount of their claims in 7 installment payments through December 2019. The remaining portion of the unsecured claims of the creditors of the MMJ Companies not recovered pursuant to the Reorganization Proceedings will be discharged, without payment, through December 2019.
The accountingfollowing table presents the remaining amounts of MMJ Creditor Installment Payments (stated in Japanese yen and U.S. dollars) and the amount of unamortized discount as of September 3, 2015:
|
| | | | | | | | |
| 2016 | | ¥ | 19,813 |
| | $ | 165 |
|
| 2017 | | 19,840 |
| | 165 |
|
| 2018 | | 19,762 |
| | 164 |
|
| 2019 | | 28,687 |
| | 238 |
|
| 2020 | | 33,642 |
| | 280 |
|
| | | 121,744 |
| | 1,012 |
|
| Less unamortized discount | | (17,981 | ) | | (150 | ) |
| | | ¥ | 103,763 |
| | $ | 862 |
|
Pursuant to the terms of the Sponsor Agreement, we entered into a series of agreements with the MMJ Companies, including supply agreements, research and development services agreements, and general services agreements, which are intended to generate operating cash flows to meet the requirements of the MMJ Companies' businesses, including the funding of the MMJ Creditor Installment Payments.
Capital Lease Obligations
In 2015, we recorded capital lease obligations aggregating $324 million, including $291 million related to equipment sale-leaseback transactions, at a weighted-average effective interest rate of 3.2%, payable in periodic installments through May 2019. In 2014, we recorded capital lease obligations aggregating $121 million at a weighted-average effective interest rate of 4.6%, payable in periodic installments through December 2023.
1.258% Notes
On December 20, 2013, we issued $462 million in principal amount of the 1.258% Notes. The 1.258% Notes mature on January 15, 2019 and are collateralized by certain equipment, which had a carrying value of $95 million as of September 3, 2015. The principal amount of the 1.258% Notes is payable in 10 semiannual installments in January and July of each year, commencing in July 2014. The Export-Import Bank of the United States (the "Ex-Im Bank") guaranteed payment of all regularly scheduled installment payments of principal and interest on the 1.258% Notes. We paid $23 million to Ex-Im Bank for its guarantee upon issuance of the 1.258% Notes.
The 1.258% Notes contain covenants which are customary for financings of this type, including negative covenants that limit or restrict our ability to create liens or dispose of the equipment securing the 1.258% Notes. Events of default also include, among others, the occurrence of any event or circumstance that, in the reasonable judgment of Ex-Im Bank, is likely materially and adversely to affect our ability to perform any payment obligation, or any of our other material obligations under the indenture, the 1.258% Notes, or under any other related transaction documents to which Ex-Im Bank is a party.
Cash Redemption at Our Option: At any time prior to the maturity date of the 1.258% Notes, we may redeem the 1.258% Notes, in whole or in part, at a price equal to the principal amount of the 1.258% Notes to be redeemed plus a make-whole premium as described in the indenture, together with accrued and unpaid interest.
Senior Notes
|
| | | | | | | | |
| | | Issuance Date | | Maturity Date | | Principal Issued |
| 2022 Notes | | Feb 2014 | | Feb 2022 | | $ | 600 |
|
| 2023 Notes | | Feb 2015 | | Aug 2023 | | 1,000 |
|
| 2024 Notes | | Apr 2015 | | Jan 2024 | | 550 |
|
| 2025 Notes | | Jul 2014 | | Feb 2025 | | 1,150 |
|
| 2026 Notes | | Apr 2015 | | Jan 2026 | | 450 |
|
The senior notes above contain covenants that, among other things, limit, in certain circumstances, our ability and/or the ability of our domestic restricted subsidiaries (which are generally subsidiaries in the U.S. in which we own at least 80% of the voting stock) to (1) create or incur certain liens and enter into sale and lease-back transactions, (2) create, assume, incur, or guarantee certain additional secured indebtedness and unsecured indebtedness of our domestic restricted subsidiaries, and (3) consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our assets, to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.
Cash Redemption at Our Option: We have the option to redeem these notes. The applicable redemption price will be determined as follows:
|
| | | | | | | | |
| Redemption Period Requiring Payment of: | | Redemption up to 35% Using Cash Proceeds From an Equity Offering(3) |
| Make-Whole(1) | | Premium(2) | | Date | | Specified Price |
| 2022 Notes | Prior to Feb 15, 2017 | | On or after Feb 15, 2017 | | Prior to Feb 15, 2017 | | 105.875 | % |
| 2023 Notes | Prior to Feb 1, 2018 | | On or after Feb 1, 2018 | | Prior to Feb 1, 2018 | | 105.250 | % |
| 2024 Notes | Prior to May 1, 2018 | | On or after May 1, 2018 | | Prior to May 1, 2018 | | 105.250 | % |
| 2025 Notes | Prior to Aug 1, 2019 | | On or after Aug 1, 2019 | | Prior to Aug 1, 2017 | | 105.500 | % |
| 2026 Notes | Prior to May 1, 2020 | | On or after May 1, 2020 | | Prior to May 1, 2018 | | 105.625 | % |
| |
(1) | If we redeem prior to the applicable date, the price is principal plus a make-whole premium equal to the present value of the remaining scheduled interest payments as described in the applicable indenture, together with accrued and unpaid interest. |
| |
(2) | If we redeem on or after the applicable date, the price is principal plus a premium which declines over time as specified in the applicable indenture, together with accrued and unpaid interest. |
| |
(3) | If we redeem prior to the applicable date with net cash proceeds of one or more equity offerings, the price is equal to the amount specified above, together with accrued and unpaid interest, subject to a maximum redemption of 35% of the aggregate principal amount of the respective notes being redeemed. |
Convertible Senior Notes
Accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion require the debt and equity components to be separately accounted for in a manner that reflects oura nonconvertible borrowing rate when interest expense is recognized in subsequent periods. The amount initially recorded as debt is based on the fair value of the debt component as a standalone instrument, determined using an average interest rate for similar nonconvertible debt issued by entities with credit ratings comparablesimilar to ours at the time of issuance. The difference between the debt recorded at inception and its principal amount is to be accreted to principal through interest expense throughover the estimated life of the note.
As of September 3, 2015, the trading price of our common stock was higher than the initial conversion prices of our 2032 Notes and our 2033 Notes. As a result, the conversion values were in excess of principal amounts for such notes. The debt and equity components of all offollowing table summarizes our convertible notes outstanding as of August 30, 2012 were required to be accounted for separately. The debt and equity components of our 2013 Notes were not required to be stated separately.
Principal and carrying amounts of the liability components for our convertible notes with debt and equity components were as follows:September 3, 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | 2012 | | 2011 |
| | | Outstanding Principal | | Unamortized Discount | | Net Carrying Amount | | Outstanding Principal | | Unamortized Discount | | Net Carrying Amount |
| 2014 Notes | | $ | 949 |
| | $ | (89 | ) | | $ | 860 |
| | $ | 949 |
| | $ | (134 | ) | | $ | 815 |
|
| 2032C Notes | | 550 |
| | (99 | ) | | 451 |
| | — |
| | — |
| | — |
|
| 2032D Notes | | 450 |
| | (89 | ) | | 361 |
| | — |
| | — |
| | — |
|
| 2031A Notes | | 345 |
| | (80 | ) | | 265 |
| | 345 |
| | (90 | ) | | 255 |
|
| 2031B Notes | | 345 |
| | (102 | ) | | 243 |
| | 345 |
| | (111 | ) | | 234 |
|
| 2027 Notes | | 175 |
| | (34 | ) | | 141 |
| | 175 |
| | (40 | ) | | 135 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Holder Put Date(1) | | Outstanding Principal | | Underlying Shares | | Conversion Price Per Share | | Conversion Price Per Share Threshold(2) | | Conversion Value in Excess of Principal(3) |
| 2032C Notes | | May 2019 | | $ | 224 |
| | 23 |
| | $ | 9.63 |
| | $ | 12.52 |
| | $ | 161 |
|
| 2032D Notes | | May 2021 | | 177 |
| | 18 |
| | 9.98 |
| | 12.97 |
| | 117 |
|
| 2033E Notes | | February 2018 | | 233 |
| | 21 |
| | 10.93 |
| | 14.21 |
| | 121 |
|
| 2033F Notes | | February 2020 | | 297 |
| | 27 |
| | 10.93 |
| | 14.21 |
| | 154 |
|
2043G Notes(4) | | November 2028 | | 1,025 |
| | 35 |
| | 29.16 |
| | 37.91 |
| | — |
|
| | | | | $ | 1,956 |
| | 124 |
| | | | | | $ | 553 |
|
As of August 30, 2012, the remaining amortization period for the debt discount was approximately 2, 7, 9, 6, 8, and 5 years for 2014 Notes, 2032C Notes, 2032D Notes, 2031A Notes, 2031B Notes, and 2027 Notes, respectively. | |
(1) | The terms of our convertible notes give holders the right to require us to repurchase all or a portion of their notes at a date prior to the contractual maturities of the notes at a price equal to the principal amount thereof plus accrued interest. |
| |
(2) | Holders have the right to convert all or a portion of their notes at a date prior to the contractual maturity if, during any calendar quarter, the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price. The closing price of our common stock exceeded the thresholds for the calendar quarter ended September 30, 2015 for our 2032 Notes and 2033 Notes; therefore, those notes are convertible by the holders through December 31, 2015. |
| |
(3) | Based on our closing share price of $16.59 as of September 3, 2015. |
Carrying amounts of the equity components forof our convertible notes, with debt and equity componentswhich are included in additional capital in the accompanying consolidated balance sheets were as follows:
|
| | | | | | | | |
| As of | | 2012 | | 2011 |
| 2014 Notes | | $ | 368 |
| | $ | 368 |
|
| 2032C Notes | | 101 |
| | — |
|
| 2032D Notes | | 90 |
| | — |
|
| 2031A Notes | | 89 |
| | 89 |
|
| 2031B Notes | | 109 |
| | 109 |
|
| 2027 Notes | | 40 |
| | 40 |
|
|
| | | | | | | | |
| As of | | 2015 | | 2014 |
| 2032C Notes | | $ | 41 |
| | $ | 67 |
|
| 2032D Notes | | 35 |
| | 69 |
|
| 2033E Notes (excludes $16 and $27 million in mezzanine equity, respectively) | | 8 |
| | 3 |
|
| 2033F Notes (excludes $33 and $41 million in mezzanine equity, respectively) | | 8 |
| | 1 |
|
| 2043G Notes | | 173 |
| | 173 |
|
| | | $ | 265 |
| | $ | 313 |
|
Interest expense for our convertible notes, with debtconsisting of contractual interest and equity componentsamortization of discount and issuance costs, aggregated $101 million, $132 million, and $156 million for 2015, 2014, and 2013, respectively. Interest expense by note was as follows:
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Contractual interest expense: | | | | | | |
| 2014 Notes, stated rate of 1.875% | | $ | 18 |
| | $ | 19 |
| | $ | 24 |
|
| 2032C Notes, stated rate of 2.375% | | 5 |
| | — |
| | — |
|
| 2032D Notes, stated rate of 3.125% | | 5 |
| | — |
| | — |
|
| 2031A Notes, stated rate of 1.5% | | 5 |
| | 1 |
| | — |
|
| 2031B Notes, stated rate of 1.875% | | 6 |
| | 1 |
| | — |
|
| 2027 Notes, stated rate of 1.875% | | 3 |
| | 3 |
| | — |
|
| | | 42 |
| | 24 |
| | 24 |
|
| | | | | | | |
| Amortization of discount and issuance costs: | | | | | | |
| 2014 Notes, effective rate of 7.9% | | 47 |
| | 46 |
| | 56 |
|
| 2032C Notes, effective rate of 6.0% | | 5 |
| | — |
| | — |
|
| 2032D Notes, effective rate of 6.3% | | 3 |
| | — |
| | — |
|
| 2031A Notes, effective rate of 6.5% | | 11 |
| | 1 |
| | — |
|
| 2031B Notes, effective rate of 7.0% | | 10 |
| | 1 |
| | — |
|
| 2027 Notes, effective rate of 6.9% | | 6 |
| | 5 |
| | — |
|
| | | 82 |
| | 53 |
| | 56 |
|
| | | $ | 124 |
| | $ | 77 |
| | $ | 80 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Contractual Interest | | Amortization of Discount and Issuance Costs |
| For the year ended | | 2015 | | 2014 | | 2013 | | 2015 | | 2014 | | 2013 |
| 2032C Notes | | $ | 8 |
| | $ | 11 |
| | $ | 13 |
| | $ | 9 |
| | $ | 12 |
| | $ | 14 |
|
| 2032D Notes | | 9 |
| | 13 |
| | 14 |
| | 6 |
| | 8 |
| | 9 |
|
| 2033E Notes | | 5 |
| | 5 |
| | 3 |
| | 7 |
| | 7 |
| | 4 |
|
| 2033F Notes | | 6 |
| | 6 |
| | 3 |
| | 7 |
| | 6 |
| | 3 |
|
| 2043G Notes | | 31 |
| | 24 |
| | — |
| | 13 |
| | 9 |
| | — |
|
Other notes(1) | | — |
| | 7 |
| | 27 |
| | — |
| | 24 |
| | 66 |
|
| | | $ | 59 |
| | $ | 66 |
| | $ | 60 |
| | $ | 42 |
| | $ | 66 |
| | $ | 96 |
|
(1) Other notes include the 2014 Notes, 2027 Notes, 2031A Notes, and 2031B Notes.
Capital Lease Obligations
We have various capital lease obligations due in periodic installments through August 2050 with weighted-average effective interest rates of 2031B Notes:4.9% as of 2012 and 6.1% as of 2011. In 2012, we received $609 million in proceeds from equipment sale-leaseback transactions and as a result recorded capital lease obligations aggregating $609 million at a weighted-average effective interest rate of 4.2%, payable in periodic installments through August 2016. InOn July 26, 2011, we received $268 million in proceeds from equipment sale-leaseback transactions and as a result recorded capital lease obligations aggregating $246 million at a weighted-average effective interest rate of 5.4%, payable in periodic installments through May 2016.
2014 Notes
In May 2007, we issued $1.3 billion345 million of the 20142031B Notes due JuneAugust 2031. During 2014, we exchanged $205 million of which $351 million was extinguished in 2011 in connection withaggregate principal amount of 2031B Notes for a debt restructure (see "Debt Restructure" below). The initial conversion rateportion of the 20142043G Notes, is 70.2679 sharesrepurchased $26 million of common stock per $1,000aggregate principal amount or approximately $14.23 per share. Interest is payablefor cash, and called for the redemption of the remaining $114 million of aggregate principal amount effective on August 22, 2014. Prior to such effective date, substantially all of the holders of the 2031B Notes had converted their notes, which were settled in June and Decembercash with payments of each year.$389 million in 2015.
Conversion Rights: Holders may convert their 2014 Notes under the following circumstances: (1) during any calendar quarter if the closing price of our 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 conversion price of the 2014 Notes (approximately $18.50 per share); (2) if the 2014 Notes have been called for redemption; (3) if specified distributions or corporate events occur, as set forth in the indenture for the 2014 Notes; (4) if the trading price of the 2014 Notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 2014 Notes during the periods specified in the indenture; or (5) at any time on or after March 1, 2014.
We have the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due upon conversion. It is our current intent to settle the principal amount of the 2014 Notes in cash upon conversion. As a result, upon conversion of the 2014 Notes, only the amounts payable in excess of the principal amounts of the 2014 Notes are considered in diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2014 Notes if the last reported sale price of our common stock has been at least 130% of the conversion price (approximately $18.50 per share) for at least 20 trading days during any 30 consecutive trading-day period. The redemption price is the principal amount to be redeemed, plus accrued and unpaid interest.
Cash Repurchase at the Option of the Holder: Upon a change in control or a termination of trading, as defined in the indenture, holders may require us to repurchase for cash all or a portion of their 2014 Notes at a repurchase price equal to the principal amount, plus accrued and unpaid interest, if any.
2032C and 2032D Notes
Notes: On April 18, 2012, we issued $550 million of the 2032C Notes and $450 million of the 2032D Notes, (collectively referred to as the "2032 Notes"), each due May 2032. Issuance costs for the 2032 Notes totaled $21 million. The initial conversion rate for the 2032C Notes is 103.8907 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $9.63 per share of common stock. The initial conversion rate for the 2032D Notes is 100.1803 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $9.98 per share of common stock. Interest is payable in May and November of each year.
Upon issuance During 2015 and 2014, we repurchased $139 million and $188 million, respectively of the 2032 Notes, we recorded $805 millionaggregate principal amounts of debt, $191 million of additional capital and $17 million of deferred debt issuance costs (included in other noncurrent assets). The amount recorded as debt is based on the fair value of the debt component as a standalone instrument and was determined using an average interest rate for similar nonconvertible debt issued by entities with credit ratings comparable to ours at the time of issuance (Level 2). The difference between the debt recorded at inception and the principal amount ($104 million for the 2032C Notes and $92$166 million for the 2032D Notes) is being accreted to and $106 million, respectively of aggregate principal as interest expense through May 2019 for the 2032C Notes and May 2021 foramounts of the 2032D Notes, the expected life of the notes.for cash.
Conversion Rights: Holders may convert their 2032 Notes under the following circumstances: (1) if the 2032 Notes are called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price of the 2032 Notes (approximately $12.52 per share for the 2032C Notes and $12.97 per share for the 2032D Notes) of the 2032C or 2032D Notes;; (3) during the five business day period immediately after any five consecutive trading day period in whichif the trading price of the 2032C or 2032D2032 Notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 2032C or 2032D Notes;2032 Notes during the periods specified in the indenture; (4) if specified distributions or corporate events occur, as set forth in the indenture for the 2032 Notes; or (5) at any time after February 1, 2032.
We have the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due upon conversion. It is our current intent to settle the principal amount of the 2032 Notes in cash upon any conversion. As a result, upon conversion of the 2032 Notes, only the amounts payable in excess of the principal amounts upon conversion of the 2032 Notes are considered in diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2032C Notes on or after May 1, 2016 and the 2032D Notes on or after May 1, 2017 if the volume weighted average price of our common stock has been at least 130% of the conversion price (approximately $12.52 per share for the 2032C Notes and $12.97 per share for the 2032D Notes) for at least 20 trading days during any 30 consecutive trading day period. The redemption price will equal the principal amount plus accrued and unpaid interest. If we redeem the 2032C Notes prior to May 4, 2019, or the 2032D Notes prior to May 4, 2021, we will also pay a make-whole premium in cash equal to the present value of all remaining scheduled payments of interest from the redemption date to May 4, 2019 for the 2032C Notes, or to May 4, 2021 for the 2032D Notes, using a discount rate equal to 150 basis points.1.5%.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 2032 Notes to repurchase for cash all or a portion of the 2032C Notes on May 1, 2019 and all or a portion of the 2032D Notes on May 1, 2021. The repurchase2021 at a price is equal to the principal amount plus accrued and unpaid interest. Upon a change in control or a termination of trading, as defined in the indenture, holders of the 2032 Notes may require us to repurchase for cash all or a portion of their 2032 Notes at a repurchase price equal to the principal amount plus accrued and unpaid interest.
2031A2033E and 2031B Notes
2033F Notes: On July 26, 2011,February 12, 2013, we issued $345$300 million of the 2031A2033E Notes and $345$300 million of 2031B Notes (collectively referred to as the "2031 Notes"), each due August 2031.2033F Notes. The initial conversion rate for the 20312033 Notes is 105.263291.4808 shares of common stock per $1,000$1,000 principal amount, equivalent to an initial conversion price of approximately $9.5010.93 per share of common stock. Interest is payable in February and August of each year. During 2015, holders converted $7 million of aggregate principal amounts of the 2033E Notes, and we elected to settle the amounts due upon conversion entirely in cash. During 2015, we repurchased $60 million of aggregate principal amounts of the 2033E Notes and $3 million of aggregate principal amounts of the 2033F Notes, for cash.
Conversion Rights: Holders may convert their 20312033 Notes under the following circumstances: (1) if the 2033 Notes are called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price of the 20312033 Notes (approximately $12.35$14.21 per share); (2) if the 2031 Notes are called for redemption; (3) if specified distributions or corporate events occur, as set forth in the indenture for the 2031 Notes; (4) if the trading price of the 20312033 Notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 20312033 Notes during the periods specified in the indenture; (4) if specified distributions or corporate events occur, as set forth in the indenture for the 2033 Notes; or (5) at any time after May 1, 2031.November 15, 2032.
Upon conversion, we will pay cash upequal to the lesser of the aggregate principal amount and the conversion value of the notes being converted and cash, shares of common stock or a combination of cash and shares of common stock, at our option, for any remaining conversion obligations.obligation. As a result, of the conversion provisions in the indenture, upon conversion of the 2031 Notes, only the amounts payable in excess of the principal amounts upon conversion of the 20312033 Notes are considered in diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2031A2033E Notes on or after August 5, 2013February 20, 2018 and the 2031B2033F Notes on or after August 5, 2014 if the last reported sale price of our common stock has been at least 130% of the conversion price (approximately $12.35 per share) for at leastFebruary 20, trading days during any 30 consecutive trading day period. The redemption price will equal the principal amount plus accrued and unpaid interest. If we redeem the 2031A Notes prior to August 5, 2015, or the 2031B Notes prior to August 5, 2016, we will also pay a make-whole premium in cash equal to the present value of all remaining scheduled payments of interest on the 2031 Notes, using a discount rate equal to 150 basis points.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 2031 Notes to repurchase for cash all or a portion of the 2031A Notes on August 1, 2018 and all or a portion of the 2031B Notes on August 1, 2020. The repurchase price is equal to the principal amount, plus accrued and unpaid interest. Upon a change in control or a termination of trading, as defined in the indenture, we may be required by the holders of the 2031 Notes to repurchase for cash all or a portion of their 2031 Notes at a repurchase price equal to the principal amount plus accrued and unpaid interest.
2027 Notes
In connection with a debt restructure in 2011 (see "Debt Restructure" below), we issued $175 million of the 2027 Notes due June 2027. The initial conversion rate is 91.7431 shares of common stock per $1,000 principal amount or approximately $10.90 per share, and is subject to adjustment upon the occurrence of certain events specified in the indenture.
Conversion Rights: Holders may convert their 2027 Notes under the following circumstances: (1) during any calendar quarter if the closing price of our 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 conversion price (approximately $14.17 per share); (2) if the 2027 Notes have been called for redemption; (3) if specified distributions or corporate events occur; (4) if the trading price of the 2027 Notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 2027 Notes during the period specified in the indenture; (5) upon our election to terminate the conversion right of the 2027 Notes; or (6) after March 1, 2027.
Upon conversion, we will pay cash up to the aggregate principal amount and shares of common stock or cash, at our option, for any remaining conversion obligation. As a result of the conversion provisions in the indenture, upon conversion of the 2027 Notes, only the amounts payable in excess of the principal amounts of the 2027 Notes are considered in diluted earnings per share under the treasury stock method.
Cash Redemption at Our Option: We may redeem for cash the 2027 Notes on or after June 1, 20142020 at a price equal to the principal amount plus accrued and unpaid interest.
Cash Repurchase at the Option of the Holder: We may be required by the holders of the 20272033 Notes to repurchase for cash all or a portion of the 20272033E Notes on June 1, 2017. The repurchaseFebruary 15, 2018 and on February 15, 2023 and all or a portion of the 2033F Notes on February 15, 2020 and on February 15, 2023 at a price is equal to the principal amount plus accrued and unpaid interest. Upon a change in control or a termination of trading, as defined in the indenture, we may be required by the holders of the 20272033 Notes may require us to repurchase for cash all or a portion of their 20272033 Notes at a repurchase price equal to the principal amount plus accrued and unpaid interest.
Termination2043G Notes: On November 12, 2013, we issued $1.03 billion principal amount of the 2043G Notes in exchange for $440 million in aggregate principal amount of our 2027 Notes, 2031A Notes, and 2031B Notes. Each $1,000 of principal amount at maturity had an original issue price of $800. An amount equal to the difference between the original issue price and the principal amount at maturity will accrete in accordance with a schedule set forth in the indenture. The original principal amount of $820 million accretes up to $1.03 billion at maturity in 2043. The initial conversion rate for the 2043G Notes is 34.2936 shares of common stock per $1,000 principal amount at maturity, equivalent to an initial conversion price of approximately $29.16 per share of common stock. Interest is payable in May and November of each year.
Conversion Rights: We Holders may elect to terminateconvert their 2043G Notes under the following circumstances: (1) if the 2043G Notes are called for redemption; (2) during any calendar quarter if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion rightprice of the 20272043G Notes (approximately $37.91 per share); (3) if the trading price of the 2043G Notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 2043G Notes during the periods specified in the indenture; (4) if specified distributions or corporate events occur, as set forth in the indenture; or (5) at any time after August 15, 2043.
We have the option to pay cash, issue shares of common stock or any combination thereof, for the aggregate amount due upon conversion. It is our current intent to settle in cash the principal amount of the 2043G Notes upon conversion. As a result, the dilutive effect of the 2043G Notes in earnings per share is computed under the treasury stock method.
Cash Redemption at Our Option: Prior to November 20, 2018, we may redeem for cash the 2043G Notes if the daily volume weighted average price of our common stock is greater than or equal to has been at least 130% of the conversion price (approximately $14.17 per share) for at least 20 trading days during any 30 consecutive trading day period. The redemption price will equal the principal amount at maturity plus accrued and unpaid interest. On or after November 20, 2018, we may redeem for cash the 2043G Notes without regard to the closing price of our common stock at a price equal the accreted principal amount plus accrued and unpaid interest. If we terminateredeem the conversion right2043G Notes prior to June 1, 2014 and any 2027 NotesNovember 20, 2018, we are convertedrequired to pay in connection with the termination, we will paycash a make-whole premium as specified in the indenture.
Cash Repurchase at the Option of the Holder: Holders of the 2043G Notes may require us to repurchase for cash all or a portion of the 2043G Notes on November 15, 2028 at a price equal to the accrued interest as of the conversion date plus the present value of remaining interest that would have been paid through May 31, 2014, discounted using a U.S. Treasury bond with an equivalent term. Subject to the terms of the indenture, we may, at our election, deliver shares of common stock in lieu of cash with respect to this make-whole payment.
Intel Note
In connection with the IM Flash joint venture agreements, on April 6, 2012, we borrowed $65 million under a two-year senior unsecured promissory note from Intel, payable in approximately equal quarterly installments with interest at a rate of 3-month LIBOR minus 50 basis points. The proceeds of the loan are to be used to fund purchases of equipment relating to the research and development or manufacturing of certain emerging memory technologies. (See "Consolidated Variable Interest Entities – IM Flash" note.)
2013 Notes Conversion
In the third quarter of 2012, we provided a written notice that we would redeem our 2013 convertible senior notes on June 4, 2012. As of June 4, 2012, the entire $139 million ofaccreted principal amount of $917 million plus accrued and unpaid interest. Holders of the 20132043G Notes had been converted by holders into 27.3 million shares. We were requiredmay also require us to payrepurchase for cash all or a make-whole premiumportion of $9 million, which is reflectedtheir 2043G Notes at a price equal to the accreted principal amount plus accrued and unpaid interest upon a change in interest expense.control or a termination of trading, as defined in the indenture.
Debt RestructureOther Facilities
In the first quarter of 2011, in connection with a series of debt restructure transactions with certain holders ofRevolving Credit Facilities: On February 12, 2015, we terminated our convertible notes, we recognized a loss ofunused $255 million senior $111 millionthree as follows:
$15 million on the exchange of $175 million in aggregate principal amount of our 2014 Notes for $175 million in aggregate principal amount of new 2027 Notes;
$17 million (including transaction fees) on the repurchase of $176 million in aggregate principal amount of our 2014 Notes for $171 million in cash;-year revolving credit facility and
$79 million (including transaction fees) on the repurchase of $91 million in aggregate principal amount of our 2013 Notes for $166 million in cash.
Subsequent Events – Financing
On September 5, 2012, we entered into a three-yearsenior five-year revolving credit facility. Under this credit facility, we can draw up to the lesser of $255$750 million or 80% of the net outstanding balance of a pool of certain accounts receivable. We grantedtrade receivables, as defined in the facility agreement. Any amounts drawn are collateralized by a security interest in such receivablestrade receivables. The credit facility contains customary covenants and conditions, including as a funding condition the absence of any event or circumstance that has a material adverse effect on certain of our operations, assets, prospects, business, or condition, and including negative covenants that limit or restrict our ability to collateralizecreate liens on, or dispose of, the collateral underlying the obligations under this facility. Interest is payable on any outstanding principal balance at a variable rate equal to the London Interbank Offered Rate ("LIBOR") plus an applicable margin ranging between 1.75% to 2.25%, depending upon the utilized portion of the facility. On April 16, 2015, we drew $75 million under this facility at an interest rate equal to 2.15% per annum. As of September 3, 2015, $75 million of principal was outstanding under this facility and $572 million was available for us to draw.
On December 2, 2014, we terminated our unused $153 million senior three-year revolving credit facility and entered into a senior five-year revolving credit facility, collateralized by a security interest in certain trade receivables and inventory. The availability of thenew credit facility has an aggregate revolving commitment which is subject to certain adjustments, including an availability block that effectively limits the maximum amount we could draw to $540 million. Additionally, the maximum amount we could draw may decrease further if the value, as defined, of our trade receivables and inventory collateralizing the credit facility decreases below a specified threshold. The credit facility contains customary covenants and conditions, including as a funding condition the absence of any event or circumstance that has a material adverse effect on our business or financial condition. InterestGenerally, interest is payable monthly on any outstanding principal balance at a variable rate not to exceed LIBOR plus an applicable margin ranging between 1.25% to 1.75%, depending upon the utilized portion of the facility. On April 16, 2015, we drew $50 million under this facility at an interest rate equal to the Singapore Interbank Offering Rate ("SIBOR") plus 1.65% per annum. As of September 3, 2015, $50 million of principal was outstanding under this facility and $270 million was available for us to draw.
Other Facilities2.8%: per annum.On April 14, 2015, our IMFT joint venture entered into a commitment letter and progress payment agreement to obtain up to $275 million of financing collateralized by semiconductor production equipment. The facility was terminated in September 2015 and not utilized.
On October 2, 2012,May 28, 2015, we entered into a facilityterm loan agreement to obtain financing collateralized by semiconductor productioncertain property, plant, and equipment. Subject to customary conditions, we can draw up to $2146.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $213 million as of September 3, 2015). On June 18, 2015, we drew $40 million under the facility agreement prior to April 4, 2013.this arrangement. Subsequent draws must occur by December 18, 2015. Amounts drawn are payable in 10will be made subject to a three-year loan, with equal semi-annual installmentsquarterly principal payments beginning six months after the draw date. On October 18, 2012, we drew $173 million withinitial draw. Amounts drawn in New Taiwan dollars will accrue interest at 2.38% per annum. Additional amounts drawn will bear interest, at our option, at either (i) a fixed rate negotiated at the time of the draw request or (ii) a floatingvariable rate equal to the six-monththree-month Taipei Interbank Offered Rate ("TAIBOR") plus a margin not to exceed 2.0%. Amounts drawn in U.S. dollars will accrue interest at a variable rate equal to the three-month LIBOR plus a margin not to exceed 2.2%. As of September 3, 2015, the outstanding balance was $40 million.
On March 13, 2015, we borrowed $47 million under a two-year note, collateralized by certain property, plant, and equipment. The note is payable in equal quarterly installments, plus interest at a variable rate equal to the 90-day TAIBOR plus 1.6%1.65% per annum. The facility agreement contains customary covenants.As of September 3, 2015, the outstanding balance was $40 million.
During 2015, we repaid, prior to their scheduled maturities, an aggregate of $159 million to close certain other notes payable with a weighted-average annual interest rate of 2.44% and repaid, according to the scheduled payment terms, another note payable of $127 million, which amount represented the present value of monthly installment payments for the acquisition of an additional 9.9% interest in MMT.
Maturities of Notes Payable and Future Minimum Lease Payments
As of August 30, 2012,September 3, 2015, maturities of notes payable (including the MMJ Creditor Installment Payments) and future minimum lease payments under capital lease obligations were as follows:
|
| | | | | | | | |
| As of August 30, 2012 | | Notes Payable | | Capital Lease Obligations |
| 2013 | | $ | 33 |
| | $ | 231 |
|
| 2014 | | 974 |
| | 218 |
|
| 2015 | | — |
| | 224 |
|
| 2016 | | — |
| | 228 |
|
| 2017 | | 175 |
| | 23 |
|
| 2018 and thereafter | | 1,690 |
| | 71 |
|
| Discounts and interest, respectively | | (493 | ) | | (112 | ) |
| | | $ | 2,379 |
| | $ | 883 |
|
|
| | | | | | | | |
| | | Notes Payable | | Capital Lease Obligations |
| 2016 | | $ | 291 |
| | $ | 349 |
|
| 2017 | | 289 |
| | 173 |
|
| 2018 | | 504 |
| | 131 |
|
| 2019 | | 508 |
| | 91 |
|
| 2020 | | 702 |
| | 32 |
|
| 2021 and thereafter | | 4,844 |
| | 76 |
|
| Unamortized discounts and interest, respectively | | (589 | ) | | (60 | ) |
| | | $ | 6,549 |
| | $ | 792 |
|
Retrospective Application of a New Accounting Standard
Effective in the fourth quarter of 2015, we adopted ASU 2015-03 – Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, as appropriate, consistent with debt discounts, as opposed to an asset. The new accounting standard required retrospective application; therefore, our financial statements and notes to these statements contained herein have been adjusted to reflect the impact of adopting this new accounting standard. The following table sets forth the financial statement line items affected by retrospective application of this new accounting standard:
|
| | | | | | | | | | | | |
| As of August 28, 2014 | | Previously Reported | | Effect of Adoption | | Retrospectively Adjusted |
| Other noncurrent assets | | $ | 497 |
| | $ | (82 | ) | | $ | 415 |
|
| Current debt | | 1,638 |
| | (20 | ) | | 1,618 |
|
| Long-term debt | | 4,955 |
| | (62 | ) | | 4,893 |
|
| Redeemable convertible debt | | 57 |
| | 11 |
| | 68 |
|
| Additional capital | | 7,879 |
| | (11 | ) | | 7,868 |
|
Commitments
As of August 30, 2012,September 3, 2015, we had commitments of approximately $550 million1.62 billion for the acquisition of property, plant, and equipment. We lease certain facilities and equipment under operating leases. Total rental expense was $48 million, $6957 million, and $41 million for 2012, 2011 and 2010, respectively. We also subleased certain facilities and buildings under operating leases to Aptina and recognized $4 million2015, 2014, and $7 million2013, respectively. Minimum future operating lease commitments as of rental income in 2012 and 2011, respectively. As of August 30, 2012, minimum future rental commitments areSeptember 3, 2015 were as follows:
|
| | | | |
| As of August 30, 2012 | | Operating Lease Commitments |
| 2013 | | $ | 25 |
|
| 2014 | | 16 |
|
| 2015 | | 9 |
|
| 2016 | | 9 |
|
| 2017 | | 7 |
|
| 2018 and thereafter | | 24 |
|
| | | $ | 90 |
|
|
| | | | |
| 2016 | | $ | 218 |
|
| 2017 | | 296 |
|
| 2018 | | 106 |
|
| 2019 | | 15 |
|
| 2020 | | 12 |
|
| 2021 and thereafter | | 35 |
|
| | | $ | 682 |
|
Contingencies
We have accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the applicable balance sheet date,dates, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which is expected to have a material adverse effect on our business, results of operations, or financial condition.
Patent Matters
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe their intellectual property rights.
We are engaged in litigation with Rambus,On November 21, 2014, Elm 3DS Innovations, LLC ("Elm") filed a patent infringement action against Micron, Micron Semiconductor Products, Inc. ("Rambus") relating to certain of Rambus' patents, and certain of our claims and defenses. Our lawsuits with Rambus are pendingMicron Consumer Products Group, Inc. 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. On August 28, 2000, we filed a complaint against Rambus in the U.S. District Court for the District of Delaware seeking declaratory and injunctive relief. The complaint alleges, among other things, various anticompetitive activities and also seeks a declaratory judgment that certain Rambus patents are invalid and/or unenforceable. Rambus subsequently filed an answer and counterclaim in Delaware alleging, among other things, infringement of twelve Rambus patents and seeking monetary damages and injunctive relief. We subsequently added claims and defenses based on Rambus' 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. On January 9, 2009, Judge Robinson entered an opinion in our favor holding that Rambus had engaged in spoliation and that the twelve Rambus patents in the suit were unenforceable against us. Rambus subsequently appealed the decision to the U.S. Court of Appeals for the Federal Circuit. On May 13, 2011, the Federal Circuit affirmed Judge Robinson's finding of spoliation, but vacated the dismissal sanction and remanded the case to the Delaware District Court for analysis of the remedy based on the Federal Circuit's decision. On January 13, 2006, Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California alleging that certain of our DDR2, DDR3, RLDRAM and RLDRAM II products infringe as many as fourteen Rambus patents and seeking monetary damages, treble damages, and injunctive relief. The Northern District of California Court stayed the trial of the patent phase of the Northern District of California case upon appeal of the Delaware spoliation issue to the Federal Circuit.
Delaware. On March 6, 2009, Panavision Imaging, LLC "(Panavision") filed suit against us and Aptina Imaging Corporation, then a wholly-owned subsidiary, in the U.S. District Court for the Central District of California. The complaint alleged that certain of our and Aptina's image sensor products infringed four Panavision U.S. patents and sought injunctive relief, damages, attorneys' fees, and costs. On February 7, 2011, the Court ruled that one of the four patents in suit was invalid for indefiniteness. On March 10, 2011, claims relating to the remaining three patents in suit were dismissed with prejudice. Panavision subsequently filed a motion for reconsideration of the Court's decision regarding invalidity of the first patent, and we filed a motion for summary judgment of non-infringement of such patent. On July 8, 2011, the Court issued an order that rescinded its prior indefiniteness decision, and held that the disputed term does not render the claims in suit indefinite. On February 3, 2012, the Court granted our motion for summary judgment of non-infringement. On March 20, 2012, we executed a settlement agreement with Panavision pursuant to which the parties agreed to a settlement and release of all claims and a dismissal with prejudice of the litigation, which did not have a material effect on our business, results of operations or financial condition.
On September 1, 2011, HSM Portfolio LLC and Technology Properties Limited LLC filed a patent infringement action in the U.S. District Court for the District of Delaware against us and seventeen other defendants. The complaint alleges that certain of our DRAM and image sensor products infringe two U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On September 9, 2011, Advanced Data Access LLC filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Tyler) against us and seven other defendants. On November 16, 2011, Advanced Data Access27, 2015, Elm filed an amended complaint.complaint against the same entities. The amended complaint alleges that certain of our DRAM products infringe two U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On September 14, 2011, Smart Memory Solutions LLC filed a patent infringement action in the U.S. District Court for the District of Delaware against us and Winbond Electronics Corporation of America. The complaint alleges that certain of our NOR Flash products infringe a single U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs.
On December 5, 2011, the Board of Trustees for the University of Illinois filed a patent infringement action against us in the U.S. District Court for the Central District of Illinois. The complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe threethirteen U.S. patents and seeks injunctive relief, damages, attorneys'attorneys’ fees, and costs.
On March 26, 2012, Semiconductor Technologies, LLC filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Marshall) against us. The complaint alleges that certain of our DRAM products infringe five U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs.
On March 28, 2012, Technology Partners Limited LLC (“TPL”) filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Tyler) against us. The complaint alleges that certain of our Lexar flash card readers infringe four U.S. patents and seeks injunctive relief, damages, attorneys' fees, and costs. On March 26, 2012, TPL filed a parallel complaint with the U.S. International Trade Commission under Section 337 of the Tariff Act of 1930 against us and numerous other companies alleging infringement of the same patents and seeking an exclusion order preventing the importation of certain flash card readers. The District Court action has been stayed pending the outcome of the ITC matter. The ITC matter was scheduled for trial on January 7, 2013. On October 8, 2012, we executed a settlement agreement with TPL pursuant to which the parties agreed to a settlement and release of all claims and a dismissal with prejudice of the litigation, which did not have a material effect on our business, results of operations or financial condition.
On April 17, 2012, Anu IP, LLC (“Anu”) filed a patent infringement action in the U.S. District Court for the Eastern District of Texas (Marshall) against us. The complaint alleges that certain of our Lexar USB drives infringe one U.S. patent and seeks injunctive relief, damages, attorneys' fees, and costs. On April 18, 2012, Anu filed a parallel complaint with the U.S. International Trade Commission under Section 337 of the Tariff Act of 1930 against us and numerous other companies alleging infringement of the same patent and another related patent and seeking an exclusion order preventing the importation of certain USB drives. The District Court action has been stayed pending the outcome of the ITC matter. On August 27, 2012, we executed a settlement agreement with Anu pursuant to which the parties agreed to a settlement and release of all claims and a dismissal with prejudice of the litigation, which did not have a material effect on our business, results of operations or financial condition.
On April 27, 2012, Semcon Tech, LLCDecember 15, 2014, Innovative Memory Solutions, Inc. filed a patent infringement action against us in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our use of a Reflexion CMP polishing system purchased from Applied Materials infringes a singleNAND Flash products infringe eight U.S. patentpatents and seeks injunctive relief, damages, attorneys' fees, and costs.
Among other things, the above lawsuits pertain to certain of our DDR DRAM, DDR2 DRAM, DDR3 DRAM, DDR4 DRAM, SDR SDRAM, DDR, DDR2, DDR3,PSRAM, RLDRAM, LPDRAM, NAND Flash, NOR Flash and image sensorcertain other memory products we manufacture, which account for a significant portion of our net sales.
We are unable to predict the outcome of assertions of infringement made against us and therefore cannot estimate the range of possible loss, except as noted in the discussion of the Panavision, TPL and Anu matters above.loss. A court determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Antitrust Matters
On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against us and other DRAM suppliers which alleged that the defendants harmed Rambus by engaging in concerted and unlawful efforts affecting Rambus DRAM by eliminating competition and stifling innovation in the market for computer memory technology and computer memory chips. Rambus' complaint alleged various causes of action under California state law including, among other things, a conspiracy to restrict output and fix prices, a conspiracy to monopolize, intentional interference with prospective economic advantage, and unfair competition. Rambus sought a judgment for damages of approximately $3.9 billion, joint and several liability, trebling of damages awarded, punitive damages, a permanent injunction enjoining the defendants from the conduct alleged in the complaint, interest, and attorneys' fees and costs. Trial began on June 20, 2011, and the case went to the jury on September 21, 2011. On November 16, 2011, the jury found for us on all claims. On April 2, 2012, Rambus filed a notice of appeal to the California 1st District Court of Appeal.
At least sixty-eight purported class action price-fixing lawsuits have been filed against us and other DRAM suppliers in various federal and state courts in the United States and in Puerto Rico on behalf of indirect purchasers alleging a conspiracy to increase DRAM prices in violation of federal and state antitrust laws and 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 joint and several damages, trebled, 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. In July, 2006, the Attorneys General for approximately forty U.S. states and territories filed suit in the U.S. District Court for the Northern District of California. The complaints allege, among other things, violations of the Sherman Act, Cartwright Act, and certain other states' consumer protection and antitrust laws and seek joint and several damages, trebled, as well as 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. On June 23, 2010, we executed a settlement agreement resolving these purported class-action indirect purchaser cases and the pending cases of the Attorneys General relating to alleged DRAM price-fixing in the United States. Subject to certain conditions, including final court approval of the class settlements, we agreed to pay approximately $67 million in aggregate in three equal installments over a two-year period. As of August 30, 2012, we had paid $45 million into an escrow account in accordance with the settlement agreement.
Three putative class action lawsuits alleging price-fixing of DRAM products also have been filed against us in Quebec, Ontario, and British Columbia, Canada, on behalf of direct and indirect purchasers, asserting violations of the Canadian Competition Act and other common law claims (collectively the "Canadian Cases"). The claims were initiated between December 2004 (British Columbia) and June 2006 (Quebec). The plaintiffs seek monetary damages, restitution, costs, and attorneys' fees. The substantive allegations in these cases are similar to those asserted in the DRAM antitrust cases filed in the United States. Plaintiffs' motion for class certification was denied in the British Columbia and Quebec cases in May and June 2008, respectively. Plaintiffs subsequently filed an appeal of each of those decisions. On November 12, 2009, the British Columbia Court of Appeal reversed, and on November 16, 2011, the Quebec Court of Appeal also reversed the denial of class certification and remanded the cases for further proceedings. On October 16, 2012, we entered into a settlement agreement resolving these three putative class action cases subject to certain conditions including final court approval of the settlement. The settlement amount did not have a material effect on our business, results of operations or financial condition.
On June 21, 2010, the Brazil Secretariat of Economic Law of the Ministry of Justice ("SDE") announced that it had initiated an investigation relating to alleged anticompetitive activities within the DRAM industry. The SDE's Notice of Investigation names various DRAM manufacturers and certain executives, including us, and focuses on the period from July 1998 to June 2002.
On September 24, 2010, Oracle America Inc. ("Oracle"), successor to Sun Microsystems, a DRAM purchaser that opted-out of a direct purchaser class action suit that was settled, filed suit against us in U.S. District Court for the Northern District of California. The complaint alleged a conspiracy to increase DRAM prices and other violations of federal and state antitrust and unfair competition laws based on purported conduct for the period from August 1, 1998 through at least June 15, 2002. Oracle sought joint and several damages, trebled, as well as restitution, disgorgement, attorneys' fees, costs and injunctive relief. On March 23, 2012, we entered into a settlement agreement with Oracle pursuant to which we agreed to make a payment of $58 million to Oracle for a settlement and full release of all claims and a dismissal with prejudice of the litigation. The settlement amount was paid in May 2012.
We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss, except as noted in the U.S. indirect purchasers cases, the Canadian Cases and Oracle matter above. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.
Commercial MattersQimonda
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda AG ("Qimonda") insolvency proceedings, filed suit against usMicron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between usMicron B.V. and Qimonda signed in fall 2008 pursuant to which weMicron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera Shares"), representing approximately 55% of our total shares in Inotera as of September 3, 2015, and seeks an order requiring us to retransfer the Inoterare-transfer those shares purchased from Qimonda to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate under Sections 103 or 133 of the German Insolvency Code a patent cross licensecross-license between us and Qimonda entered into at the same time as the share purchase agreement. A three-judge panel will render a decision after
Following a series of hearings with pleadings, arguments and witnesses. A first hearing was heldwitnesses on September 25, 2012.behalf of the Qimonda estate, on March 13, 2014, the Court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court. The next hearing is scheduled for February 5, 2013. on the matter has not yet been scheduled.
We are unable to predict the outcome of this lawsuitthe matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera sharesShares or equivalent monetary damages, andunspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross license,cross-license, which could have a material adverse effect on our business, results of operation, or financial condition. As of August 30, 2012,September 3, 2015, the Inotera shares purchased from QimondaShares had a net carrying value in equity method investments for purposes of $177our financial reporting of $683 million and a market value of $846 million.
Other
In the normal course of business, we are a party to a variety of agreements pursuant to which we 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 our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.
Redeemable Convertible Notes
Under the terms of the indentures governing the 2033 Notes, upon conversion, we would be required to pay cash equal to the lesser amount of (1) the aggregate principal amount or (2) the conversion value of the notes being converted. To the extent the conversion value exceeds the principal amount, we could pay cash, shares of common stock, or a combination thereof, at our option, for the amount of such excess. The 2033 Notes were convertible at the option of the holders as of September 3, 2015 and August 28, 2014. Therefore, the 2033 Notes were classified as current debt and the aggregate difference between the principal amount and the carrying value of $49 million as of September 3, 2015 and $68 million as of August 28, 2014 was classified as redeemable convertible notes in the accompanying consolidated balance sheets. (See "Debt" note.)
Equity
Micron Shareholders' Equity
RepurchaseCommon Stock Repurchases: Since the first quarter of Common Stock
On July 26, 2011, we paid $150 million2015, our Board of Directors has authorized the repurchase of up to repurchase 19.7 million shares$1.25 billion of our outstanding common stock, at $7.60 per share.$250 million of which was authorized in the first quarter of 2016. Any repurchases under the authorization may be made in open market purchases, block trades, privately-negotiated transactions, and/or derivative transactions. Repurchases are subject to market conditions and our ongoing determination of the best use of available cash. During 2015, we repurchased 42 million shares for $831 million (including commissions) through open market transactions, which were recorded as treasury stock.
Capped Calls
Issued and Outstanding Capped Calls:Calls Concurrent with the offering of the 2032C and 2032D Notes, in April 2012, we: We have entered into capped call transactions (the "2012C Capped Calls" and "2012D Capped Calls," collectively the "2012 Capped Calls") that have an initial strike price of approximately $9.80 and $10.16 per share, respectively, subject to certain adjustments,calls, which was set to be slightly higher than the initial conversion prices of approximately $9.63 for the 2032C Notes and $9.98 for the 2032D Notes. The 2012C Capped Calls are in four tranches, with cap prices of $14.26, $14.62, $15.33 and $15.69 per share, and cover, subject to anti-dilution adjustments similar to those contained in the 2032C Notes, an approximate combined total of 56.3 million shares of common stock. The 2012C Capped Calls expire on various dates between May 2016 and November 2017. The 2012D Capped Calls are in four tranches, with cap prices of $14.62, $15.33, $15.69 and $16.04 per share, and cover, subject to anti-dilution adjustments similar to those contained in the 2032D Notes, an approximate combined total of 44.3 million shares of common stock. The 2012D Capped Calls expire on various dates between November 2016 and May 2018. The 2012 Capped Calls are intended to reduce the effect of potential dilution upon conversionfrom our convertible notes. The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our stock is above a specified initial strike price at the expiration dates. The amounts receivable varies based on the trading price of our stock, up to specified cap prices. The dollar value of the 2032 Notes. The 2012 Capped Calls may be settled incash or shares or cash, atthat we would receive from the capped calls upon their expiration date ranges from $0 if the trading price of our election. Settlementstock is below the initial strike price for all of the 2012 Capped Calls in cash on their respective expiration dates would result in us receiving an amount ranging from zero,capped calls to $814 million if the markettrading price per share of our common stock is at or below $9.80, to a maximumabove the cap price for all of $551 million.the capped calls. We paid $103$57 million in 2011 to purchase the 20122031 Capped Calls, which was charged$103 million in 2012 to purchase the 2032 Capped Calls and $48 million in 2013 to purchase the 2033 Capped Calls. The amounts paid were recorded as charges to additional capital.
Concurrent with the offering of the 2031 Notes, in July 2011, we entered into capped call transactions (the "2011 Capped Calls") that have an initial strike price of approximately $9.50 per share, subject to certain adjustments, which was set to equal the initial conversion price of the 2031 Notes. The 2011 Capped Calls are in four equal tranches, with cap prices of $11.40, $12.16, $12.67 and $13.17 per share, and cover, subject to anti-dilution adjustments similar to those contained in the 2031 Notes, an approximate combined total of 72.6 million shares of common stock. The 2011 Capped Calls expire on various dates between July 2014 and February 2016. The 2011 Capped Calls are intended to reduce the potential dilution upon conversion of the 2031 Notes. Settlement of the 2011 Capped Calls in cash on their respective expiration dates would result in us receiving an amount ranging from zero if the market price per share of our common stock is at or below $9.50 to a maximum of $207 million. We paid $57 million to purchase the 2011 Capped Calls, which was charged to additional capital.
Concurrent with the offering of the 2013 Notes in April 2009, we 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 2013 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 2013 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 in October 2012 and November 2012. We elected to settle the 2009 Capped Calls in cash and the amount we will receive will depend on the market price per share of our common stock on the expiration dates. We paid $25 million to purchase the 2009 Capped Calls, which was charged to additional capital.
Settlement and Expiration of the 2007 Capped Calls: Concurrent with the offering of the 2014 Notes, we purchased capped calls with a strike price of approximately $14.23 per share and various expiration dates between November 2011 and December 2012 (the "2007 Capped Calls"). In the first six months of 2012, 2007 Capped Calls covering 30.4 million shares expired according to their terms. In April 2012, we settled the remaining 2007 Capped Calls, covering 60.9 million shares, and received a de minimis payment.
Accumulated Other Comprehensive Income (Loss)
|
| | | | | | | | |
| As of | | 2012 | | 2011 |
| Accumulated translation adjustment, net | | $ | 49 |
| | $ | 65 |
|
| Gain (loss) on derivatives, net | | 31 |
| | 43 |
|
| Gain (loss) on investments, net | | 1 |
| | 25 |
|
| Unrecognized pension liability | | (1 | ) | | (1 | ) |
| Accumulated other comprehensive income | | $ | 80 |
| | $ | 132 |
|
Derivative Financial Instruments
We are exposed to currency exchange rate risk for monetary assets and liabilities held or denominated in foreign currencies, primarily the euro, shekel, Singapore dollar and yen. We are also exposed to currency exchange rate risk for capital expenditures and operating cash flows, primarily denominated in the euro and yen. In connection with the Elpida Sponsor Agreement and Rexchip share purchase agreement entered into in July 2012, we are exposed to significant currency exchange rate risk for the yen and New Taiwan dollar. We use derivative instruments to manage our exposures to changes in currency exchange rates. For exposures associated with our monetary assets and liabilities, our primary objective in entering into currency derivatives is to reduce the volatility that changes in currency exchange rates have on our earnings. For exposures associated with our capital expenditures and operating cash flows, our primary objective in entering into currency derivatives is to reduce the volatility that changes in currency exchange rates have on future cash flows. For exposures associated with our yen or New Taiwan dollar denominated payment obligations under the Elpida sponsor agreement and Rexchip share purchase agreement, our primary objective for entering into currency derivatives is to mitigate risks if those currencies strengthen relative to the U.S. dollar, while preserving some ability for us to benefit if those currencies weaken.
Our derivatives consist primarily of currency forward contracts and currency options. The derivatives expose us to credit risk to the extent the counterparties may be unable to meet the terms of the derivative instrument. As of August 30, 2012, our maximum exposure to loss due to credit risk if counterparties fail completely to perform according to the terms of the contracts, was equal to the fair value of our assets for these contracts as listed in the tables below. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple major financial institutions. In addition, we monitor the potential risk of loss with any one counterparty resulting from this type of credit risk on an ongoing basis. We have the following currency risk management programs:
Currency Derivatives without Hedge Accounting Designation
We utilize a rolling hedge strategy with currency forward contracts that generally mature within 35 days to hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities. At the end of each reporting period, monetary assets and liabilities held or denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and the associated outstanding forward contracts are marked-to-market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (referred to as Level 2). Realized and unrealized gains and losses on derivative instruments and the underlying monetary assets and liabilities are included in other operating (income) expense.
In connection with the currency exchange rate risk with the Elpida Sponsor Agreement and Rexchip share purchase agreement, we utilized currency options that expire on April 3, 2013 and April 2, 2013, respectively. Currency options are valued at their fair value using a modified Black-Scholes option valuation model using inputs of the current spot rate, strike price, risk-free interest rate, time to maturity, volatility and credit-risk spread (referred to as Level 2). These options are marked-to-market at the end of each reporting period and realized and unrealized gains and losses are included in other operating (income) expense.
Total gross notional amountsThe following table presents information related to the issued and fair values for currency derivatives without hedge accounting designation wereoutstanding capped calls as follows:of September 3, 2015:
|
| | | | | | | | | | | | |
| Currency | | Notional Amount (in U.S. Dollars) | | Fair Value of |
Asset (1) | | (Liability) (2) |
| As of August 30, 2012 | | | | | | |
| Forward contracts: | | | | | | |
| Singapore dollar | | $ | 251 |
| | $ | — |
| | $ | (1 | ) |
| Euro | | 173 |
| | 2 |
| | (1 | ) |
| Shekel | | 65 |
| | — |
| | (1 | ) |
| Yen | | 18 |
| | — |
| | — |
|
| Currency options: | | | | | | |
| Yen | | 5,050 |
| (3) | 57 |
| | — |
|
| New Taiwan dollar | | 342 |
| | 2 |
| | — |
|
| | | $ | 5,899 |
| | $ | 61 |
| | $ | (3 | ) |
| | | | | | | |
| As of September 1, 2011 | | |
| | |
| | |
|
| Forward contracts: | | | | | | |
| Singapore dollar | | $ | 210 |
| | $ | — |
| | $ | — |
|
| Euro | | 301 |
| | 3 |
| | — |
|
| Shekel | | 98 |
| | — |
| | (2 | ) |
| Yen | | 165 |
| | 3 |
| | — |
|
| Other | | 50 |
| | — |
| | — |
|
| | | $ | 824 |
| | $ | 6 |
| | $ | (2 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capped Calls | |
| | | | Strike Price | | Cap Price Range | | Underlying Common Shares | | Value at Expiration(1) |
| | Expiration Dates | | | Low | | High | | | Minimum | | Maximum |
| 2031 | | Jan 2016 | – | Feb 2016 | | $ | 9.50 |
| | $ | 13.17 |
| | $ | 13.17 |
| | 18 |
| | $ | — |
| | $ | 67 |
|
| 2032C | | May 2016 | – | Nov 2017 | | 9.80 |
| | 14.26 |
| | 15.69 |
| | 56 |
| | — |
| | 307 |
|
| 2032D | | Nov 2016 | – | May 2018 | | 10.16 |
| | 14.62 |
| | 16.04 |
| | 44 |
| | — |
| | 244 |
|
| 2033E | | Jan 2018 | – | Feb 2018 | | 10.93 |
| | 14.51 |
| | 14.51 |
| | 27 |
| | — |
| | 98 |
|
| 2033F | | Jan 2020 | – | Feb 2020 | | 10.93 |
| | 14.51 |
| | 14.51 |
| | 27 |
| | — |
| | 98 |
|
| | | | | | | | | | | | | 172 |
| | $ | — |
| | $ | 814 |
|
| |
(1) | IncludedSettlement in receivables – other. |
| |
(2)
| Includedcash on the respective expiration dates would result in accounts payable and accrued expenses – other. |
| |
(3)
| Notionalus receiving an amount includes purchased optionsranging from zero, if the market price per share of $2,527 million and sold optionsour common stock is at or below the low strike price, to the maximum amount if the market price per share of $2,523 million.
our common stock is at or above the high cap price. If share settlement were elected, the number of shares received would be determined by the value of the capped calls at the time of settlement divided by the share price on the settlement date. Settlement of the capped calls prior to the expiration dates may be for an amount less than the maximum value at expiration. |
For currency forward contractsExpiration and options without hedge accounting designation,Unwind of Capped Calls: A portion of our 2031 Capped Calls expired in the fourth quarter of 2015. We elected share settlement and received 3 million shares of our stock, equivalent to approximately $50 million based on the trading stock price at the time of expiration, which were recorded as treasury stock. In May 2014, we recognized net lossesand the counterparties agreed to terminate and unwind a portion of our 2031 Capped Calls. We elected share settlement and received 3 million shares of our stock, equivalent to approximately $86 million based on the trading stock price at the time of the unwind. The shares received in May 2014 were retired from treasury stock in 2014.
Accumulated Other Comprehensive Income (Loss): Changes in accumulated other comprehensive income (loss) by component for the year ended September 3, 2015, were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Cumulative Foreign Currency Translation Adjustments | | Gains (Losses) on Derivative Instruments, Net | | Gains (Losses) on Investments, Net | | Pension Liability Adjustments | | Total |
| Balance as of August 28, 2014 | | $ | 42 |
| | $ | 12 |
| | $ | 1 |
| | $ | 1 |
| | $ | 56 |
|
| Other comprehensive income (loss) before reclassifications | | (42 | ) | | (11 | ) | | (2 | ) | | 33 |
| | (22 | ) |
| Amount reclassified out of accumulated other comprehensive income | | — |
| | (6 | ) | | (2 | ) | | (2 | ) | | (10 | ) |
| Tax effects | | — |
| | — |
| | — |
| | (11 | ) | | (11 | ) |
| Other comprehensive income (loss) | | (42 | ) | | (17 | ) | | (4 | ) | | 20 |
| | (43 | ) |
| Balance as of September 3, 2015 | | $ | — |
| | $ | (5 | ) | | $ | (3 | ) | | $ | 21 |
| | $ | 13 |
|
Noncontrolling Interests in Subsidiaries
|
| | | | | | | | | | | | | | |
| As of | | 2015 | | 2014 |
| | | Noncontrolling Interest Balance | | Noncontrolling Interest Percentage | | Noncontrolling Interest Balance | | Noncontrolling Interest Percentage |
IMFT(1) | | $ | 829 |
| | 49 | % | | $ | 693 |
| | 49 | % |
MP Mask(1) | | 93 |
| | 50 | % | | 93 |
| | 50 | % |
| Other | | 15 |
| | Various |
| | 16 |
| | Various |
|
| | | $ | 937 |
| | | | $ | 802 |
| | |
(1) Entity is a variable interest entity.
IMFT: Since inception in 2006, we have owned 51% of IMFT, a joint venture between us and Intel to manufacture NAND Flash and 3D XPoint memory products for the exclusive use of the members. IMFT is governed by a Board of Managers, for which the number of managers appointed by each member varies based on the members' respective ownership interests. The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. Commencing in January 2015, Intel can put to us, and commencing in January 2018, we can call from Intel, Intel's interest in IMFT, in either case, for an amount equal to the noncontrolling interest balance attributable to Intel at that time. If Intel elects to sell to us, we can elect to set the closing date of the transaction to be any time within two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date.
IMFT manufactures memory products using designs and technology we develop with Intel. We generally share with Intel the costs of product design and process development activities for NAND Flash memory and 3D XPoint memory. Our R&D expenses were reduced by reimbursements from Intel of $17224 million, $137 million, and $127 million for 20122015, gains2014, and 2013, respectively.
We sell a portion of our products to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. Sales of products to Intel under this arrangement were $21420 million, $423 million, and $387 million for 20112015, 2014, and 2013, respectively. Receivables from Intel as of September 3, 2015 and losses ofAugust 28, 2014, were $2967 million forand 2010$66 million, which wererespectively, for these sales.
The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:
|
| | | | | | | | |
| As of | | 2015 | | 2014 |
| Assets | | | | |
| Cash and equivalents | | $ | 134 |
| | $ | 84 |
|
| Receivables | | 79 |
| | 73 |
|
| Inventories | | 65 |
| | 48 |
|
| Other current assets | | 7 |
| | 5 |
|
| Total current assets | | 285 |
| | 210 |
|
| Property, plant and equipment, net | | 1,768 |
| | 1,545 |
|
| Other noncurrent assets | | 49 |
| | 47 |
|
| Total assets | | $ | 2,102 |
| | $ | 1,802 |
|
| | | | | |
| Liabilities | | |
| | |
|
| Accounts payable and accrued expenses | | $ | 182 |
| | $ | 106 |
|
| Deferred income | | 9 |
| | 8 |
|
| Current debt | | 22 |
| | 21 |
|
| Total current liabilities | | 213 |
| | 135 |
|
| Long-term debt | | 49 |
| | 71 |
|
| Other noncurrent liabilities | | 100 |
| | 110 |
|
| Total liabilities | | $ | 362 |
| | $ | 316 |
|
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other operating (income) expense.of our assets.
The following table presents IMFT's distributions to and contributions from its shareholders:
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| IMFT distributions to Micron | | $ | 6 |
| | $ | 10 |
| | $ | 38 |
|
| IMFT distributions to Intel | | 6 |
| | 10 |
| | 37 |
|
| Micron contributions to IMFT | | 148 |
| | 106 |
| | 12 |
|
| Intel contributions to IMFT | | 142 |
| | 102 |
| | 11 |
|
Currency DerivativesMP Mask: In 2006, we formed a joint venture with Cash Flow Hedge Accounting DesignationPhotronics to produce photomasks for leading-edge and advanced next generation semiconductors. On March 24, 2015, we notified Photronics of our election to terminate MP Mask effective in May 2016. Upon termination, we have the right to acquire Photronics' interest in MP Mask for an amount equal to the noncontrolling interest balance. Since its inception, we and Photronics have each owned approximately 50% of MP Mask. We purchase a substantial majority of the photomasks produced by MP Mask pursuant to a supply arrangement.
The assets and liabilities of MP Mask included in our consolidated balance sheets were as follows:
|
| | | | | | | | |
| As of | | 2015 | | 2014 |
| Current assets | | $ | 21 |
| | $ | 24 |
|
| Noncurrent assets (primarily property, plant and equipment) | | 180 |
| | 203 |
|
| Current liabilities | | 21 |
| | 28 |
|
| Noncurrent liabilities | | — |
| | 14 |
|
Creditors of MP Mask have recourse only to MP Mask's assets and do not have recourse to any other of our assets.
We utilize currency forward contracts that generally mature withinMMT: 12 monthsAs of August 29, 2013, noncontrolling interests in MMT were 11%. In 2014, we purchased additional interests in MMT for an aggregate of $146 million, and currency options that generally mature from 12 to 18 months to hedge the exposureas of changesAugust 28, 2014, noncontrolling interests in cash flows from changes in currency exchange rates for certain capital expenditures and forecasted operating cash flows. Currency forward contracts are valued at their fair values based on market-based observable inputs including currency exchange spot and forward rates, interest rate and credit risk spread (referred to as Level 2)MMT were less than 1%. Currency options are valued at their fair value using a modified Black-Scholes option valuation model using inputsSubstantially all of the current spot rate, strike price, risk-free interest rate, time to maturity, volatility and credit-risk spread (referred to as Level 2). For derivatives designated as cash flow hedges, the effective portionMMT shares purchased in 2014 were financed with a short-term loan from a seller. As a result of the realizedpurchases of MMT shares in 2014, in aggregate, noncontrolling interests decreased by $180 million and unrealized gain or loss on the derivatives was included as a component of accumulated other comprehensive income (loss). For derivatives hedgingadditional capital expenditures, the amounts in accumulated other comprehensive income (loss) for these cash flow hedges are reclassified into earnings in the same line items of the consolidated statements of operation and in the same periods in which the underlying transactions affect earnings. Amounts in accumulated other comprehensive income (loss) for inventory purchases are reclassified to earnings when inventory is sold. The ineffective or excluded portion of the realized and unrealized gain or loss is included in other operating (income) expense. Total gross notional amounts and fair values for currency derivatives with cash flow hedge accounting designation were as follows:increased by $34 million.
Restrictions on Net Assets
|
| | | | | | | | | | | | |
| | | Notional Amount (in U.S. Dollars) | | Fair Value of |
| Currency | | | Asset (1) | | (Liability) (2) |
| As of August 30, 2012 | | | | | | |
| Forward contracts: | | | | | | |
| Yen | | $ | 108 |
| | $ | 2 |
| | $ | — |
|
| Euro | | 35 |
| | — |
| | — |
|
| Currency options: | | | | | | |
| Yen | | 32 |
| | — |
| | — |
|
| | | $ | 175 |
| | $ | 2 |
| | $ | — |
|
| As of September 1, 2011 | | |
| | |
| | |
|
| Forward contracts: | | | | | | |
| Yen | | $ | 19 |
| | $ | 1 |
| | $ | — |
|
| Euro | | 232 |
| | 8 |
| | — |
|
| | | $ | 251 |
| | $ | 9 |
| | $ | — |
|
| |
(1)
| Included in receivables – other. |
| |
(2)
| Included in accounts payable and accrued expenses – other. |
For 2012 and 2011, we recognized $9 millionAs a result of net derivative losses and $49 millionthe reorganization proceedings of net derivative gains, respectively, in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other operating (income) expense were not significant inMMJ Companies initiated on March 23, 2012, and 2011.for so long as such proceedings continue, the MMJ Group is subject to certain restrictions on dividends, loans, and advances. In 2012, $9addition, our ability to access IMFT's cash and other assets through dividends, loans, or advances, including to finance our other operations, is subject to agreement by Intel. As a result, our total restricted net assets (net assets less intercompany balances and noncontrolling interests) as of September 3, 2015 were $3.35 billion for the MMJ Group and $911 million for IMFT, which included cash and equivalents of net gains were reclassified from accumulated other comprehensive income (loss) to earnings. $748 million for the MMJ Group and $134 million for IMFT. (See "Micron Memory Japan, Inc." note and "IMFT" above.)
As of August 30, 2012, the amountSeptember 3, 2015, our retained earnings included undistributed earnings from our equity method investees of net derivative gains included in accumulated other accumulated comprehensive income (loss) expected to be reclassified into earnings in the next 12 months was $10 million.$232 million.
Fair Value Measurements
Accounting standards establish 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), 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).
All of our marketable debt and equity investments (excluding equity method investments) were classified as available-for-sale and carried at fair value. In addition to the fair value measurements disclosed in the "Cash and Investments" note, as of September 3, 2015 and August 28, 2014, we had certificates of deposit classified as restricted cash (included in other noncurrent assets) of $45 million and $27 million, respectively, valued using Level 2 fair value measurements.
In connection with our repurchases of debt in 2015, 2014, and 2013, we determined the fair value of the debt components of our convertible notes as if they were stand-alone instruments, using interest rates for similar nonconvertible debt issued by entities with credit ratings comparable to ours (Level 2).
Fair Value Measurements on a Recurring Basis
All marketable debt and equity investments are classified as available-for-sale and are carried at fair value. Assets measured at fair value on a recurring basis were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | 2012 | | 2011 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 2,159 |
| | $ | — |
| | $ | — |
| | $ | 2,159 |
| | $ | 1,462 |
| | $ | — |
| | $ | — |
| | $ | 1,462 |
|
| Commercial paper | | — |
| | 29 |
| | — |
| | 29 |
| | — |
| | — |
| | — |
| | — |
|
| Certificates of deposit | | — |
| | 27 |
| | — |
| | 27 |
| | — |
| | 155 |
| | — |
| | 155 |
|
| Government securities | | — |
| | 5 |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | — |
|
| | | 2,159 |
| | 61 |
| | — |
| | 2,220 |
| | 1,462 |
| | 155 |
| | — |
| | 1,617 |
|
| Short-term investments: | | | | | | | | | | | | | | | | |
| Government securities | | — |
| | 51 |
| | — |
| | 51 |
| | — |
| | — |
| | — |
| | — |
|
| Corporate bonds | | — |
| | 31 |
| | — |
| | 31 |
| | — |
| | — |
| | — |
| | — |
|
| Commercial paper | | — |
| | 10 |
| | — |
| | 10 |
| | — |
| | — |
| | — |
| | — |
|
| Asset-backed securities | | — |
| | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
|
| Certificates of deposit | | — |
| | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
|
| | | — |
| | 100 |
| | — |
| | 100 |
| | — |
| | — |
| | — |
| | — |
|
| Long-term marketable investments: | | | | | | | | | | | | | | | | |
| Corporate bonds | | — |
| | 203 |
| | — |
| | 203 |
| | — |
| | — |
| | — |
| | — |
|
| Government securities | | — |
| | 88 |
| | — |
| | 88 |
| | — |
| | — |
| | — |
| | — |
|
| Asset-backed securities | | — |
| | 73 |
| | — |
| | 73 |
| | — |
| | — |
| | — |
| | — |
|
| Marketable equity securities | | 5 |
| | 5 |
| | — |
| | 10 |
| | 37 |
| | 15 |
| | — |
| | 52 |
|
| | | 5 |
| | 369 |
| | — |
| | 374 |
| | 37 |
| | 15 |
| | — |
| | 52 |
|
| Noncurrent assets: | | | | | | | | | | | | | | | | |
| Assets held for sale | | — |
| | — |
| | 25 |
| | 25 |
| | — |
| | — |
| | 35 |
| | 35 |
|
| | | — |
| | — |
| | 25 |
| | 25 |
| | — |
| | — |
| | 35 |
| | 35 |
|
| | | | | | | | | | | | | | | | | |
| | | $ | 2,164 |
| | $ | 530 |
| | $ | 25 |
| | $ | 2,719 |
| | $ | 1,499 |
| | $ | 170 |
| | $ | 35 |
| | $ | 1,704 |
|
Government securities consist of securities issued directly by or deemed to be guaranteed by government entities such as U.S and non U.S. agency securities, government bonds and treasury securities. Level 2 securities are valued using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We periodically perform supplemental analysis to validate information obtained from our pricing services. As of August 30, 2012, no adjustments were made to such pricing information.
Level 3 assets consisted primarily of semiconductor equipment and facilities classified as held for sale. Fair value for semiconductor equipment was based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment. Fair value for facilities was determined based on sales of similar facilities and properties in comparable markets. Losses recognized in 2012 and 2011 due to fair value measurements using Level 3 inputs were not significant. For 2012, activity of assets held for sale was not significant.
Marketable equity securities included approximately 1.3 million ordinary shares (subsequent to a 1 for 15 reverse stock split on August 6, 2012) of Tower Semiconductor Ltd. ("Tower") received in connection with our sale of our wafer fabrication facility in Japan in June 2011. As of September 1, 2011, the shares were valued using quoted market prices in an active market and discounted using a protective put model for our resale restriction (Level 2). During 2012, the resale restrictions lapsed for 0.7 million of the shares, which were valued using quoted market prices (Level 1) as of August 30, 2012.
Fair Value Measurements on a Nonrecurring Basis
Our non-marketable securities, equity method investments, and non-financial assets such as intellectual property and property, plant and equipment are carried at cost unless impairment is deemed to have occurred.
During the third quarter of 2012, the Board of Directors of Transform approved a liquidation plan. As a result, we impaired our investment in Transform to the estimated liquidation values for its assets and liabilities measured using unobservable inputs (Level 3). Transform's primary assets were semiconductor equipment and a manufacturing facility. The fair values for semiconductor equipment were based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment. Fair value for the facility was determined based on sales of similar facilities and properties in comparable markets. Based on our valuation of Transform's net assets, we recognized an other-than-temporary impairment charge of $69 million in equity in net loss of equity method investees.
Fair Value of Financial Instruments
Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair value and carrying value of debt instruments (carrying value excludes the equity and mezzanine equity components of the 2014 Notes, the 2027 Notes, the 2031 Notes, and the 2032 Notes classified in equity)our convertible notes) were as follows:
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Notes and MMJ creditor installment payments | | Notes and MMJ creditor installment payments | $ | 5,020 |
| | $ | 5,077 |
| | $ | 3,634 |
| | $ | 3,483 |
|
| Convertible notes | | $ | 2,669 |
| | $ | 2,321 |
| | $ | 1,845 |
| | $ | 1,578 |
| | 2,508 |
| | 1,472 |
| | 5,886 |
| | 2,117 |
|
| Other notes | 56 |
| | 58 |
| | — |
| | — |
| |
The fair valuevalues of our convertible debt instruments wasnotes were determined based on inputs that arewere observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2). The fair value of our other debt instruments was estimated based on discounted cash flows using inputs that arewere observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).
In connection with our restructure and asset impairment charges in 2014 and 2013, the fair value of our 200mm wafer fabrication equipment in Kiryat Gat, Israel was determined primarily based on the expected proceeds from the sale and the fair value of a supply agreement to manufacture NOR flash memory at the facility (Level 3). The fair values of our MIT assets and our Light-emitting Diode ("LED") production assets were based on quotations obtained from equipment dealers, which consider the remaining useful life and configuration of the equipment (Level 3). (See "Restructure and Asset Impairments" note.)
Derivative Instruments
We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities denominated in currencies other than the U.S. dollar. We have also had convertible note settlement obligations which were accounted for as derivative instruments as a result of our elections to settle conversions in cash. We do not use derivative instruments for speculative purpose.
Derivative Instruments without Hedge Accounting Designation
Currency Derivatives: We use derivative instruments to manage a portion of our exposure to changes in currency exchange rates from our monetary assets and liabilities. Our primary objective for entering into currency derivatives is to reduce the volatility that changes in currency exchange rates have on our earnings.
To hedge our exposures to monetary assets and liabilities, we generally utilize a rolling hedge strategy with currency forward contracts that mature within 35 days. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured in U.S. dollars and the associated outstanding forward contracts are marked-to-market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2 fair value measurements). In connection with the currency exchange rate risk associated with the MMJ Acquisition in July 2013, we entered into currency exchange transactions (the "MMJ Acquisition Hedges"). The MMJ Acquisition Hedges were not designated for hedge accounting and were remeasured at fair value each period. We recorded losses from the MMJ Acquisition Hedges of $228 million in 2013. To mitigate the risk of the yen strengthening against the U.S. dollar on the MMJ creditor installment payments due in December 2014 and December 2015, we entered into forward contracts to purchase 20 billion yen on November 28, 2014 and 10 billion yen on November 27, 2015. In the first quarter of 2015, we paid $33 million to settle the 20 billion yen forward contracts.
Realized and unrealized gains and losses on currency derivatives without hedge accounting designation as well as the change in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-operating income (expense), net.
Convertible Notes Settlement Obligations: During 2015, holders elected to convert a portion of our 2033E Notes. In 2014, holders elected to convert substantially all of our remaining 2014 Notes, 2027 Notes, 2031A Notes, and 2031B Notes. As a result of our elections to settle the amounts due upon conversion in cash, each of the settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment for a period of approximately 30 days, beginning on the dates we notified the holder of our intention to settle the obligation in cash through the settlement dates. The fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2 fair value measurements). The Black-Scholes model requires the input of assumptions, including the stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurements and final settlement amounts of our convertible note settlement obligations were based on the volume-weighted average stock price (Level 2 fair value measurements). Changes in fair values of the derivative settlement obligations were included in other non-operating income (expense), net.
Total notional amounts and gross fair values for derivative instruments without hedge accounting designation were as follows:
|
| | | | | | | | | | | | | | | | |
| | | Notional Amount(1) | | Fair Value of |
Current Assets(2) | | Current Liabilities(3) | | Noncurrent Liabilities(4) |
| As of September 3, 2015 | | | | | | | | |
| Currency forward contracts: | | | | | | | | |
| Yen | | $ | 928 |
| | $ | — |
| | $ | (24 | ) | | $ | — |
|
| Singapore dollar | | 282 |
| | — |
| | — |
| | — |
|
| New Taiwan dollar | | 89 |
| | — |
| | — |
| | — |
|
| Yuan | | 32 |
| | 1 |
| | — |
| | — |
|
| Euro | | 29 |
| | — |
| | — |
| | — |
|
| Shekel | | 27 |
| | — |
| | — |
| | — |
|
| British Pound | | 19 |
| | — |
| | — |
| | — |
|
| | | $ | 1,406 |
| | $ | 1 |
| | $ | (24 | ) | | $ | — |
|
| As of August 28, 2014 | | | | | | | | |
| Currency forward contracts: | | | | | | | | |
| Yen | | $ | 554 |
| | $ | — |
| | $ | (12 | ) | | $ | (6 | ) |
| Singapore dollar | | 330 |
| | — |
| | — |
| | — |
|
| Euro | | 245 |
| | — |
| | (1 | ) | | — |
|
| Shekel | | 62 |
| | — |
| | (1 | ) | | — |
|
| | | $ | 1,191 |
| | | | | | |
| | | | | | | | | |
| Convertible notes settlement obligations | | 12 |
| | — |
| | (389 | ) | | — |
|
| | | | | $ | — |
| | $ | (403 | ) | | $ | (6 | ) |
| |
(1) | Notional amounts of forward contracts in U.S. dollars and convertible notes settlement obligations in shares. |
| |
(2) | Included in receivables – other. |
| |
(3) | Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations. |
| |
(4) | Included in other noncurrent liabilities. |
Net gains (losses) for derivative instruments without hedge accounting designation were included in other non-operating income (expense), net as follows:
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Foreign exchange contracts | | $ | (64 | ) | | $ | (27 | ) | | $ | (222 | ) |
| Convertible notes settlement obligations | | 7 |
| | (59 | ) | | — |
|
Derivative Instruments with Cash Flow Hedge Accounting Designation
Currency Derivatives: We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rate, and credit risk spread (Level 2 fair value measurements).
For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income (loss). Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same line items of the consolidated statements of operations and in the same periods in which the underlying transactions affect earnings. The ineffective or excluded portion of the realized and unrealized gain or loss is included in other non-operating income (expense), net. Total notional amounts and gross fair values for derivative instruments with cash flow hedge accounting designation were as follows:
|
| | | | | | | | | | | | |
| | | Notional Amount (in U.S. Dollars) | | Fair Value of |
| | | Current Assets(1) | | Current Liabilities(2) |
| As of September 3, 2015 | | | | | | |
| Yen | | $ | 81 |
| | $ | 3 |
| | $ | — |
|
| Euro | | 12 |
| | — |
| | — |
|
| | | $ | 93 |
| | $ | 3 |
|
| $ | — |
|
| As of August 28, 2014 | | |
| | | | |
|
| Yen | | $ | 94 |
| | $ | — |
| | $ | (2 | ) |
| Euro | | 24 |
| | — |
| | — |
|
| | | $ | 118 |
| | $ | — |
|
| $ | (2 | ) |
| |
(1) | Included in receivables – other. |
| |
(2) | Included in accounts payable and accrued expenses – other. |
For 2015, 2014, and 2013, we recognized losses of $10 million, $4 million, and $8 million, respectively, in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income (expense) were not significant in 2015, 2014, or 2013. For 2015, 2014, and 2013, we reclassified gains of $6 million, $4 million, and $1 million, respectively, from accumulated other comprehensive income (loss) to earnings. As of September 3, 2015, $3 million of net gains from cash flow hedges included in accumulated other comprehensive income (loss) is expected to be reclassified into earnings in the next 12 months.
Derivative Counterparty Credit Risk and Master Netting Arrangements
Our derivative instruments expose us to credit risk to the extent counterparties may be unable to meet the terms of the contracts. Our maximum exposure to loss due to credit risk if counterparties fail completely to perform according to the terms of the contracts would generally equal the fair value of assets for these contracts as listed in the tables above. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading risk across multiple financial institutions.
We enter into master netting arrangements with our counterparties to mitigate credit risk in derivative hedge transactions. These master netting arrangements allow us and our counterparties to net settle amounts owed to each other. Derivative assets and liabilities that can be net settled with each counterparty under these arrangements have been presented in our consolidated balance sheets on a net basis. As of September 3, 2015 and August 28, 2014, amounts netted were not significant.
Equity Plans
As of August 30, 2012September 3, 2015, we hadour equity plans permit us to issue an aggregate of up to 169.0170 million shares of common stock, reserved for the issuance of stock options and restricted stock awards, of which 105.1 million shares were subject to outstanding awards and 63.9112 million shares were available for future awards. Awards are subject to terms and conditions as determined by our Board of Directors.
Stock Options
Our stock options are generally exercisable in increments of either one-fourth or one-third per year beginning one year from the date of grant. Stock options issued after September, 2004February 2014 generally expire sixeight years from the date of grant. All other optionsOptions issued prior to February 2014 generally expire tensix years from the grant date.date of grant.
Option activity for 20122015 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 September 1, 2011 | | 99.3 |
| | $ | 11.06 |
| | | | |
| Granted | | 21.4 |
| | 5.74 |
| | | | |
| Exercised | | (1.5 | ) | | 3.49 |
| | | | |
| Cancelled or expired | | (23.5 | ) | | 17.43 |
| | | | |
| Outstanding at August 30, 2012 | | 95.7 |
| | 8.42 |
| | 2.8 | | $ | 53 |
|
| | | | | | | | | |
| Exercisable at August 30, 2012 | | 55.3 |
| | $ | 9.71 |
| | 1.7 | | $ | 31 |
|
| Expected to vest after August 30, 2012 | | 38.6 |
| | 6.65 |
| | 4.4 | | 22 |
|
|
| | | | | | | | | | | | | |
| | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Life (In Years) | | Aggregate Intrinsic Value |
| Outstanding at August 28, 2014 | | 48 |
| | $ | 10.57 |
| | | | |
| Granted | | 8 |
| | 34.45 |
| | | | |
| Exercised | | (10 | ) | | 7.35 |
| | | | |
| Canceled or expired | | (2 | ) | | 15.93 |
| | | | |
| Outstanding at September 3, 2015 | | 44 |
| | 15.33 |
| | 3.8 | | $ | 256 |
|
| | | | | | | | | |
| Exercisable at September 3, 2015 | | 18 |
| | $ | 9.33 |
| | 2.4 | | $ | 145 |
|
| Expected to vest after September 3, 2015 | | 25 |
| | 19.11 |
| | 4.7 | | 109 |
|
The following table summarizes information about options outstanding as of August 30, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 |
| $ | 2.07 |
| - | $ | 4.52 |
| | | 13.4 |
| | 2.2 | | $ | 3.01 |
| | 9.4 |
| | $ | 3.07 |
|
| 5.00 |
| - | 7.92 |
| | | 40.8 |
| | 4.1 | | 6.45 |
| | 13.0 |
| | 6.84 |
|
| 8.02 |
| - | 10.89 |
| | | 12.9 |
| | 4.1 | | 9.58 |
| | 4.4 |
| | 9.59 |
|
| 11.03 |
| - | 13.99 |
| | | 22.3 |
| | 0.8 | | 12.44 |
| | 22.2 |
| | 12.45 |
|
| 14.01 |
| - | 19.61 |
| | | 6.3 |
| | 0.7 | | 16.05 |
| | 6.3 |
| | 16.05 |
|
| | | | | | 95.7 |
| | 2.8 | | 8.42 |
| | 55.3 |
| | 9.71 |
|
The weighted-average grant-date fair value per share was $3.18, $4.46 and $4.13 for options granted during 2012, 2011 and 2010, respectively. The total intrinsic value was $6229 million, $35421 million, and $13103 million for options exercised during 20122015, 20112014, and 20102013, respectively.
The fair values of option awards were estimated at each grant date usingStock options granted and assumptions used in the Black-Scholes option valuation model. The Black-Scholes model requires the input of assumptions, including the expected stock price volatility and estimated option life. were as follows:
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Stock options granted | | 8 |
| | 12 |
| | 18 |
|
| Weighted-average grant-date fair value per share | | $ | 14.79 |
| | $ | 9.64 |
| | $ | 3.34 |
|
| Average expected life in years | | 5.6 |
| | 4.9 |
| | 5.1 |
|
| Weighted-average expected volatility | | 45 | % | | 48 | % | | 59 | % |
| Weighted-average risk-free interest rate | | 1.7 | % | | 1.6 | % | | 0.7 | % |
The expected volatilities utilized were based on implied volatilities from traded options on our stock and on our historical volatility. Since 2009, theThe expected lives of options granted were based, in part, on historical experience and on the terms and conditions of the options. Prior to 2009, the expected lives of options granted were based on the simplified method provided by the Securities and Exchange Commission. The risk-free interest rates utilized were based on the U.S. Treasury yield in effect at each grant date. No dividends were assumed in estimated option values. Assumptions used in the Black-Scholes model are presented below:
|
| | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Average expected life in years | | 5.1 |
| | 5.1 |
| | 5.1 |
|
| Weighted-average expected volatility | | 66 | % | | 56 | % | | 60 | % |
| Weighted-average risk-free interest rate | | 0.9 | % | | 1.8 | % | | 2.3 | % |
Restricted Stock and Restricted Stock Units ("Restricted Stock Awards")
As of August 30, 2012September 3, 2015, there were 9.414 million shares of Restricted Stock Awards outstanding, of which 2.21 million were performance-based or market-based Restricted Stock Awards. For service-based Restricted Stock Awards, restrictions generally lapse in one-fourth increments during each year of employment after the grant date. ForVesting for performance-based Restricted Stock Awards, vestingawards is contingent upon meeting certaina specified return on assets ("ROA"), as defined, over a three-year performance goals.period and vesting for market-based Restricted Stock Awards is contingent upon achieving total shareholder return ("TSR") relative to the companies included in the S&P 500 over a three-year performance period. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts, depending upon the achievement level of the specified ROA or TSR. Restricted Stock Awards activity for 20122015 is summarized as follows:
|
| | | | | | | |
| | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| Outstanding at September 1, 2011 | | 8.8 |
| | $ | 8.17 |
|
| Granted | | 5.8 |
| | 5.43 |
|
| Restrictions lapsed | | (4.7 | ) | | 7.47 |
|
| Cancelled | | (0.5 | ) | | 7.26 |
|
| Outstanding at August 30, 2012 | | 9.4 |
| | 6.87 |
|
| | | | | |
| Expected to vest after August 30, 2012 | | 8.1 |
| | $ | 6.75 |
|
Restricted Stock Awards granted for 2012, 2011 and 2010 were as follows: |
| | | | | | | |
| | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| Outstanding at August 28, 2014 | | 13 |
| | $ | 15.08 |
|
| Granted | | 7 |
| | 32.60 |
|
| Restrictions lapsed | | (5 | ) | | 13.48 |
|
| Canceled | | (1 | ) | | 19.81 |
|
| Outstanding at September 3, 2015 | | 14 |
| | 23.88 |
|
| | | | | |
| Expected to vest after September 3, 2015 | | 13 |
| | $ | 23.78 |
|
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Service-based awards | | 3.9 |
| | 4.4 |
| | 5.9 |
|
| Performance-based awards | | 1.9 |
| | 1.2 |
| | 1.8 |
|
| Weighted-average grant-date fair values per share | | $ | 5.43 |
| | $ | 8.72 |
| | $ | 8.29 |
|
Restricted Stock Awards granted during 2010 included 4.1 million of service-based and 0.7 million of performance-based Restricted Stock Awards as part of our acquisition of Numonyx. The aggregate fair value at the lapse date of awards for which restrictions lapsed during 2012, 2011 and 2010 was $32 million, $43 million and $65 million, respectively. |
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Restricted stock awards granted | | 7 |
| | 7 |
| | 7 |
|
| Weighted-average grant-date fair values per share | | $ | 32.60 |
| | $ | 21.88 |
| | $ | 6.23 |
|
| Aggregate fair values at vesting date | | 155 |
| | 115 |
| | 17 |
|
Stock-based Compensation Expense
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Stock-based compensation expense by caption: | | | | | | | | | | | | |
| Cost of goods sold | | $ | 23 |
| | $ | 20 |
| | $ | 23 |
| | $ | 65 |
| | $ | 39 |
| | $ | 27 |
|
| Selling, general and administrative | | 47 |
| | 38 |
| | 50 |
| | 60 |
| | 50 |
| | 45 |
|
| Research and development | | 17 |
| | 17 |
| | 18 |
| | 42 |
| | 25 |
| | 18 |
|
| Other operating (income) expense | | — |
| | 1 |
| | 2 |
| |
| Other | | | 1 |
| | 1 |
| | 1 |
|
| | | $ | 87 |
| | $ | 76 |
| | $ | 93 |
| | $ | 168 |
| | $ | 115 |
| | $ | 91 |
|
| | | | | | | | | | | | | |
| Stock-based compensation expense by type of award: | | | | | | | | | | | | |
| Stock options | | $ | 57 |
| | $ | 44 |
| | $ | 37 |
| | $ | 81 |
| | $ | 61 |
| | $ | 57 |
|
| Restricted stock awards | | 30 |
| | 32 |
| | 56 |
| | 87 |
| | 54 |
| | 34 |
|
| | | $ | 87 |
| | $ | 76 |
| | $ | 93 |
| | $ | 168 |
| | $ | 115 |
| | $ | 91 |
|
Selling, general and administrative expense for 2012 included $13 million from the vesting of restricted stock and stock options in connection with the death of our former Chief Executive Officer.
Stock-based compensation expense of $59 million and $59 million was capitalized and remained in inventory as of August 30, 2012September 3, 2015 and September 1, 2011August 28, 2014, respectively. As of August 30, 2012September 3, 2015, $138$384 million of total unrecognized compensation costs for unvested awards, net of estimated forfeitures, related to non-vested awards was expected to be recognized through the fourth quarter of 20162019, resulting in a weighted-average period of 1.21.3 years. Stock-based compensation expense in the above presentation does not reflect any significant income tax benefits, which is consistent with our treatment of income or loss from our U.S. operations. (See "Income Taxes" note.)
Employee Benefit Plans
We have employee retirement plans at our U.S. and international sites. Details of the more significant plans are discussed as follows:
Employee Savings Plan for U.S. Employees
We have 401(k) retirement plans ("RAM Plans") under which U.S. employees may contribute up to 75% of their eligible pay (subject to IRS annual contribution limits) to various savings alternatives, none of which include direct investment in our common stock. In 2011 we reinstated our match under the RAM Plans after being suspended in 2009. We match in cash eligible contributions from employees up to 5% of the employee's annual eligible earnings. Contribution expense for the RAM Plans401(k) plans was$55 million, $44 million, and $41 million in 2015, 2014, and $26 million2013 in 2012 and 2011,, respectively.
Retirement Plans
We have pension plans in various countries worldwide.countries. The pension plans are only available to local employees and are generally government mandated. We have determined that these pensionAs of September 3, 2015, the projected benefit obligations of our plans arewas $132 million and plan assets were $105 million. As of August 28, 2014, the projected benefit obligations of our plans was $164 million and plan assets were $90 million. Pension expense was not materialsignificant for separate disclosure.2015, 2014, or 2013.
Restructure and Asset Impairments
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Loss on impairment of LED assets | | $ | 1 |
| | $ | (6 | ) | | $ | 33 |
|
| Loss on impairment of MIT assets | | — |
| | (5 | ) | | 62 |
|
| Gain on termination of lease to Transform | | — |
| | — |
| | (25 | ) |
| Loss on restructure of ST Consortium agreement | | — |
| | — |
| | 26 |
|
| Other | | 2 |
| | 51 |
| | 30 |
|
| | | $ | 3 |
| | $ | 40 |
| | $ | 126 |
|
In order to optimize operations, improve efficiency, and increase our focus on our core memory operations, we have entered into various restructure activities. For 2014, our MBU and EBU operating segments recorded restructure and asset impairment charges of $21 million and $20 million, respectively. For 2013, restructure and asset impairment charges of $20 million, $14 million, $12 million, and $12 million were recognized by our SBU, EBU, MBU, and CNBU operating segments, respectively. The remaining restructure and asset impairment charges were recognized by our other segments that do not meet the thresholds of a reportable segment. As of September 3, 2015, we do not anticipate incurring any significant additional costs for these restructure activities.
For 2014 and 2013, other restructure included charges associated with workforce optimization activities and with our efforts to wind down our 200mm operations primarily in Agrate, Italy and Kiryat Gat, Israel.
For 2013, we also recognized charges of $33 million primarily to impair certain production assets used in the development of LED technology, $62 million to impair the assets of MIT, a wholly-owned subsidiary, to their estimated fair values in connection with the sale of MIT to LFoundry, and $26 million in connection with the restructure of a consortium agreement with ST, whereby certain assets and approximately 500 employees from our Agrate, Italy fabrication facility were transferred to ST. For 2013, we also recognized a gain of $25 million related to the termination of a lease with Transform Solar Pty Ltd. ("Transform"), an equity method investee, to a portion of our manufacturing facilities in Boise, Idaho.
Other Operating (Income) Expense, Net
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Loss from termination of lease to IMFT | | $ | 17 |
| | $ | — |
| | $ | — |
|
| Restructure | | 7 |
| | (21 | ) | | (10 | ) |
| (Gain) loss from changes in currency exchange rates | | 6 |
| | 6 |
| | 23 |
|
| (Gain) loss on disposition of property, plant and equipment | | 5 |
| | (17 | ) | | (1 | ) |
| Samsung patent cross-license agreement | | — |
| | (275 | ) | | — |
|
| Gain from disposition of Japan Fab | | — |
| | (54 | ) | | — |
|
| Other | | 13 |
| | (19 | ) | | (39 | ) |
| | | $ | 48 |
| | $ | (380 | ) | | $ | (27 | ) |
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| (Gain) loss on disposition of property, plant and equipment | | $ | (17 | ) | | $ | 10 |
| | $ | (3 | ) |
| Rambus settlement | | — |
| | 233 |
| | — |
|
| Other | | (28 | ) | | (11 | ) | | (5 | ) |
| | | $ | (45 | ) | | $ | 232 |
| | $ | (8 | ) |
In the first quarter of 2011,December 2013, we settled all pending litigation between us and Rambus, Inc., including all antitrust and patent matters. We also entered into a 10-yearseven-year term patent cross-license agreement with Samsung Electronics Co. Ltd. ("Samsung"). Other operating income for 2011 included gainsRambus, Inc. that allows us to avoid costs of $275 million for cashpatent-related litigation during the term. The primary benefits we received from Samsungthese arrangements were (1) the settlement and termination of all existing litigation, (2) the avoidance of future litigation expenses and (3) the avoidance of future management and customer disruptions. As a result, other operating expense for 2014 included a $233 million charge to accrue a liability, which reflects the discounted value of amounts due under the agreement. The license is a life-of-patents license for existing patents and applications, and a 10-year term license for all other patents.
Other operating income in 2011 included $8 million for receipts from the U.S. government in connection with anti-dumping tariffs. Other operating income in 2010 included $24 million of grant income related to our operations in China and $12 million of receipts from the U.S. government in connection with anti-dumping tariffs.this arrangement.
Other Non-Operating Income (Expense), Net
Other non-operating income for 2012 included $35 million in net gains from equity investments. Other non-operating income for 2011 included $15 million for the termination of our debt guarantee obligation that we recorded in connection with our acquisition of Numonyx and a $111 million loss recognized in connection with a series of debt restructure transactions with certain holders of our convertible notes. (See "Debt" note.) Other non-operating income for 2010 included $56 million of gain recognized in connection with Inotera's sale of common shares in a public offering. (See "Equity Method Investments – Inotera" note.) |
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Loss on restructure of debt | | $ | (49 | ) | | $ | (184 | ) | | $ | (31 | ) |
| Gain (loss) from changes in currency exchange rates | | (27 | ) | | (28 | ) | | (229 | ) |
| Gain from disposition of interest in Aptina | | 1 |
| | 119 |
| | — |
|
| Gain from issuance of Inotera shares | | — |
| | 93 |
| | 48 |
|
| Other | | 22 |
| | 8 |
| | (6 | ) |
| | | $ | (53 | ) | | $ | 8 |
| | $ | (218 | ) |
Income Taxes
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Income (loss) before taxes, net income attributable to noncontrolling interests and equity in net loss of equity method investees: | | | | | | | |
| Income before income taxes, net income attributable to noncontrolling interests and equity in net income (loss) of equity method investees: | | | | | | | |
| Foreign | | | $ | 2,431 |
| | $ | 2,619 |
| | $ | 839 |
|
| U.S. | | $ | (1,028 | ) | | $ | 257 |
| | $ | 1,383 |
| | 178 |
| | 114 |
| | 446 |
|
| Foreign | | 274 |
| | 294 |
| | 537 |
| |
| | | | $ | 2,609 |
| | $ | 2,733 |
| | $ | 1,285 |
|
| | | $ | (754 | ) | | $ | 551 |
| | $ | 1,920 |
| | | | | | |
| Income tax (provision) benefit: | | | | | | | | | | | | |
| Current: | | | | | | | | | | | | |
| U.S. federal | | $ | 14 |
| | $ | — |
| | $ | 66 |
| |
| Foreign | | (22 | ) | | (89 | ) | | (24 | ) | | $ | (93 | ) | | $ | (46 | ) | | $ | (17 | ) |
| State | | — |
| | (1 | ) | | (4 | ) | | (1 | ) | | (2 | ) | | — |
|
| U.S. federal | | | 6 |
| | (3 | ) | | — |
|
| | | (8 | ) | | (90 | ) | | 38 |
| | (88 | ) | | (51 | ) | | (17 | ) |
| Deferred: | | | | | | | | | | | | |
| Foreign | | | (85 | ) | | (81 | ) | | 9 |
|
| U.S. federal | | — |
| | — |
| | (5 | ) | | 15 |
| | 4 |
| | — |
|
| Foreign | | 25 |
| | (113 | ) | | (14 | ) | |
| State | | | 1 |
| | — |
| | — |
|
| | | 25 |
| | (113 | ) | | (19 | ) | | (69 | ) | | (77 | ) | | 9 |
|
| Income tax (provision) benefit | | $ | 17 |
| | $ | (203 | ) | | $ | 19 |
| | $ | (157 | ) | | $ | (128 | ) | | $ | (8 | ) |
Income tax (provision) benefit computed using the U.S. federal statutory rate reconciled to income tax (provision) benefit was as follows:
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| U.S. federal income tax (provision) benefit at statutory rate | | $ | 264 |
| | $ | (193 | ) | | $ | (672 | ) | | $ | (913 | ) | | $ | (956 | ) | | $ | (450 | ) |
| Foreign operations | | 104 |
| | (119 | ) | | 135 |
| |
| Change in unrecognized tax benefits | | | (118 | ) | | (152 | ) | | 2 |
|
| Foreign tax rate differential | | | 515 |
| | 474 |
| | 339 |
|
| Change in valuation allowance | | | 260 |
| | 544 |
| | (418 | ) |
| Noncontrolling investment transactions | | | 57 |
| | — |
| | — |
|
| Tax credits | | | 53 |
| | 11 |
| | 36 |
|
| State taxes, net of federal benefit | | 9 |
| | (5 | ) | | (22 | ) | | 19 |
| | (39 | ) | | 6 |
|
| Tax credits | | 2 |
| | 17 |
| | 3 |
| |
| Change in valuation allowance | | (373 | ) | | 103 |
| | 424 |
| |
| Debt repurchase premium | | — |
| | (20 | ) | | — |
| |
| Gain on acquisition of Numonyx | | — |
| | — |
| | 153 |
| |
| Gain on MMJ Acquisition | | | — |
| | (11 | ) | | 520 |
|
| Transaction costs related to the MMJ Acquisition | | | — |
| | — |
| | (38 | ) |
| Other | | 11 |
| | 14 |
| | (2 | ) | | (30 | ) | | 1 |
| | (5 | ) |
| Income tax (provision) benefit | | $ | 17 |
| | $ | (203 | ) | | $ | 19 |
| | $ | (157 | ) | | $ | (128 | ) | | $ | (8 | ) |
We operate in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and are taxed at lower effective tax rates than the U.S. statutory rate. We operate in a number of locations outside the U.S., including Singapore and, to a lesser extent, Taiwan, where we have tax incentive agreements that are, in part, conditional upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements, which expire in whole or in part at various dates through 2030, reduced our tax provision for 2015, 2014, and 2013 by $338 million (benefitting our diluted earnings per share by $0.29), $286 million ($0.24 per diluted share), and $141 million ($0.13 per diluted share), respectively.
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.purposes as well as carryforwards. Deferred tax assets and liabilities consist of the following as of the end of the periods shown below:following:
| | | As of | | 2012 | | 2011 | | 2015 | | 2014 |
| Deferred tax assets: | | | | | | | | |
| Net operating loss and credit carryforwards | | $ | 1,816 |
| | $ | 1,558 |
| |
| Net operating loss and tax credit carryforwards | | | $ | 2,869 |
| | $ | 3,162 |
|
| Accrued salaries, wages and benefits | | 99 |
| | 99 |
| | 143 |
| | 152 |
|
| Deferred income | | 39 |
| | 55 |
| |
| Other accrued liabilities | | | 97 |
| | 113 |
|
| Property, plant and equipment | | | — |
| | 284 |
|
| Other | | 76 |
| | 55 |
| | 86 |
| | 104 |
|
| Gross deferred tax assets | | 2,030 |
| | 1,767 |
| | 3,195 |
| | 3,815 |
|
| Less valuation allowance | | (1,535 | ) | | (1,220 | ) | | (2,051 | ) | | (2,443 | ) |
| Deferred tax assets, net of valuation allowance | | 495 |
| | 547 |
| | 1,144 |
| | 1,372 |
|
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Debt discount | | (182 | ) | | (138 | ) | | (207 | ) | | (291 | ) |
| Unremitted earnings on certain subsidiaries | | (111 | ) | | (117 | ) | | (162 | ) | | (115 | ) |
| Product and process technology | | (61 | ) | | (50 | ) | | (43 | ) | | (29 | ) |
| Property, plant and equipment | | (38 | ) | | (107 | ) | |
| Intangible assets | | (17 | ) | | (24 | ) | |
| Other | | (21 | ) | | (41 | ) | | (57 | ) | | (67 | ) |
| Deferred tax liabilities | | (430 | ) | | (477 | ) | | (469 | ) | | (502 | ) |
| | | | | | | | | |
| Net deferred tax assets | | $ | 65 |
| | $ | 70 |
| | $ | 675 |
| | $ | 870 |
|
| | | | | | | | | |
| Reported as: | | | | | | | | |
| Current deferred tax assets (included in other current assets) | | $ | 19 |
| | $ | 26 |
| | $ | 104 |
| | $ | 228 |
|
| Noncurrent deferred tax assets (included in other noncurrent assets) | | 47 |
| | 60 |
| |
| Noncurrent deferred tax assets | | | 597 |
| | 816 |
|
| Current deferred tax liabilities (included in accounts payable and accrued expenses) | | | (4 | ) | | (4 | ) |
| Noncurrent deferred tax liabilities (included in other noncurrent liabilities) | | (1 | ) | | (16 | ) | | (22 | ) | | (170 | ) |
| Net deferred tax assets | | $ | 65 |
| | $ | 70 |
| | $ | 675 |
| | $ | 870 |
|
We haveAs of September 3, 2015, we had a valuation allowance of $1.16 billion against substantially all U.S. net deferred tax assets.assets, primarily related to net operating loss carryforwards. The valuation allowance is based on our assessment of the deferred tax assets that are more likely than not to be realized. As of August 30, 2012,September 3, 2015, we had partial valuation allowances of $710 million for Japan and $177 million for our other foreign subsidiaries against net deferred tax assets, primarily related to net operating loss carryforwards. As of September 3, 2015, we had $3.81 billion of net operating loss carryforwards in Japan of which $2.19 billion is subject to a valuation allowance. Our valuation allowance decreased $392 million in 2015 primarily due to the utilization of U.S. and foreign net operating losses as well as adjustments based on management's assessment of the amount of foreign net operating losses that are more likely than not to be realized.
We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. Management continues to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowances. The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases. Income taxes on U.S. operations for 2015 and 2014 were substantially offset by changes in the valuation allowance.
As of September 3, 2015, our federal, state, and foreign net operating loss carryforwardscarryforward amounts and expiration periods as reported to tax authorities, were $3.5 billion, $2.2 billion and $737 million respectively. If not utilized, substantially all of our federal and state net operating loss carryforwards will expire in 2023 to 2032 and the foreign net operating loss carryforwards will begin to expire in 2017. as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| Year of Expiration | | U.S. Federal | | State | | Japan | | Other Foreign | | Total |
| 2016 - 2020 | | $ | — |
| | $ | 103 |
| | $ | 1,311 |
| | $ | 1,011 |
| | $ | 2,425 |
|
| 2021 - 2025 | | — |
| | 265 |
| | 2,499 |
| | 294 |
| | 3,058 |
|
| 2026 - 2030 | | 2,022 |
| | 1,028 |
| | — |
| | — |
| | 3,050 |
|
| 2031 - 2035 | | 1,999 |
| | 652 |
| | — |
| | — |
| | 2,651 |
|
| Indefinite | | — |
| | — |
| | — |
| | 30 |
| | 30 |
|
| | | $ | 4,021 |
| | $ | 2,048 |
| | $ | 3,810 |
| | $ | 1,335 |
| | $ | 11,214 |
|
As of August 30, 2012,September 3, 2015, our federal and state tax credit carryforwardscarryforward amounts and expiration periods as reported to tax authorities, were $208as follows:
|
| | | | | | | | | | | | |
| Year of Tax Credit Expiration | | Federal | | State | | Total |
| 2016 - 2020 | | $ | 20 |
| | $ | 65 |
| | $ | 85 |
|
| 2021 - 2025 | | 99 |
| | 43 |
| | 142 |
|
| 2026 - 2030 | | 65 |
| | 61 |
| | 126 |
|
| 2031 - 2035 | | 119 |
| | — |
| | 119 |
|
| Indefinite | | — |
| | 39 |
| | 39 |
|
| | | $ | 303 |
| | $ | 208 |
| | $ | 511 |
|
We have not recognized deferred tax assets of $307 million and $203 million, respectively. If not utilized, substantially all of our federal and state tax credit carryforwards will expire in 2013 to 2032. As a consequence of prior business acquisitions, utilization of the for excess tax benefits that arose directly from tax deductions related to equity compensation greater than amounts recognized for somefinancial reporting. These excess stock compensation benefits will be credited to additional capital if realized. We use the "with and without" method, as described in ASC 740, for purposes of thedetermining when excess 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.benefits have been realized.
The changes in valuation allowance of $315 million and $(75) million in 2012 and 2011, respectively, are primarily due to uncertainties of realizing certain U.S. and foreign net operating losses and certain tax credit carryforwards.
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.liabilities. Remaining undistributed earnings of $1.1$6.96 billion as of August 30, 2012September 3, 2015 have been indefinitely reinvested; therefore, no provision has been made for taxes due on approximately $8.52 billion of the excess of the financial reporting amount over the tax basis of investments in foreign subsidiaries that are indefinitely reinvested. Generally, this amount becomes taxable upon remittancea repatriation of these earnings.assets from the subsidiary or a sale or liquidation of the subsidiary. Determination of the amount of unrecognized deferred tax liability onliabilities related to investments in these unremitted earningsforeign subsidiaries is not practicable.
Below is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Beginning unrecognized tax benefits | | $ | 121 |
| | $ | 88 |
| | $ | 1 |
| | $ | 228 |
| | $ | 78 |
| | $ | 77 |
|
| Increases related to tax positions taken during current year | | | 119 |
| | 152 |
| | 4 |
|
| Increases related to tax positions from prior years | | | 17 |
| | — |
| | — |
|
| Foreign currency translation increases (decreases) to tax positions | | | (6 | ) | | 1 |
| | 4 |
|
| Lapse of statute of limitations | | | (6 | ) | | (1 | ) | | — |
|
| Settlements with tax authorities | | (29 | ) | | (2 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (8 | ) |
| Decreases related to tax positions from prior years | | (14 | ) | | (3 | ) | | — |
| | — |
| | (1 | ) | | — |
|
| Foreign currency translation increases (decreases) to tax positions | | (9 | ) | | 6 |
| | — |
| |
| Increases related to tax positions taken during current year | | 6 |
| | 28 |
| | 11 |
| |
| Increases related to tax positions from prior years | | 2 |
| | 4 |
| | 14 |
| |
| Unrecognized tax benefits acquired in current year | | — |
| | — |
| | 63 |
| | — |
| | — |
| | 1 |
|
| Ending unrecognized tax benefits | | $ | 77 |
| | $ | 121 |
| | $ | 88 |
| | $ | 351 |
| | $ | 228 |
| | $ | 78 |
|
Included in the unrecognized tax benefits balance as of September 3, 2015, August 30, 2012, September 1, 2011 and September 2, 2010 were $66 million, $113 million28, 2014, and $87August 29, 2013 were $53 million,, $66 million, and $63 million, respectively, of unrecognized income tax benefits, which if recognized, would affect our effective tax rate. In connection with the acquisition of NumonyxThe increase in 2010, we accrued a $66 million liabilityunrecognized tax benefits in 2015 primarily related to uncertaintransfer pricing and other matters which were substantially offset by changes in our deferred tax positions on the tax years of Numonyx open to examination. We recorded an indemnification asset for a significant portion of these unrecognized income tax benefits related to uncertain tax positions.valuation allowance. We recognize interest and penalties related to income tax matters within income tax expense. As of September 3, 2015, August 30, 2012, September 1, 201128, 2014, and September 2, 2010,August 29, 2013, the amount accrued for interest and penalties related to uncertain tax positions was $1216 million, $1619 million, and $616 million, respectively.
We are unable to reasonably estimate possible increases The resolution of tax audits or decreaseslapses of statute of limitations could also reduce our unrecognized tax benefits. Although the timing of final resolution is uncertain, the estimated potential reduction in uncertainour unrecognized tax positions that may occur withinbenefits in the next 12 months dueranges from $0 to the uncertainty of the timing of the resolution and/or closure on audits. However, we do not anticipate any such change would be significant.
We currently operate in several tax jurisdictions where we have arrangements that allow us to compute our tax provision at rates below the local statutory rates that expire in whole or in part at various dates through 2026. These arrangements benefitted our tax provision in 2012, 2011$67 million, including interest and 2010 by $52 million ($0.05 per diluted share), $72 million ($0.07 per diluted share) and $69 million ($0.07 per diluted share), respectively.penalties.
We and our subsidiaries file income tax returns with the U.S. federal government, various U.S. states and various foreign jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 20082011 through 2012.2015. In addition, tax yearsreturns open to examination in multiple foreign taxing jurisdictions range from 2005the years 2007 to 2012. We are currently under examination in various taxing jurisdictions in which we conduct business operations.2015. We believe that adequate amounts of taxes and related interest and penalties have been provided for, and any adjustments as a result of the examinations are not expected to materially adversely affect our business, results of operations or financial condition.
Earnings Per Share
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Net income (loss) available to Micron shareholders – Basic | | $ | (1,032 | ) | | $ | 167 |
| | $ | 1,850 |
|
| Net effect of assumed conversion of debt | | — |
| | — |
| | 93 |
|
| Net income (loss) available to Micron shareholders – Diluted | | $ | (1,032 | ) | | $ | 167 |
| | $ | 1,943 |
|
| | | | | | | |
| Weighted-average common shares outstanding – Basic | | 991.2 |
| | 988.0 |
| | 887.5 |
|
| Net effect of dilutive equity awards, escrow shares and assumed conversion of debt | | — |
| | 19.5 |
| | 163.2 |
|
| Weighted-average common shares outstanding – Diluted | | 991.2 |
| | 1,007.5 |
| | 1,050.7 |
|
| | | | | | | |
| Earnings (loss) per share: | | | | | | |
| Basic | | $ | (1.04 | ) | | $ | 0.17 |
| | $ | 2.09 |
|
| Diluted | | (1.04 | ) | | 0.17 |
| | 1.85 |
|
On May 7, 2010, in connection with the acquisition of Numonyx, we issued 137.7 million shares of our common stock and issued 4.8 million restricted stock units. Of the common stock issued, 21 million shares were held in escrow as partial security for Numonyx shareholders indemnity obligations. During 2011, the Numonyx shareholders sold all of the 21 million shares in escrow. The shares held in escrow were included in diluted earnings per share but were excluded from basic earnings per share. (See "Numonyx" note.) |
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Net income available to Micron shareholders – Basic | | $ | 2,899 |
| | $ | 3,045 |
| | $ | 1,190 |
|
| Dilutive effect related to equity method investment | | (3 | ) | | (2 | ) | | — |
|
| Net income available to Micron shareholders – Diluted | | $ | 2,896 |
| | $ | 3,043 |
| | $ | 1,190 |
|
| | | | | | | |
| Weighted-average common shares outstanding – Basic | | 1,070 |
| | 1,060 |
| | 1,022 |
|
| Dilutive effect of equity plans and convertible notes | | 100 |
| | 138 |
| | 35 |
|
| Weighted-average common shares outstanding – Diluted | | 1,170 |
| | 1,198 |
| | 1,057 |
|
| | | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | 2.71 |
| | $ | 2.87 |
| | $ | 1.16 |
|
| Diluted | | 2.47 |
| | 2.54 |
| | 1.13 |
|
Listed below are the potential common shares, as of the end of the periods shown, 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:
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| Employee stock plans | | 104.8 |
| | 81.4 |
| | 92.2 |
| |
| Equity plans | | | 18 |
| | 7 |
| | 40 |
|
| Convertible notes | | 257.6 |
| | 182.7 |
| | — |
| | 18 |
| | 26 |
| | 186 |
|
Our 2033 Notes and, to the extent our 2027 Notes and 2031 Notes were outstanding during the periods presented, contain terms that upon conversion require us to settle the aggregate principal amount in cash and the remainder of our conversion obligation amount in either shares of our common stock or cash, at our election. Our 2032 Notes and 2043 Notes, and, to the extent our 2014 Notes and 2032 Noteswere outstanding during the periods presented, contain terms that upon conversion provide us the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due. It is our current intent to settle the principal amount of the 2014our 2032 Notes and 20322043 Notes in cash upon conversion. As a result of these conversion terms and stated intent, the257.6 million shares underlying the 2014 Notes, 2027 Notes, 2031 Notes, and 2032 Notes, are2033 Notes, and 2043 Notes were considered in diluted earnings per share for the periods they were outstanding under the treasury stock method. (See "Debt" note.)
Consolidated Variable Interest Entities
IM Flash
We partnered with Intel to form IMFT in 2006 and IMFS in 2007 to manufacture NAND Flash memory products for the exclusive use of the members. IMFT (and IMFS prior to April 6, 2012) is governed by a Board of Managers. The number of managers appointed by each member to the board varies based on the members' respective ownership interests. The members' ownership percentage is based on contributions to the partnership. We have owned 51% of IMFT from inception through August 30, 2012. Our ownership percentage of IMFS had increased from 51% at inception to 82% as of April 6, 2012 due to a series of contributions by us that were not fully matched by Intel.
On April 6, 2012, we entered into a series of agreements with Intel to restructure IM Flash. We acquired Intel's remaining 18% interest in IMFS for $466 million. In addition, we acquired IMFT's assets located at our Virginia wafer fabrication facility, for which Intel received a distribution from IMFT of $139 million. For both transactions, the amounts Intel received approximated the book values of Intel's interests in the assets acquired. Additionally, we received a $300 million deposit from Intel which may be applied either to Intel's purchases of NAND Flash under a supply agreement or, under certain circumstances, refunded.
The agreements also provided for the following:
expansion of the scope of the IMFT joint venture to include certain emerging memory technologies;
supply of NAND Flash memory products and certain emerging memory products to Intel on a cost-plus basis and termination of IMFS's supply agreement with us and Intel;
extension of IMFT's joint venture agreement through 2024;
certain buy-sell rights, commencing in 2015, pursuant to which Intel may elect to sell to us, or we may elect to purchase from Intel, Intel’s interest in IMFT (if Intel so elects, we would set the closing date of the transaction within two years following such election and could elect to receive financing from Intel for one to two years);
financing of $65 million provided by Intel to us under a two-year senior unsecured promissory note, payable with interest in approximately equal quarterly installments; and
termination of IMFT's lease to use approximately 50% of our Virginia fabrication facility, which resulted in a charge to other operating expense of $17 million in 2012.
The following table presents IM Flash's distributions to and contributions from its shareholders ("IM Flash" includes both IMFT and IMFS for all periods prior to April 6, 2012 and includes only IMFT for the period after April 6, 2012):
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| IM Flash distributions to Micron | | $ | 439 |
| | $ | 234 |
| | $ | 278 |
|
| IM Flash distributions to Intel | | 391 |
| | 225 |
| | 267 |
|
| Micron contributions to IM Flash | | 151 |
| | 1,580 |
| | 128 |
|
| Intel contributions to IM Flash | | 177 |
| | — |
| | 38 |
|
IM Flash sells products to the joint venture members generally in proportion to their ownership interests at long-term negotiated prices approximating cost. Due to the changes in ownership, our share of IMFS output grew from 51% in the first quarter of 2011 to 78% in the second quarter of 2012. As a result of our restructuring of IM Flash on April 6, 2012, Intel has no continuing rights to the output from the IMFS and Virginia facilities. Intel continues to receive output from IMFT in proportion to its ownership interest at long-term negotiated prices approximating cost and, subsequent to April 6, 2012, also purchases NAND Flash products from us under a cost-plus supply arrangement. Aggregate sales of NAND Flash products to Intel (including sales by IMFT at prices approximating cost and sales by us under the cost-plus supply agreement) were $986 million, $884 million and $764 million for 2012, 2011 and 2010, respectively. Receivables from Intel for sales of NAND Flash products as of August 30, 2012 and September 1, 2011, were $103 million and $165 million, respectively.
As a result of changes to the timing of the passage of title in the IMFT supply agreement with Intel, effective April 6, 2012, sales are now recognized upon completion of wafer fabrication, rather than after backend assembly and test are completed. As a result, we sold $97 million of backend inventories, which generated a one-time increase in NAND sales and reduction in work in process inventories in 2012.
The following table presents the total assets and liabilities of IMFT and IMFS included in our consolidated balance sheet. Amounts as of September 1, 2011 included IMFT and IMFS, which were aggregated due to the similarity of their function, operations and the way our management reviewed the results of their operations. Amounts as of August 30, 2012 included only IMFT.
|
| | | | | | | | |
| As of | | 2012 | | 2011 |
| Assets | | | | |
| Cash and equivalents | | $ | 157 |
| | $ | 327 |
|
| Receivables | | 78 |
| | 252 |
|
| Inventories | | 67 |
| | 227 |
|
| Other current assets | | 5 |
| | 11 |
|
| Total current assets | | 307 |
| | 817 |
|
| Property, plant and equipment, net | | 1,342 |
| | 4,121 |
|
| Other noncurrent assets | | 36 |
| | 66 |
|
| Total assets | | $ | 1,685 |
| | $ | 5,004 |
|
| | | | | |
| Liabilities | | |
| | |
|
| Accounts payable and accrued expenses | | $ | 104 |
| | $ | 458 |
|
| Deferred income | | 10 |
| | 125 |
|
| Equipment purchase contracts | | 58 |
| | 37 |
|
| Current portion of long-term debt | | 6 |
| | 8 |
|
| Total current liabilities | | 178 |
| | 628 |
|
| Long-term debt | | 18 |
| | 58 |
|
| Other noncurrent liabilities | | 129 |
| | 4 |
|
| Total liabilities | | $ | 325 |
| | $ | 690 |
|
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
The table above included, as of September 1, 2011, assets of $2,999 million and liabilities of $433 million, related to our IM Flash entities that, subsequent to April 6, 2012, were wholly-owned by us.
Our ability to access IMFT's cash and investments to finance our other operations is subject to agreement by Intel. Creditors of IMFT have recourse only to its assets and do not have recourse to any other of our assets.
IM Flash manufactures NAND Flash memory products using designs and technology we develop with Intel. We generally share product design and other NAND Flash R&D costs with Intel. The April 6, 2012 agreements with Intel expanded our NAND Flash R&D cost-sharing agreement with Intel to include certain emerging memory technologies, but did not change the cost-sharing percentage. R&D expenses were reduced by reimbursements from Intel of $87 million, $95 million and $104 million for 2012, 2011 and 2010, respectively.
MP Mask
In 2006, we formed a joint venture with Photronics to produce photomasks for leading-edge and advanced next generation semiconductors. At inception and through August 30, 2012, we owned 50.01% and Photronics owned 49.99% of MP Mask. We contributed $21 million and $9 million to MP Mask in 2012 and 2011, respectively. Photronics contributed $20 million and $8 million to MP Mask in 2012, 2011, respectively. In connection with the formation of the joint venture, we 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. Deferred income and other noncurrent liabilities included an aggregate of $26 million and $34 million as of August 30, 2012 and September 1, 2011, respectively, related to this agreement. We purchase a substantial majority of the reticles produced by MP Mask pursuant to a supply arrangement.
Total MP Mask assets and liabilities included in our consolidated balance sheets were as follows:
|
| | | | | | | | |
| As of | | 2012 | | 2011 |
| Current assets | | $ | 19 |
| | $ | 24 |
|
| Noncurrent assets (primarily property, plant and equipment) | | 170 |
| | 143 |
|
| Current liabilities | | 12 |
| | 31 |
|
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
Creditors of MP Mask have recourse only to the assets of MP Mask and do not have recourse to any other of our assets.
Through February 24, 2012, we leased to Photronics a facility to produce photomasks under an operating lease. On February 24, 2012, we sold the facility to Photronics for $35 million. The proceeds were equal to our net carrying value and no gain or loss was realized from the sale.
TECH Semiconductor Singapore Pte. Ltd.
Since 1998, we had participated in TECH Semiconductor Singapore Pte. Ltd. ("TECH"), a semiconductor memory manufacturing joint venture in Singapore with Canon Inc. ("Canon") and Hewlett-Packard Singapore (Private) Limited ("HP"). In December 2010 and January 2011, we acquired HP's and Canon's interests, respectively, in two separate transactions for an aggregate of $159 million. In connection therewith, noncontrolling interests in subsidiaries decreased by $226 million and additional capital increased by $67 million. As a result of these transactions, our ownership interest in TECH increased during 2011 from 87% to 100%. In 2010, we purchased shares of TECH for $80 million, which increased our ownership from 85% to 87% and increased additional capital by $10 million.
Segment Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision makers. Factors used to identify our segments include, among others, products, technologies and customers.maker. We have the following four business units, which are our reportable segments:
NAND Solutions GroupCompute and Networking Business Unit ("NSG"CNBU"): Includes high-volume NAND Flashmemory products sold into datacompute, networking, graphics, and cloud server markets.
Mobile Business Unit ("MBU"): Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"): Includes memory products sold into enterprise, client, cloud, and removable storage personal music players, and the high-density computing market, as well as NAND Flashmarkets. SBU also includes products sold to Intel through IM Flash.our IMFT joint venture.
DRAM Solutions GroupEmbedded Business Unit ("DSG"EBU"): Includes DRAM products sold to the PC, consumer electronics, networking and server markets.
Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market.
Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flashmemory products sold into automotive, and industrial, applications, as well as NORconnected home, and NAND Flash sold to consumer electronics networking, PC and server markets.
Our other operations do not meetCertain operating expenses directly associated with the quantitative thresholdsactivities of a reportablespecific segment and are reported under All Other.charged to that segment. Other indirect operating expenses (income) are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. The unallocated amount of operating expense for 2014 related to the Rambus settlement.
We do not identify or report internally our assets or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to operating segments. For 2012 and 2011, certain operating expenses directly associated with the activities of a specific reportable segment are charged to that segment. Other indirect operating expenses (income) are generally allocated to the reportable segments based on their respective percentage of total net sales, cost of goods sold or forecasted wafer production. Prior to 2011, operating expenses were allocated to the reportable segments based on their respective percentages of total cost of goods sold, as certain historical forecast data was not available. There are no differences in the accounting policies for segment reporting and our consolidated results of operations.
|
| | | | | | | | | | | | |
| For the year ended | | 2012 | | 2011 | | 2010 |
| Net sales: | | | | | | |
| NSG | | $ | 2,853 |
| | $ | 2,196 |
| | $ | 2,113 |
|
| DSG | | 2,691 |
| | 3,203 |
| | 4,638 |
|
| WSG | | 1,184 |
| | 1,959 |
| | 778 |
|
| ESG | | 1,054 |
| | 1,002 |
| | 521 |
|
| All Other | | 452 |
| | 428 |
| | 432 |
|
| | | $ | 8,234 |
| | $ | 8,788 |
| | $ | 8,482 |
|
| | | | | | | |
| Operating income (loss): | | | | | | |
| NSG | | $ | 198 |
| | $ | 269 |
| | $ | 240 |
|
| DSG | | (500 | ) | | 290 |
| | 1,269 |
|
| WSG | | (370 | ) | | 20 |
| | (23 | ) |
| ESG | | 156 |
| | 237 |
| | 152 |
|
| All Other | | (102 | ) | | (61 | ) | | (49 | ) |
| | | $ | (618 | ) | | $ | 755 |
| | $ | 1,589 |
|
|
| | | | | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Net sales: | | | | | | |
| CNBU | | $ | 6,725 |
| | $ | 7,333 |
| | $ | 3,462 |
|
| MBU | | 3,692 |
| | 3,627 |
| | 1,214 |
|
| SBU | | 3,687 |
| | 3,480 |
| | 2,824 |
|
| EBU | | 1,999 |
| | 1,774 |
| | 1,275 |
|
| All Other | | 89 |
| | 144 |
| | 298 |
|
| | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
|
| | | | | | | |
| Operating income (loss): | | | | | | |
| CNBU | | $ | 1,481 |
| | $ | 1,957 |
| | $ | 160 |
|
| MBU | | 1,126 |
| | 683 |
| | (265 | ) |
| SBU | | (89 | ) | | 255 |
| | 173 |
|
| EBU | | 435 |
| | 331 |
| | 227 |
|
| All Other | | 45 |
| | 94 |
| | (59 | ) |
| Unallocated | | — |
| | (233 | ) | | — |
|
| | | $ | 2,998 |
| | $ | 3,087 |
| | $ | 236 |
|
Depreciation and amortization expense was as follows:
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| NSG | | $ | 651 |
| | $ | 513 |
| | $ | 530 |
| |
| DSG | | 770 |
| | 750 |
| | 947 |
| |
| WSG | | 374 |
| | 512 |
| | 212 |
| |
| ESG | | 211 |
| | 196 |
| | 97 |
| |
| CNBU | | | $ | 1,058 |
| | $ | 878 |
| | $ | 687 |
|
| MBU | | | 514 |
| | 475 |
| | 293 |
|
| SBU | | | 765 |
| | 512 |
| | 551 |
|
| EBU | | | 322 |
| | 226 |
| | 215 |
|
| All Other | | 138 |
| | 130 |
| | 140 |
| | 10 |
| | 11 |
| | 67 |
|
| Depreciation and amortization expense included in operating income (loss) | | 2,144 |
| | 2,101 |
| | 1,926 |
| | 2,669 |
| | 2,102 |
| | 1,813 |
|
| Other amortization | | 78 |
| | 61 |
| | 79 |
| | 136 |
| | 168 |
| | 113 |
|
| Total depreciation and amortization expense | | $ | 2,222 |
| | $ | 2,162 |
| | $ | 2,005 |
| | $ | 2,805 |
| | $ | 2,270 |
| | $ | 1,926 |
|
Product Sales
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| NAND Flash | | $ | 3,627 |
| | $ | 3,193 |
| | $ | 2,555 |
| |
| DRAM | | 3,178 |
| | 3,620 |
| | 5,052 |
| | $ | 10,339 |
| | $ | 11,164 |
| | $ | 4,361 |
|
| NOR Flash | | 977 |
| | 1,547 |
| | 451 |
| |
| Non-Volatile Memory | | | 5,274 |
| | 4,468 |
| | 3,589 |
|
| Other | | 452 |
| | 428 |
| | 424 |
| | 579 |
| | 726 |
| | 1,123 |
|
| | | $ | 8,234 |
| | $ | 8,788 |
| | $ | 8,482 |
| | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
|
Non-Volatile Memory includes NAND Flash and 3D XPoint memory. Through 2015, substantially all of our Non-Volatile Memory sales were from NAND Flash products. Sales of NOR Flash products are included in Other. Information regarding our MCP products, which combine both NAND Flash and DRAM components, is reported within Non-Volatile Memory.
Certain Concentrations
MarketMarkets with concentrations from 2012of net sales were approximately as follows: computing (including desktop PCs, servers, notebooks and workstations), 25%; consumer electronics, 20%; mobile, 15%; networking and storage, 10%; and solid state drives, 10%. Market concentrations from 2011 net sales were approximately as follows: computing (including desktop PCs, servers, notebooks and workstations), 30%; mobile, 25%; consumer electronics, 15%; and networking and storage, 15%. Market concentrations from 2010 net sales were approximately 45% computing.
|
| | | | | | | | | |
| For the year ended | | 2015 | | 2014 | | 2013 |
| Compute and graphics | | 25 | % | | 30 | % | | 20 | % |
| Mobile | | 25 | % | | 20 | % | | 15 | % |
| SSDs and other storage | | 20 | % | | 20 | % | | 25 | % |
| Server | | 15 | % | | 10 | % | | 10 | % |
| Automotive, industrial, medical, and other embedded | | 10 | % | | 10 | % | | 15 | % |
Customer concentrations included 12%net sales to Kingston of total 201211% for 2015 and 10% for 2014, net sales to Intel 10%of total 201110% for 2013, and net sales to Intel and 13%HP of total 2010 net sales to HP.10% for 2013. Substantially all of our sales to Intel in 2012 and 2011Kingston were included in the NSGour CNBU and WSGSBU segments, substantially all of our sales to Intel were included in our SBU segment, and substantially all of our sales to HP in 2010 were included in the DSG segment.our CNBU and SBU segments.
Certain of the raw materials and production equipment we use in manufacturing semiconductor products are available from multiple sources and in sufficient supply; however, only a limited number of suppliers are capable of delivering certain raw materials and production equipment that meet our standards. In some cases, materials are provided by a single supplier.
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, money market accounts, certificates of deposit, fixed-rate debt securities, trade receivables, and derivative contracts. We invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting investments with any single obligor. A concentration of credit risk may exist with respect to receivables as a substantial portion of our customers are affiliated with the computing industry. We perform ongoing credit evaluations of customers worldwide and generally do not require collateral from our customers. Historically, we have not experienced significant losses on receivables. A concentration of risk may also exist with respect to derivatives as the number of counterparties to our currency hedges is limited and the notional amount isamounts are relatively large. We seek to mitigate such risk by limiting our counterparties to major financial institutions. The 2012institutions and through entering into master netting arrangements. Capped Calls, 2011 Capped Calls and 2009 Capped Callscalls expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements. We seek to mitigate such risk by limiting our counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. (See "Shareholders' Equity – Capped Call Transactions" note.)
Geographic Information
Geographic net sales based on customer ship-to location were as follows:
| | | For the year ended | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 | | 2013 |
| China | | $ | 2,936 |
| | $ | 2,983 |
| | $ | 3,294 |
| | $ | 6,658 |
| | $ | 6,715 |
| | $ | 3,783 |
|
| United States | | 1,262 |
| | 1,363 |
| | 1,403 |
| | 2,565 |
| | 2,551 |
| | 1,512 |
|
| Asia Pacific (excluding China, Taiwan and Malaysia) | | 1,241 |
| | 1,518 |
| | 1,090 |
| |
| Taiwan | | 1,022 |
| | 744 |
| | 711 |
| | 2,241 |
| | 2,313 |
| | 980 |
|
| Asia Pacific (excluding China, Taiwan, and Japan) | | | 2,037 |
| | 1,791 |
| | 946 |
|
| Europe | | 827 |
| | 924 |
| | 777 |
| | 1,248 |
| | 1,252 |
| | 820 |
|
| Malaysia | | 546 |
| | 737 |
| | 817 |
| |
| Japan | | | 1,026 |
| | 1,253 |
| | 589 |
|
| Other | | 400 |
| | 519 |
| | 390 |
| | 417 |
| | 483 |
| | 443 |
|
| | | $ | 8,234 |
| | $ | 8,788 |
| | $ | 8,482 |
| | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
|
Net property, plant, and equipment by geographic area werewas as follows:
| | | As of | | 2012 | | 2011 | | 2010 | | 2015 | | 2014 |
| United States | | | $ | 3,643 |
| | $ | 3,282 |
|
| Singapore | | $ | 3,270 |
| | $ | 3,569 |
| | $ | 2,161 |
| | 3,238 |
| | 3,101 |
|
| United States | | 3,246 |
| | 3,487 |
| | 3,925 |
| |
| Japan | | | 2,173 |
| | 1,221 |
|
| Taiwan | | | 1,073 |
| | 761 |
|
| China | | 328 |
| | 179 |
| | 90 |
| | 331 |
| | 242 |
|
| Italy | | 163 |
| | 190 |
| | 173 |
| |
| Israel | | 59 |
| | 94 |
| | 111 |
| |
| Japan | | 2 |
| | 1 |
| | 81 |
| |
| Other | | 35 |
| | 35 |
| | 60 |
| | 96 |
| | 75 |
|
| | | $ | 7,103 |
| | $ | 7,555 |
| | $ | 6,601 |
| | $ | 10,554 |
| | $ | 8,682 |
|
Quarterly Financial Information (Unaudited)
(in millions except per share amounts)
|
| | | | | | | | | | | | | | | | |
| 2012 | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| Net sales | | $ | 1,963 |
| | $ | 2,172 |
| | $ | 2,009 |
| | $ | 2,090 |
|
| Gross margin | | 219 |
| | 234 |
| | 210 |
| | 305 |
|
| Operating loss | | (140 | ) | | (191 | ) | | (205 | ) | | (82 | ) |
| Net loss | | (242 | ) | | (320 | ) | | (282 | ) | | (187 | ) |
| Net loss attributable to Micron | | (243 | ) | | (320 | ) | | (282 | ) | | (187 | ) |
| | | | | | | | | |
| Loss per share: | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.24 | ) | | $ | (0.32 | ) | | $ | (0.29 | ) | | $ | (0.19 | ) |
| Diluted | | (0.24 | ) | | (0.32 | ) | | (0.29 | ) | | (0.19 | ) |
|
| | | | | | | | | | | | | | | | |
| 2015 | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| Net sales | | $ | 3,600 |
| | $ | 3,853 |
| | $ | 4,166 |
| | $ | 4,573 |
|
| Gross margin | | 970 |
| | 1,202 |
| | 1,405 |
| | 1,638 |
|
| Operating income | | 427 |
| | 631 |
| | 855 |
| | 1,085 |
|
| Net income | | 471 |
| | 491 |
| | 935 |
| | 1,002 |
|
| Net income attributable to Micron | | 471 |
| | 491 |
| | 934 |
| | 1,003 |
|
| | | | | | | | | |
| Earnings per share: | | |
| | |
| | |
| | |
|
| Basic | | $ | 0.44 |
| | $ | 0.46 |
| | $ | 0.87 |
| | $ | 0.94 |
|
| Diluted | | 0.42 |
| | 0.42 |
| | 0.78 |
| | 0.84 |
|
As a resultResults of the ongoing challenging global environment in the solar industry and unfavorable worldwide supply and demand conditions, on May 25, 2012, the Board of Directors of Transform approved a liquidation plan. As a result of the liquidation plan, we recognized a charge of $69 million in the third quarter of 2012.
On March 23, 2012, we entered into a settlement agreement with Oracle pursuant to which we agreed to make a payment of $58 million to Oracle for a settlement and full release of all claims and a dismissal with prejudice of their suit against us. The settlement amount was accrued and charged to operations in the second quarterfourth, third, and first quarters of 2012.
Income taxes2015 included losses of $1 million, $18 million, and $30 million, respectively, for the third quarterlosses on restructure of 2012 included a tax benefits of $42 million related to the favorable resolution of a certain prior year tax matter, which was previously reserved as an uncertain tax position.debt.
|
| | | | | | | | | | | | | | | | |
| 2011 | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| Net sales | | $ | 2,140 |
| | $ | 2,139 |
| | $ | 2,257 |
| | $ | 2,252 |
|
| Gross margin | | 321 |
| | 478 |
| | 435 |
| | 524 |
|
| Operating income (loss) | | (51 | ) | | 237 |
| | 179 |
| | 390 |
|
| Net income (loss) | | (134 | ) | | 77 |
| | 75 |
| | 172 |
|
| Net income (loss) attributable to Micron | | (135 | ) | | 75 |
| | 72 |
| | 155 |
|
| | | | | | | | | |
| Earnings (loss) per share: | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.14 | ) | | $ | 0.07 |
| | $ | 0.07 |
| | $ | 0.16 |
|
| Diluted | | (0.14 | ) | | 0.07 |
| | 0.07 |
| | 0.15 |
|
The results of operations for the third quarter of 2011 included a gain of $54 million in connection with the sale of the Japan Fab. In addition, we recorded a tax provision of $74 million related to the gain on the sale and to write down certain deferred tax assets associated with the Japan Fab. |
| | | | | | | | | | | | | | | | |
| 2014 | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| Net sales | | $ | 4,227 |
| | $ | 3,982 |
| | $ | 4,107 |
| | $ | 4,042 |
|
| Gross margin | | 1,385 |
| | 1,368 |
| | 1,403 |
| | 1,281 |
|
| Operating income | | 828 |
| | 839 |
| | 869 |
| | 551 |
|
| Net income | | 1,151 |
| | 806 |
| | 741 |
| | 381 |
|
| Net income attributable to Micron | | 1,150 |
| | 806 |
| | 731 |
| | 358 |
|
| | | | | | | | | |
| Earnings per share: | | | | | | | | |
| Basic | | $ | 1.08 |
| | $ | 0.76 |
| | $ | 0.69 |
| | $ | 0.34 |
|
| Diluted | | 0.96 |
| | 0.68 |
| | 0.61 |
| | 0.30 |
|
The resultsResults of operations for the first secondquarter of 2014 included a $233 million charge to accrue a liability for the settlement of all pending litigation between us and third quartersRambus, including all antitrust and patent matters, which reflects the discounted value of 2011 included gains, net of tax, of $167 million, $33 million and $30 million, respectively, from a life-of-patents license for existing patents and applications, and a 10-year term license for all other patents, from Samsung.amounts due under the arrangement.
The resultsResults of operations in the fourth, third, second, and first quarters of 2014 included losses of $17 million, $16 million, $80 million, and $92 million, respectively, for losses on restructure of debt.
Results of operations for the fourth quarter of 20112014 included a lossgain of $111$93 million from the issuance of shares by Inotera, which reduced our ownership interest from 35% to 33%. (See "Equity Method Investments – Inotera" note.)
Results of operations for the fourth quarter of 2014 included a debt restructure transaction.gain of $119 million from the sale of interest in Aptina to ON Semiconductor Corporation. (See "Equity Method Investments – Other" note.)
Results of operations for the fourth quarter of 2014 included a $66 million charge associated with a license agreement with Tessera executed in the fourth quarter of 2014.
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, 2015 and August 30, 2012 and September 1, 2011,28, 2014, and the results of their operations and their cash flows for each of the three years in the period ended August 30, 2012September 3, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement scheduleschedules listed in the accompanying index appearing under Item 8presents present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 30, 2012,September 3, 2015, based on criteria established in Internal Control - Integrated Framework(2013) 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,schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’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,schedules, 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'scompany’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'scompany’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'scompany’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, CA
October 29, 201227, 2015
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 our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our 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 us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported, within the time periods specified in the Commission's rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decision regarding disclosure.
During the fourth quarter of 2012,2015, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’sManagement's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. 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. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately reflect the transactions and dispositions of our assets; (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 our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Internal control over financial reporting cannot provide absolute assurance regarding the prevention or detectionBecause of misstatements because ofits inherent limitations. These inherent limitations, are known by management and considered in the design of our internal control over financial reporting which reduce, thoughmay not eliminate, this risk.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.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control – Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 30, 2012.September 3, 2015. The effectiveness of our internal control over financial reporting as of August 30, 2012September 3, 2015 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.
None.
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 ACCOUNTINGACCOUNTANT FEES AND SERVICES
Certain information concerning our 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 our Proxy Statement which will be filed with the Securities and Exchange Commission within 120 days after August 30, 2012September 3, 2015 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 Statements: See Index to Consolidated Financial Statements under Item 8. |
| 2. | | Certain Financial Statement Schedules have been omitted since they are either not required, not applicable or the information is otherwise included. |
| 3. | | Exhibits. |
|
| | |
| Exhibit Number | | Description of Exhibit |
1.1 | | Underwriting Agreement dated as of May 17, 2007, by and between Micron Technology, Inc. and Morgan Stanley & Co. Incorporated, as representative of the underwriters (1) |
1.2 | | Note 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) |
1.3 | | Common 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) |
1.4 | | Purchase Agreement dated as of April 12, 2012, by and among Micron Technology, Inc. and Morgan Stanley & Co. LLC and J.P. Morgan Securities, LLC, as representatives of the initial purchasers (3) |
| 2.1* | | English Translation of Agreement on Support for Reorganization Companies with Nobuaki Kobayashi and YkioYukio Sakamoto, the trustees of Elpida Memory, Inc. and its wholly-owned subsidiary, Akita Elpida Memory, Inc. dated July 2, 2012 (4)(3) |
| 2.2* | | Share Purchase Agreement dated July 2, 2012, among Micron Technology, Inc., Micron Semiconductor B.V, Powerchip Technology Corporation, Li-Hsin Investment Co. Ltd., Quantum Vision Corporation, Maxchip Electronics Corporation and Dr. Frank Huang.Huang (4) |
| 2.3* | | English Translation of Agreement Amending Agreement on Support for Reorganization Companies, dated October 29, 2012, by and among Micron Technology, Inc. and Nobuaki Kobayashi and Yukio Sakamoto, the trustees of Elpida Memory, Inc. and Akita Elpida Memory, Inc. (5) |
| 2.4* | | English Translation of Agreement Amending Agreement on Support for Reorganization Companies, dated July 31, 2013, by and among Micron Technology, Inc. and Nobuaki Kobayashi and Yukio Sakamoto, the trustees of Elpida Memory, Inc. and Akita Elpida Memory, Inc. (6) |
| 2.5 | | English Translation of the Reorganization Plan of Elpida Memory, Inc. (6) |
| 3.1 | | Restated Certificate of Incorporation of the Registrant (5)(7) |
| 3.2 | | Bylaws of the Registrant, as amended (6)Amended and Restated (31) |
| 4.1 | | Indenture dated November 3, 2010, by and between Micron Technology, Inc. and Wells Fargo Bank, National Association (7)(9) |
| 4.2 | | Form of Note (included in Exhibit 4.1) (9) |
| 4.3 | | Indenture dated as of April 18, 2012, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee for 2.375% Convertible Senior Notes due 2032 (3)(1) |
4.34.4 | | Indenture dated as of April 18, 2012, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee for 3.125% Convertible Senior Notes due 2032 (3)(1) |
4.44.5 | | Form of 2032C Note (included in Exhibit 4.2) (3)4.3) (1) |
4.54.6 | | Form of 2032D Note (included in Exhibit 4.3) (3)4.4) (1) |
4.64.7 | | Indenture dated as of May 23, 2007, by and between Micron Technology, Inc. and Wells Fargo Bank, National Association, as trustee (1) |
4.7 | | Convertible Senior Indenture between the Company and Wells Fargo Bank, National Association, dated as of April 15, 2009 (8)(10) |
| 4.8 | | Form of 4.25% Convertible Senior Note due October 15, 2013 (included in Exhibit 4.7) (8) |
4.9 | | Indenture dated July 26, 2011, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee for 1.50% Convertible Senior Notes due 2031 (9)(11) |
4.104.9 | | Indenture dated July 26, 2011, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee for 1.875% Convertible Senior Notes due 2031 (9)(11) |
10.14.10 | | Executive Officer Performance Incentive Plan, as Amended (10)Form of 2031A Note (included in Exhibit 4.8) (11) |
10.34.11 | | 1994 Stock Option Plan, as Amended (10)Form of 2031B Note (included in Exhibit 4.9) (11) |
10.44.12 | | 1994 Stock Option Plan FormIndenture, dated as of AgreementFebruary 12, 2013, by and Termsbetween Micron Technology, Inc. and Conditions (11)U.S. Bank National Association, as trustee (2) |
10.54.13 | | 1997 Nonstatutory Stock Option Plan,Indenture, dated as Amendedof February 12, 2013, by and between Micron Technology, Inc. and U.S. Bank National Association, as trustee (2) |
10.64.14 | | 1998 Non-Employee Director Stock Incentive Plan, as Amended (10)Form of 2033E Note (included in Exhibit 4.12) (2) |
10.74.15 | | 1998 Nonstatutory Stock Option Plan,Form of 2033F Note (included in Exhibit 4.13) (2) |
| 4.16 | | Indenture, dated as Amendedof November 12, 2013, by and between Micron Technology, Inc. & U.S. Bank National Association (12) |
| 4.17 | | Form of New Note (included in Exhibit 4.16) (12) |
|
| | |
10.84.18 | | Indenture dated as of December 16, 2013, by and among Micron Semiconductor Asia Pte., Ltd., Wells Fargo Bank, National Association, and Export-Import Bank of the United States (13) |
| 4.19 | | Indenture dated as of February 10, 2014, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee (14) |
| 4.20 | | Form of Note (included in Exhibit 4.19) (14) |
| 4.21 | | Indenture, dated as of July 28, 2014, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee (15) |
| 4.22 | | Form of Note (included in Exhibit 4.21) (15) |
| 4.23 | | Indenture, dated as of April 30, 2015, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee. (8) |
| 4.24 | | Indenture, dated as of April 30, 2015, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee. (8) |
| 4.25 | | Form of Note (included in Exhibit 4.23). (8) |
| 4.26 | | Form of Note (included in Exhibit 4.24). (8) |
| 4.27 | | Indenture, dated as of February 3, 2015, by and between Micron Technology, Inc. and U.S. Bank National Association, as Trustee. (35) |
| 4.28 | | Form of Note (included in Exhibit 4.27). (35) |
| 10.1 | | Executive Officer Performance Incentive Plan, as Amended (34) |
| 10.2 | | 1997 Nonstatutory Stock Option Plan, as Amended (4) |
| 10.3 | | 1998 Nonstatutory Stock Option Plan, as Amended (4) |
| 10.4 | | 2001 Stock Option Plan, as Amended (4) |
10.910.5 | | 2001 Stock Option Plan Form of Agreement (12)(17) |
10.10 | | 2002 Employment Inducement Stock Option Plan, as Amended (10) |
10.1110.6 | | 2004 Equity Incentive Plan, as Amended and Restated |
10.1210.7 | | 2004 Equity Incentive Plan Forms of Agreement and Terms and Conditions (11) |
10.1310.8 | | Amended and Restated 2007 Equity Incentive Plan |
| 10.9 | | 2007 Equity Incentive Plan Forms of Agreement |
| 10.10 | | Nonstatutory Stock Option Plan, as Amended |
10.1410.11 | | Nonstatutory Stock Option Plan Form of Agreement and Terms and Conditions (11) |
10.1510.12 | | Lexar Media, Inc. 2000Numonyx Holdings B.V. Equity Incentive Plan as Amended (10)(18) |
10.20*10.13 | | Settlement and ReleaseNumonyx Holdings B.V. Equity Incentive Plan Forms of Agreement dated September 15, 2006, by and among Toshiba Corporation, Micron Technology, Inc. and Acclaim Innovations, LLC (13)(18) |
10.21*10.14* | | Patent License Agreement dated September 15, 2006, by and among Toshiba Corporation, Acclaim Innovations, LLC and Micron Technology, Inc. (13)(19) |
10.22* | | Omnibus Agreement dated as of February 27, 2007, between Micron Technology, Inc. and Intel Corporation (14) |
10.23* | | Limited Liability Partnership Agreement dated as of February 27, 2007, between Micron Semiconductor Asia Pte. Ltd. And Intel Technology Asia Pte. Ltd. (14) |
10.24* | | Supply Agreement dated as of February 27, 2007, between Micron Semiconductor Asia Pte. Ltd. And IM Flash Singapore, LLP (14) |
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 (14) |
10.26* | | Supply Agreement dated as of February 27, 2007, between Intel Technology Asia Pte. Ltd. and IM Flash Singapore, LLP (14) |
10.2710.15 | | Form of Indemnification Agreement between the Registrant and its officers and directors (15)(13) |
10.28 | | Form of Severance Agreement between the Company and its officers (16) |
10.29 | | Form of Agreement and Amendment to Severance Agreement between the Company and its officers (17) |
10.36*10.16* | | Master Agreement dated as of November 18, 2005, between Micron Technology, Inc. and Intel Corporation (18)(20) |
10.38* | | Manufacturing Services Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies, LLC (18) |
10.40* | | MTV Lease Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies, LLC (18) |
10.41* | | Product Designs Assignment Agreement dated January 6, 2006, between Intel Corporation and Micron Technology, Inc. (18) |
10.42* | | NAND Flash Supply Agreement, effective as of January 6, 2006, between Apple Computer, Inc. and Micron Technology, Inc. (18) |
10.43* | | Supply Agreement dated as of January 6, 2006, between Micron Technology, Inc. and IM Flash Technologies, LLC (18) |
10.44*10.17* | | Supply Agreement dated as of January 6, 2006, between Intel Corporation and IM Flash Technologies, LLC (18) |
10.45 | | Capped Call Confirmation (Reference No. CEODL6) by and between Micron Technology, Inc. and Morgan Stanley & Co. International plc (1) |
10.46 | | Capped Call Confirmation (Reference No. 53228800) by and between Micron Technology, Inc. and Credit Suisse International (1) |
10.47 | | Capped Call confirmation (Reference No. 53228855) by and between Micron Technology, Inc. and Credit Suisse International (1) |
10.48 | | 2007 Equity Incentive Plan, as Amended |
10.49 | | 2007 Equity Incentive Plan Forms of Agreement (19) |
10.50 | | Severance Agreement dated April 9, 2008, between Micron Technology, Inc. and Ronald C. Foster (20) |
10.51* | | Master Agreement dated as of April 21, 2008, by and between Nanya Technology Corporation and Micron Technology, Inc. (21) |
10.52* | | Joint Venture Agreement dated as of April 21, 2008, by and between Micron Semiconductor B.V. and Nanya Technology Corporation (21) |
|
| | |
10.54* | | Joint Development Program Agreement dated as of April 21, 2008, by and between Nanya Technology Corporation and Micron Technology, Inc. (21) |
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 (21) |
10.56* | | Technology Transfer and License Agreement dated as of April 21, 2008, by and between Micron Technology, Inc. and Nanya Technology Corporation (21) |
10.58* | | Technology Transfer Agreement dated as of May 13, 2008, by and among Nanya Technology Corporation, Micron Technology, Inc. and MeiYa Technology Corporation (21) |
10.60 | | Micron Guaranty Agreement, dated April 21, 2008, by and between Nanya Technology Corporation and Micron Semiconductor B.V. (21) |
10.61 | | TECH Facility Agreement dated March 31, 2008, among TECH Semiconductor Singapore Pte. Ltd. And ABN Amro Bank N.V., Citibank, N.A., Singapore Branch, Citigroup Global Markets Singapore Pte Ltd., DBS Bank Ltd and Oversea-Chinese Banking Corporation Limited, as Original Mandated Lead Arrangers (21) |
10.62 | | Guarantee dated March 31, 2008, by Micron Technology, Inc. as Guarantor in favor of ABN Amro Bank N.V., Singapore Branch acting as Security Trustee (21) |
10.6310.18 | | Form of Severance Agreement (22)(21) |
10.64 | | Lexar Media, Inc. 1996 Stock Option Plan, as Amended (10) |
10.66* | | Loan Agreement dated November 26, 2008, by and among Micron Semiconductor B.V., Micron Technology, Inc., and Nan Ya Plastics Corporation (10) |
10.67 | | Loan Agreement dated November 26, 2008, by and between Micron Technology, Inc. and Inotera Memories, Inc. (10) |
10.69 | | Micron Guaranty Agreement, dated November 26, 2008, by Micron Technology, Inc. in favor of Nanya Technology Corporation (10) |
10.7010.19 | | Share 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 (10)(16) |
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. (10) |
10.72* | | Joint Venture Agreement, dated November 26, 2008, by and between Micron Semiconductor B.V. and Nanya Technology Corporation (10) |
10.73* | | Facilitation Agreement, dated November 26, 2008, by and between Micron Semiconductor B.V., Nanya Technology Corporation and Inotera Memories, Inc. (10) |
10.74* | | Supply Agreement dated November 26, 2008, by and among Micron Technology, Inc., Nanya Technology Corporation and Inotera Memories, Inc. (10) |
10.75* | | Amended and Restated Joint Development Program Agreement dated November 26, 2008, by and between Nanya Technology Corporation and Micron Technology, Inc. (10) |
10.76* | | Amended and Restated Technology Transfer and License Agreement, dated November 26, 2008, by and between Micron Technology, Inc. and Nanya Technology Corporation (10) |
10.77* | | Technology Transfer Agreement dated November 26, 2008, by and among Nanya Technology Corporation, Micron Technology, Inc. and Inotera Memories, Inc. (10) |
10.78* | | Technology Transfer Agreement for 68-50nm Process Nodes, dated October 11, 2008, by and between Micron Technology, Inc. and Inotera Memories, Inc. (10) |
10.81 | | Capped Call Confirmation (Reference No. SDB 1630322480) dated as of April 8, 2009, by and between Micron Technology, Inc. and Goldman, Sachs & Co. (2) |
10.82 | | Capped Call Confirmation (Reference No. CGPWK6) dated as of April 8, 2009, by and between Micron Technology, Inc. and Morgan Stanley & Co International plc (2) |
10.83 | | Capped Call Confirmation (Reference No. 325758) dated as of April 8, 2009, by and between Micron Technology, Inc. and Deutsche Bank AG, London Branch (2) |
10.84 | | Amendment 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 (23) |
10.85 | | Supplemental 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 (23) |
|
| | |
10.86 | | Loan Agreement dated as of November 25, 2009, by and among Micron Semiconductor B.V., Micron Technology, Inc., and Mai Liao Power Corporation (24) |
10.87* | | Amended and Restated Joint Venture Agreement between Micron Semiconductor, B.V. and Nanya Technology Corporation dated January 11, 2010 (25) |
10.88 | | Share Purchase Agreement among Micron Technology, Inc., Micron Semiconductor, B.V., Intel Corporation, Intel Technology Asia Pte Ltd, STMicroelectronics N.V., Redwood Blocker S.a.r.l. and PK Flash, LLC dated February 9, 2010 (25) |
10.89* | | Framework Agreement among Micron Technology, Inc., STMicroelectronics N.V. and Numonyx B.V. dated February 9, 2010 (25) |
10.90 | | Stockholder Rights and Restrictions Agreement by and among Micron Technology, Inc., Intel Corporation, Intel Technology Asia Pte Ltd, STMicroelectronics N.V., Redwood Blocker S.a.r.l. and PK Flash LLC, dated as of May 7, 2010 (26) |
10.91* | | Second Amended and Restated Technology Transfer and License Agreement between MTI and Nanya Technology Corp. (NTC) dated July 2, 2010 (27) |
10.92* | | Joint Development Program and Cost Sharing Agreement between MTI and Nanya Technology Corp. (NTC) dated July 2, 2010 (27) |
10.93 | | Equity Transfer Agreement between Numonyx B.V. and Hynix dated July 29, 2010 (27) |
10.94* | | Guarantee, Charge and Deposit Document between Numonyx B.V. and DBS Bank Ltd. dated August 31, 2010 (27) |
10.95 | | Employment Agreement between Numonyx B.V. and Mario Licciardello dated March 30, 2008 (27) |
10.96 | | Amendment to Mario Licciardello’s Employment Agreement dated March 26, 2009 (27) |
10.97 | | Severance Agreement between Numonyx B.V. and Mario Licciardello dated March 26, 2009 (27) |
10.98 | | Amendment to Severance Agreement between Numonyx B.V. and Mario Licciardello dated February 9, 2010 (27) |
10.99 | | Numonyx Holdings B.V. Equity Incentive Plan (28) |
10.100 | | Numonyx Holdings B.V. Equity Incentive Plan Forms of Agreement (28) |
10.101 | | Purchase Agreement dated July 20, 2011, between Micron Technology, Inc. and Morgan Stanley & Co. LLC, as representative of the initial purchasers (9) |
10.10210.20 | | Form of Capped Call Confirmation dated as of July 20, 2011, between the CompanyMicron Technology, Inc. and Société Genérale (29)(22) |
10.10310.21 | | Form of Capped Call Confirmation dated as of July 22, 2011 (29)(22) |
10.104*10.22* | | 2012 Master Agreement by and among Intel Corporation, Intel Technology Asia PTE LTD, Micron Technology, Inc., Micron Semiconductor Asia PTE LTD, IM Flash Technologies, LLC and IM Flash Singapore, LLP dated February 27, 2012 (30)(23) |
10.105* | | IMFS Business Sale Agreement by and among Intel Technology Asia PTE LTD, Micron Semiconductor Asia PTE LTD and IM Flash Singapore, LLP dated February 27, 2012 (30) |
10.106 | | Private Agreement between Micron Semiconductor Italia S.r.l. and Mario Licciardello dated May 24, 2012 (31) |
10.107* | | MTV Asset Purchase and Sale Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and IM Flash Technologies, LLC (32) |
10.108*10.23* | | Second Amended and Restated Limited Liability Company Operating Agreement of IM Flash Technologies, LLC dated April 6, 2012, between Micron Technology, Inc. and Intel Corporation (32)(24) |
10.109*10.24* | | Amendment to the Master Agreement dated April 6, 2012, between Intel Corporation and Micron Technology, Inc. (32)(24) |
10.110*10.25* | | Amended and Restated Supply Agreement dated April 6, 2012, between Intel Corporation and IM Flash Technologies, LLC (32)(24) |
10.111*10.26* | | Amended and Restated Supply Agreement dated April 6, 2012, between Micron Technology, Inc. and IM Flash Technologies, LLC (32)(24) |
|
10.112* | | |
| 10.27* | | Product Supply Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and Micron Semiconductor Asia PTE LTD (32)(24) |
10.113*10.28* | | Wafer Supply Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and Micron Singapore (32)(24) |
10.114*10.29 | | DepositForm of Capped Call Confirmation dated April 2012 (1) |
| 10.30* | | Supply Agreement, dated April 6, 2012,January 17, 2013, by and among Micron Technology, Inc., Micron Semiconductor Asia Pte. Ltd. and Inotera Memories, Inc. (25) |
| 10.31* | | Joint Venture Agreement, dated January 17, 2013, by and among Micron Semiconductor B.V., Numonyx Holdings B.V., Micron Technology Asia Pacific, Inc. and Nanya Technology Corporation (25) |
| 10.32* | | Facilitation Agreement, dated January 17, 2013, by and among Micron Semiconductor B.V., Numonyx Holdings B.V., Micron Technology Asia Pacific, Inc., Nanya Technology Corporation and Inotera Memories, Inc. (25) |
| 10.33 | | Micron Guaranty Agreement, dated January 17, 2013, by Micron Technology, Inc. in favor of Nanya Technology Corporation (25) |
| 10.34* | | Technology Transfer and License Option Agreement for 20NM Process Node, dated January 17, 2013, by and between Micron Technology, Inc. and IntelNanya Technology Corporation (32)(26) |
10.11510.35* | | First Amendment to the Limited Liability PartnershipOmnibus IP Agreement, dated April 6, 2012,January 17, 2013, by and between Nanya Technology Corporation and Micron Technology, Inc. (25) |
| 10.36* | | Second Amended and Restated Technology Transfer and License Agreement for 68-50NM Process Nodes, dated January 17, 2013, by and between Micron Technology, Inc. and Nanya Technology Corporation (26) |
| 10.37* | | Third Amended and Restated Technology Transfer and License Agreement, dated January 17, 2013, by and between Micron Technology, Inc. and Nanya Technology Corporation (25) |
| 10.38* | | Omnibus IP Agreement, dated January 17, 2013, by and between Micron Technology, Inc. and Inotera Currency Option Transaction 590297603-2 Trade Date March 26, 2013, by and between Micron Technology, Inc. and Deutsche Bank AG, London Branch (25) |
| 10.39* | | English Translation of Front-End Manufacturing Supply Agreement, dated July 31, 2013, by and between Micron Semiconductor Asia PTE LTDPte. Ltd. and Elpida Memory, Inc. (27) |
| 10.40* | | English Translation of Research and Development Engineering Services Agreement, dated July 31, 2013, by and between Micron Technology, Inc. and Elpida Memory, Inc. (6) |
| 10.41* | | English Translation of General Services Agreement, dated July 31, 2013, by and between Micron Semiconductor Asia Pte. Ltd. and Elpida Memory, Inc. (27) |
| 10.42 | | Form of Capped Call Confirmation dated February 2013 (2) |
| 10.43 | | Purchase Agreement, dated as of February 5, 2014, by and among Micron Technology, Inc. and Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as representatives of the initial purchasers (28) |
| 10.44 | | Registration Rights Agreement, dated as of February 10, 2014, by and among Micron Technology, Inc. and Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as representatives of the initial purchasers (14) |
| 10.45 | | Purchase Agreement, dated as of July 23, 2014, by and among Micron Technology, Inc. and Morgan Stanley & Co LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as representatives of the initial purchasers (29) |
| 10.46 | | Registration Rights Agreement dated as of July 28, 2014, by and among Micron Technology, Inc. and Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as representatives of the initial purchasers (15) |
| 10.47 | | Credit Agreement dated as of December 2, 2014 among Micron Technology, Inc. and Micron Semiconductor Products, Inc., as Borrowers, HSBC Bank USA, N.A., as Administrative Agent, Co-Collateral Agent, Joint Lead Arranger and Joint Book Runner, JPMorgan Chase Bank, N.A., as Co-Collateral Agent and Syndication Agent, J.P. Morgan Securities LLC, as Joint Lead Arranger and Joint Book Runner, Bank of America, N.A., Citigroup Global Markets,�� Inc. and Wells Fargo Bank, N.A., as Joint Book Runners and Co-Documentation Agents, and certain financial institutions, as lenders. (30) |
| 10.48 | | Facility Agreement, dated February 12, 2015, among Micron Semiconductor Asia Pte. Ltd., as borrower, certain financial institutions party thereto, and The Hongkong and Shanghai Banking Corporation Limited, as facility agent, security agent and account bank. (32) |
| 10.49* | | 2015 Supply Agreement, dated February 10, 2015, by and among Micron Technology, Inc., Micron Semiconductor Asia Pte. Ltd. and Inotera Memories, Inc. (33) |
| 10.50* | | 2016 Supply Agreement, dated February 10, 2015, by and among Micron Technology, Inc., Micron Semiconductor Asia Pte. Ltd. and Inotera Memories, Inc. (33) |
| 10.51* | | Amended and Restated Supply Agreement, dated September 1, 2015, by and among Micron Technology, Inc., Intel Technology PTE LTD (32)Corporation and Micron Semiconductor Asia Pte. Ltd. |
|
| | |
10.11610.52* | | Form of Capped Call Confirmation (3)Supplemental Supply Agreement, dated September 1, 2015, by and among Micron Technology, Inc., Intel Corporation and Micron Semiconductor Asia Pte. Ltd. |
10.11710.53* | | Currency Exchange Confirmation (Ref.Wafer Supply Agreement No. SBD3616575404-3537679183)3, dated July 3, 2012,September 1, 2015, by and betweenamong Micron Technology, Inc., Intel Corporation and Micron Semiconductor Asia Pte. Ltd. |
| 10.54* | | First Amendment to the Wafer Supply Agreement, dated September 1, 2015, by and among Micron Technology, Inc., Intel Corporation and Micron Semiconductor Asia Pte. Ltd. |
| 10.55 | | Purchase Agreement, dated as of April 27, 2015, by and among Micron Technology, Inc. and J. AronMorgan Stanley & Company, an affiliateCo. LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as representatives of the Goldman Sachs Group, Inc. |
10.118 | | Currency Exchange Confirmation (Ref. No. SBD3616575406-3537683027) dated July 3, 2012, by and between Micron Technology, Inc. and J. Aron & Company, an affiliate of the Goldman Sachs Group, Inc. |
10.119 | | Currency Exchange Confirmation (Ref. No. SBD3616575405-3537682647) dated July 3, 2012, by and between Micron Technology, Inc. and J. Aron & Company, an affiliate of the Goldman Sachs Group, Inc. |
10.120 | | Currency Exchange Confirmation (Ref. No. 8000031078419 (LHFCZGIJ00)) dated July 2, 2012, by and between Micron Technology, Inc. and JPMorgan Chase Bank, N.A. |
10.121 | | Currency Exchange Confirmation (Ref. No.8878658 / 578383) dated July 11, 2012, by and between Micron Technology, Inc. and HSBC Bank USA, N.A.initial purchasers. (8) |
| 21.1 | | Subsidiaries of the Registrant |
| 23.1 | | Consent of Independent Registered Public Accounting Firm |
23.2 | | Consent of Independent Registered Public Accounting Firm |
| 31.1 | | Rule 13a-14(a) Certification of Chief Executive Officer |
| 31.2 | | Rule 13a-14(a) Certification of Chief Financial Officer |
| 32.1 | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 |
| 32.2 | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350 |
99.1 | | Financial Statements of Inotera Memories, Inc. as of December 31, 2011 and December 31, 2010 and for each of the three years ended December 31, 2011. |
| 101.INS | | XBRL Instance Document |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
_______________
__________________________
|
| | |
| (1) | | Incorporated by reference to Current Report on Form 8-K dated May 17, 2007April 12, 2012 |
| (2) | | Incorporated by reference to Current Report on Form 8-K dated April 8, 2009February 6, 2013 |
| (3) | | Incorporated by reference to Current Report on Form 8-K dated April 12, 2012 |
(4) | | Incorporated by reference to Current Report on Form 8-K/A dated July 2, 2012, and filed October 31, 2012 |
| (4) | | Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended August 30, 2012 |
| (5) | | Incorporated by reference to QuarterlyCurrent Report on Form 10-Q for the fiscal quarter ended May 31, 20018-K dated October 29, 2012 |
| (6) | | Incorporated by reference to Current Report on Form 8-K dated January 24, 2012July 31, 2013 |
| (7) | | Incorporated by reference to Current Report on Form 8-K dated January 26, 2015 |
| (8) | | Incorporated by reference to Current Report on Form 8-K dated April 30, 2015 |
| (9) | | Incorporated by reference to Current Report on Form 8-K dated November 3, 2010 |
(8)(10) | | Incorporated by reference to Current Report on Form 8-K dated April 15, 2009May 17, 2007 |
(9)(11) | | Incorporated by reference to Current Report on Form 8-K dated July 26, 2011 |
(10)(12) | | Incorporated by reference to Current Report on Form 8-K dated November 12, 2013 |
| (13) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 2014 |
| (14) | | Incorporated by reference to Current Report on Form 8-K dated February 10, 2014 |
| (15) | | Incorporated by reference to Current Report on Form 8-K dated July 28, 2014 |
| (16) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 4, 2008 |
(11) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 3, 2005 |
(12)(17) | | Incorporated by reference to Current Report on Form 8-K dated April 3, 2005 |
(13)(18) | | Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-167536) |
| (19) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006 |
(14) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2007 |
(15) | | Incorporated by reference to Proxy Statement for the 1986 Annual Meeting of Shareholders |
(16) | | Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended August 28, 2003 |
(17) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended February 27, 1997 |
(18)(20) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 1, 2005 |
(19) | | Incorporated by reference to Registration Statement on Form S-8 (Registration No. 333-148357) |
(20) | | Incorporated by reference to Current Report on Form 8-K dated April 9, 2008 |
| (21) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 29, 2008 |
(22) | | Incorporated by reference to Current Report on Form 8-K dated October 26, 2007 |
(23) | | Incorporated by reference to Current Report on Form 8-K dated September 25, 2009 |
(24) | | Incorporated by reference to Current Report on Form 8-K dated November 25, 2009 |
(25) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 4, 2010 |
(26) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended June 3, 2010 |
(27) | | Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 2, 2010 |
(28) | | Incorporated by reference to Registration Statement on Form S-8 (Reg. No. 333-167536) |
(29)(22) | | Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 1, 2011 |
(30)(23) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2012 |
(31) | | Incorporated by reference to Current Report on Form 8-K dated April 24, 2012 |
(32)(24) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2012 |
| (25) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 5, 2015 |
| (26) | | Incorporated by reference to Quarterly Report on Form 10-Q/A Amendment 2 for the fiscal quarter ended February 28, 2013 |
| (27) | | Incorporated by reference to Current Report on Form 8-K/A dated July 31, 2013, and filed October 2, 2013 |
| (28) | | Incorporated by reference to Current Report on Form 8-K dated February 5, 2014 |
| (29) | | Incorporated by reference to Current Report on Form 8-K dated July 23, 2014 |
| (30) | | Incorporated by reference to Current Report on Form 8-K dated December 8, 2014 |
| (31) | | Incorporated by reference to Current Report on Form 8-K dated April 9, 2014 |
| (32) | | Incorporated by reference to Current Report on Form 8-K dated February 12, 2015 |
| (33) | | Incorporated by reference to Current Report on Form 8-K dated February 10, 2015 |
| (34) | | Incorporated by reference to Definitive Proxy Statement on Form DEF 14A filed on December 12, 2014 |
| (35) | | Incorporated by reference to Current Report on Form 8-K dated February 3, 2015 |
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.
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 29th27th day of October 20122015.
|
| | |
| | Micron Technology, Inc. |
| | By: | /s/ Ronald C. FosterErnest E. Maddock |
| | | Ronald C. FosterErnest E. Maddock
Vice President of Finance and Chief Financial Officer and Vice President, Finance
|
| | | (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | |
| Signature | Title | Date |
| | | |
| /s/ D. Mark Durcan | Chief Executive Officer | October 29, 201227, 2015 |
| (D. Mark Durcan) | (Principal Executive Officer) | |
| | | |
/s/ Ronald C. Foster | Vice President of Finance, | October 29, 2012 |
(Ronald C. Foster)Ernest E. Maddock | Chief Financial Officer and | October 27, 2015 |
| (Ernest E. Maddock) | Vice President, Finance | |
| | (Principal Financial and | |
| | Accounting Officer) | |
| | | |
| /s/ Robert L. Bailey | Director | October 29, 201227, 2015 |
| (Robert L. Bailey) | | |
| | |
| | |
| /s/ Richard M. Beyer | Director | October 27, 2015 |
| (Richard M. Beyer) | | |
| | | |
| | | |
| /s/ Patrick J. Byrne | Director | October 29, 201227, 2015 |
| (Patrick J. Byrne) | | |
| | | |
| | | |
| /s/ Warren East | Director | October 27, 2015 |
| (Warren East) | | |
| | |
| | |
| /s/ Mercedes Johnson | Director | October 29, 201227, 2015 |
| (Mercedes Johnson) | | |
| | | |
| | | |
| /s/ Lawrence N. Mondry | Director | October 29, 201227, 2015 |
| (Lawrence N. Mondry) | | |
| | | |
| | | |
| /s/ Robert E. Switz | Chairman of the Board | October 29, 201227, 2015 |
| (Robert E. Switz) | Director | |
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
MICRON TECHNOLOGY, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
|
| | | | | | | | | | | | |
| For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 |
| Net sales | | $ | 5,547 |
| | $ | 5,819 |
| | $ | 4,404 |
|
| Cost of goods sold | | 3,329 |
| | 3,514 |
| | 3,721 |
|
| Gross margin | | 2,218 |
| | 2,305 |
| | 683 |
|
| | | | | | | |
| Selling, general and administrative | | 299 |
| | 264 |
| | 238 |
|
| Research and development | | 1,483 |
| | 1,389 |
| | 921 |
|
| Other operating (income) expense, net | | (12 | ) | | 251 |
| | 77 |
|
| Operating income (loss) | | 448 |
| | 401 |
| | (553 | ) |
| | | | | | | |
| Gain on MMJ Acquisition | | — |
| | (33 | ) | | 1,484 |
|
| Interest income (expense), net | | (273 | ) | | (209 | ) | | (189 | ) |
| Other non-operating income (expense), net | | (85 | ) | | (86 | ) | | (248 | ) |
| | | 90 |
| | 73 |
| | 494 |
|
| | | | | | | |
| Income tax (provision) benefit | | 38 |
| | 18 |
| | (1 | ) |
| Equity in earnings (loss) of subsidiaries | | 2,773 |
| | 2,956 |
| | 703 |
|
| Equity in net loss of equity method investees | | (2 | ) | | (2 | ) | | (6 | ) |
| Net income attributable to Micron | | 2,899 |
| | 3,045 |
| | 1,190 |
|
| Other comprehensive income (loss) | | (43 | ) | | (7 | ) | | (17 | ) |
| Comprehensive income attributable to Micron | | $ | 2,856 |
| | $ | 3,038 |
| | $ | 1,173 |
|
See accompanying notes to condensed financial statements.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
MICRON TECHNOLOGY, INC.
(Parent Company Only)
CONDENSED BALANCE SHEETS
(in millions except par value amounts)
|
| | | | | | | | |
| As of | | September 3,
2015 | | August 28,
2014 |
| Assets | | | | |
| Cash and equivalents | | $ | 721 |
| | $ | 1,249 |
|
| Short-term investments | | 479 |
| | 384 |
|
| Receivables | | 133 |
| | 114 |
|
| Notes and accounts receivable from subsidiaries | | 1,091 |
| | 1,767 |
|
| Finished goods | | 77 |
| | 84 |
|
| Work in process | | 321 |
| | 228 |
|
| Raw materials and supplies | | 86 |
| | 68 |
|
| Other current assets | | 82 |
| | 215 |
|
| Total current assets | | 2,990 |
| | 4,109 |
|
| Investment in subsidiaries | | 13,051 |
| | 10,149 |
|
| Long-term marketable investments | | 932 |
| | 819 |
|
| Noncurrent notes receivable from and prepaid expenses to subsidiaries | | 163 |
| | 111 |
|
| Property, plant and equipment, net | | 1,679 |
| | 1,519 |
|
| Equity method investments | | — |
| | 9 |
|
| Other noncurrent assets | | 488 |
| | 543 |
|
| Total assets | | $ | 19,303 |
| | $ | 17,259 |
|
| | | | | |
| Liabilities and equity | | | | |
| Accounts payable and accrued expenses | | $ | 677 |
| | $ | 766 |
|
| Short-term debt and accounts payable to subsidiaries | | 384 |
| | 619 |
|
| Current debt | | 655 |
| | 1,065 |
|
| Other current liabilities | | 8 |
| | 30 |
|
| Total current liabilities | | 1,724 |
| | 2,480 |
|
| Long-term debt | | 4,797 |
| | 3,191 |
|
| Other noncurrent liabilities | | 431 |
| | 760 |
|
| Total liabilities | | 6,952 |
| | 6,431 |
|
| | | | | |
| Commitments and contingencies | |
|
| |
|
|
| | | | | |
| Redeemable convertible notes | | 49 |
| | 68 |
|
| | | | | |
| Micron shareholders' equity: | | | | |
| Common stock, $0.10 par value, 3,000 shares authorized, 1,084 shares issued and outstanding (1,073 as of August 28, 2014) | | 108 |
| | 107 |
|
| Other equity | | 12,194 |
| | 10,653 |
|
| Total Micron shareholders' equity | | 12,302 |
| | 10,760 |
|
| Total liabilities and equity | | $ | 19,303 |
| | $ | 17,259 |
|
See accompanying notes to condensed financial statements.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
MICRON TECHNOLOGY, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
|
| | | | | | | | | | | | |
| For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 |
| Net cash (used for) provided by operating activities | | $ | 996 |
| | $ | 888 |
| | $ | (347 | ) |
| | | | | | | |
| Cash flows from investing activities | | | | | | |
| Purchases of available-for-sale securities | | (1,799 | ) | | (1,047 | ) | | (924 | ) |
| Expenditures for property, plant, and equipment | | (609 | ) | | (392 | ) | | (350 | ) |
| Cash contributions to subsidiaries | | (151 | ) | | (121 | ) | | (23 | ) |
| Payments to settle hedging activities | | (135 | ) | | (27 | ) | | (256 | ) |
| Cash paid for acquisitions | | (57 | ) | | — |
| | (596 | ) |
| Expenditures for intangible assets | | (42 | ) | | (43 | ) | | (34 | ) |
| Proceeds from sales and maturities of available-for-sale securities | | 1,581 |
| | 557 |
| | 678 |
|
| Proceeds from settlement of hedging activities | | 78 |
| | 23 |
| | 38 |
|
| Proceeds from repayment of loans to subsidiaries, net | | 65 |
| | 379 |
| | 851 |
|
| Cash distributions from subsidiaries | | 33 |
| | 227 |
| | 38 |
|
| Proceeds from sales of property, plant, and equipment | | 19 |
| | 45 |
| | 38 |
|
| Proceeds from receipt of loan payments | | 10 |
| | 56 |
| | — |
|
| Cash received from disposition of interest in Aptina | | 1 |
| | 105 |
| | — |
|
| Other | | 5 |
| | 7 |
| | (36 | ) |
| Net cash provided by (used for) investing activities | | (1,001 | ) | | (231 | ) | | (576 | ) |
| | | | | | | |
| Cash flows from financing activities | | | | | | |
| Repayments of debt | | (1,645 | ) | | (2,469 | ) | | (777 | ) |
| Cash paid to acquire treasury stock | | (884 | ) | | (76 | ) | | (5 | ) |
| Payments of licensing obligations | | (82 | ) | | (47 | ) | | (31 | ) |
| Proceeds from issuance of debt | | 2,050 |
| | 1,750 |
| | 693 |
|
Proceeds from issuance of stock under equity plans
| | 73 |
| | 265 |
| | 150 |
|
| Proceeds from equipment sale-leaseback transactions | | — |
| | — |
| | 126 |
|
| Other | | (35 | ) | | (32 | ) | | (43 | ) |
| Net cash provided by (used for) financing activities | | (523 | ) | | (609 | ) | | 113 |
|
| | | | | | | |
| Effect of changes in currency exchange rates on cash and cash equivalents | | — |
| | (1 | ) | | — |
|
| | | | | | | |
| Net increase (decrease) in cash and equivalents | | (528 | ) | | 47 |
| | (810 | ) |
| Cash and equivalents at beginning of period | | 1,249 |
| | 1,202 |
| | 2,012 |
|
| Cash and equivalents at end of period | | $ | 721 |
| | $ | 1,249 |
| | $ | 1,202 |
|
See accompanying notes to condensed financial statements.
MICRON TECHNOLOGY, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
(All tabular amounts in millions)
Basis of Presentation
Micron, a Delaware corporation, was incorporated in 1978. Micron is the parent company of its consolidated subsidiaries and, together with its consolidated subsidiaries, is a global leader in advanced semiconductor systems.
These condensed financial statements have been prepared on a parent-only basis. Under this parent-only presentation, Micron's investments in its consolidated subsidiaries are presented under the equity method of accounting. In accordance with Rule 12-04 of Regulation S-X, these parent-only financial statements do not include all of the information and footnotes required by Generally Accepted Accounting Principles (GAAP) in the United States for annual financial statements. Because these parent-only financial statements and notes do not include all of the information and footnotes required by GAAP in the U.S. for annual financial statements, these parent-only financial statements and other information included should be read in conjunction with Micron's audited Consolidated Financial Statements contained within Part II, Item 8 of this Form 10-K for the year ended September 3, 2015.
Effective in the fourth quarter of 2015, Micron adopted ASU 2015-03 – Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, as appropriate, consistent with debt discounts, as opposed to an asset. The new accounting standard required retrospective application; therefore, Micron's financial statements and notes to those statements contained herein have been adjusted to reflect the impact of adopting this new accounting standard.
Debt
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2015 | | 2014 |
Instrument(1) | | Stated Rate | | Effective Rate | | Current | | Long-Term | | Total | | Current | | Long-Term | | Total |
Capital lease obligations(2) | | N/A |
| | N/A |
| | $ | 174 |
| | $ | 40 |
| | $ | 214 |
| | $ | 172 |
| | $ | 233 |
| | $ | 405 |
|
| 2022 senior notes | | 5.875 | % | | 6.14 | % | | — |
| | 589 |
| | 589 |
| | — |
| | 587 |
| | 587 |
|
| 2023 senior notes | | 5.250 | % | | 5.43 | % | | — |
| | 988 |
| | 988 |
| | — |
| | — |
| | — |
|
| 2024 senior notes | | 5.250 | % | | 5.38 | % | | — |
| | 545 |
| | 545 |
| | — |
| | — |
| | — |
|
| 2025 senior notes | | 5.500 | % | | 5.56 | % | | — |
| | 1,138 |
| | 1,138 |
| | — |
| | 1,137 |
| | 1,137 |
|
| 2026 senior notes | | 5.625 | % | | 5.73 | % | | — |
| | 446 |
| | 446 |
| | — |
| | — |
| | — |
|
2031B convertible senior notes(3) | | 1.875 | % | | 6.98 | % | | — |
| | — |
| | — |
| | 361 |
| | — |
| | 361 |
|
2032C convertible senior notes(4) | | 2.375 | % | | 5.95 | % | | — |
| | 197 |
| | 197 |
| | — |
| | 309 |
| | 309 |
|
2032D convertible senior notes(4) | | 3.125 | % | | 6.33 | % | | — |
| | 150 |
| | 150 |
| | — |
| | 284 |
| | 284 |
|
2033E convertible senior notes(4) | | 1.625 | % | | 4.50 | % | | 217 |
| | — |
| | 217 |
| | 272 |
| | — |
| | 272 |
|
2033F convertible senior notes(4) | | 2.125 | % | | 4.93 | % | | 264 |
| | — |
| | 264 |
| | 260 |
| | — |
| | 260 |
|
| 2043G convertible senior notes | | 3.000 | % | | 6.76 | % | | — |
| | 644 |
| | 644 |
| | — |
| | 631 |
| | 631 |
|
| Other | | 1.654 | % | | 1.65 | % | | — |
| | 60 |
| | 60 |
| | — |
| | 10 |
| | 10 |
|
| | | | | | | $ | 655 |
| | $ | 4,797 |
| | $ | 5,452 |
| | $ | 1,065 |
| | $ | 3,191 |
| | $ | 4,256 |
|
| |
(1) | Micron has either the obligation or the option to pay cash for the principal amount due upon conversion for all of its convertible notes. Micron's current intent is to settle in cash the principal amount of all of its convertible notes upon conversion. |
(2) Weighted-average imputed rate of 4.5% and 4.7% as of September 3, 2015 and August 28, 2014, respectively.
| |
(3) | Amount recorded for 2014 included the debt and equity components. The equity component was reclassified to a debt liability as a result of Micron's obligation to settle the conversions of the 2031B Notes in cash. |
| |
(4) | Since the closing price of Micron's common stock for at least 20 trading days in the 30 trading day period ending on June 30, 2015 exceeded 130% of the initial conversion price per share, holders have the right to convert their notes at any time during the calendar quarter ended September 30, 2015. The closing price of Micron's common stock also exceeded the thresholds for the calendar quarter ended September 30, 2015; therefore, these notes are convertible by the holders through December 31, 2015. The 2033 Notes are classified as current because the terms of these notes require us to pay cash for the principal amount of any converted notes. |
Micron's convertible and senior notes are unsecured obligations that rank equally in right of payment with all of Micron's other existing and future unsecured indebtedness, and are effectively subordinated to all of Micron's other existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. The convertible notes and the 2022 Notes, 2023 Notes, 2024 Notes, 2025 Notes, and 2026 Notes of Micron are structurally subordinated to all liabilities of its subsidiaries, including trade payables. Micron guarantees certain debt obligations of its subsidiaries. Micron does not guarantee the MMJ creditor installment payments. As of September 3, 2015, Micron had guaranteed $655 million of debt obligations of its subsidiaries. Micron's guarantees of its subsidiary debt obligations are unsecured obligations ranking equally in right of payment with all of its other existing and future unsecured indebtedness.
Capital Lease Obligations
Micron has various capital lease obligations due in periodic installments with a weighted-average remaining term of 1 year. As of September 3, 2015 and August 28, 2014, Micron had production equipment with carrying values of $140 million and $305 million, respectively, under capital leases.
Convertible Senior Notes and Other Senior Notes
For further information, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt" of Micron's consolidated financial statements.
Other Facilities
Micron has a credit facility with an aggregate revolving commitment which is subject to certain adjustments, including an availability block that effectively limits the maximum amount Micron could draw to $540 million. As of September 3, 2015, $50 million of principal was outstanding under this facility and $270 million was available for Micron to draw. For further information, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – Other Facilities – Revolving Credit Facilities" of Micron's consolidated financial statements.
Maturities of Notes Payable and Future Minimum Lease Payments
As of September 3, 2015, maturities of notes payable and future minimum lease payments under capital lease obligations were as follows:
|
| | | | | | | | |
| | | Notes Payable | | Capital Lease Obligations |
| 2016 | | $ | — |
| | $ | 179 |
|
| 2017 | | — |
| | 30 |
|
| 2018 | | 233 |
| | 3 |
|
| 2019 | | 224 |
| | 3 |
|
| 2020 | | 347 |
| | 3 |
|
| 2021 and thereafter | | 4,854 |
| | 3 |
|
| Unamortized discounts and interest, respectively | | (420 | ) | | (7 | ) |
| | | $ | 5,238 |
| | $ | 214 |
|
Commitments
Micron has provided various financial guarantees issued in the normal course of business on behalf of its subsidiaries. These contracts include debt guarantees and guarantees on certain banking facilities. Micron enters into these arrangements to facilitate commercial transactions with third parties by enhancing the value of the transaction to the third party. Micron has entered into agreements covering certain activities of its subsidiaries, and occasionally Micron may be required to perform under such agreements on behalf of its subsidiaries.
As of September 3, 2015, the maximum potential amount of future payments Micron could have been required to make under its debt guarantees was approximately $655 million. Substantially all of this amount relates to guarantees for debt of wholly-owned entities whereby Micron would be obligated to perform under the guarantee if a subsidiary were to default on the terms of their debt arrangements. In the event of performance under the guarantee, Micron would be permitted to seek reimbursement from the subsidiary company(s) through liquidation of the assets which were collateral under various debt instruments. At the time these contracts were entered into, the collateralized assets approximated the value of the outstanding guarantees. The majority of these guarantees expire at various times between March 2016 and February 2020. Micron guarantees a credit facility of a subsidiary that provides for up to $750 million of financing. As of September 3, 2015, $75 million of principal amount was outstanding under this facility.
Micron guarantees certain banking facilities for its wholly-owned consolidated entities. Substantially all of these guarantees relate to bank overdraft protections. The maximum potential amount of future payments Micron could be required to make under these guarantees varies based on the extent of potential overdrafts. Micron's business processes substantially mitigate the risk of wholly-owned subsidiaries overdrafting their bank accounts. The majority of these guarantees have no contractual expiration.
Contingencies
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that Micron and its subsidiaries' products or manufacturing processes infringe their intellectual property rights. Micron 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. Micron is currently a party to various litigation regarding patent, commercial, and other matters. Micron is a party to the matters listed in the "Contingencies" note in the consolidated financial statements. For further information, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Contingencies" of Micron's consolidated financial statements.
Redeemable Convertible Notes
For further information, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Redeemable Convertible Notes" of Micron's consolidated financial statements.
Related Party Transactions
Substantially all of Micron's activities relate to manufacturing services performed for a subsidiary and to royalties received from its subsidiaries for use of product and process technology. Micron's net sales to consolidated subsidiaries were $5.42 billion, $5.64 billion, and $4.19 billion for 2015, 2014, and 2013, respectively. Gross margins on manufacturing activities are commensurate with market rates for such services. Transactions between Micron and its consolidated subsidiaries are eliminated in consolidation.
Micron engages in various transactions with its equity method investees and eliminates the profits or losses on those transactions to the extent of its ownership interest until such time as the profits or losses are realized. Micron held an equity interest in Aptina through August 15, 2014. Net sales for 2014 and 2013 included $43 million and $182 million, respectively, from products sold to and services performed for Aptina.
On August 15, 2014, ON Semiconductor Corporation acquired Aptina for approximately $433 million and Micron recognized a non-operating gain of $119 million on the sale of its shares based on its diluted ownership interest of approximately 27%. The gain approximated Micron's share of the consideration because the carrying value of its investment had been reduced to zero since the second quarter of 2012, at which time Micron ceased recognizing its proportionate share of Aptina's losses. For further information regarding transactions between Micron and its equity method investees, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Other" of Micron's consolidated financial statements.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Business Acquisitions | | Charged (Credited) to Costs and Expenses | |
Deductions/ Write-Offs | | Balance at End of Year |
| Allowance for Doubtful Accounts | | | | | | | | | |
| Year ended August 30, 2012 | $ | 3 |
| | $ | — |
| | $ | 5 |
| | $ | (3 | ) | | $ | 5 |
|
| Year ended September 1, 2011 | 4 |
| | — |
| | — |
| | (1 | ) | | 3 |
|
| Year ended September 2, 2010 | 5 |
| | 1 |
| | — |
| | (2 | ) | | 4 |
|
| | | | | | | | | | |
| Deferred Tax Asset Valuation Allowance | |
| | |
| | |
| | |
| | |
|
| Year ended August 30, 2012 | $ | 1,220 |
| | $ | — |
| | $ | 373 |
| | $ | (58 | ) | | $ | 1,535 |
|
| Year ended September 1, 2011 | 1,295 |
| | — |
| | (103 | ) | | 28 |
| | 1,220 |
|
| Year ended September 2, 2010 | 1,822 |
| | 63 |
| | (424 | ) | | (166 | ) | | 1,295 |
|
Certain deferred tax assets and liabilities in prior years were corrected with corresponding changes in the valuation allowance, resulting in no change to net deferred tax assets. The change in these items was not material for any period presented. |
| | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Business Acquisitions | | Charged (Credited) to Income Tax Provision | | Currency Translation and Charges to Other Accounts | | Balance at End of Year |
| Deferred Tax Asset Valuation Allowance | |
| | |
| | |
| | |
| | |
|
| Year ended September 3, 2015 | $ | 2,443 |
| | $ | — |
| | $ | (260 | ) | | $ | (132 | ) | | $ | 2,051 |
|
| Year ended August 28, 2014 | 3,155 |
| | — |
| | (544 | ) | | (168 | ) | | 2,443 |
|
| Year ended August 29, 2013 | 1,470 |
| | 1,292 |
| | 418 |
| | (25 | ) | | 3,155 |
|
