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 September 3, 2015August 31, 2017
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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$0.10 per share | NASDAQ Global Select Market |
| Common Stock Purchase Rights | |
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, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act: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 | Emerging Growth Company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 5, 2015,2, 2017, as reported by the NASDAQ Global Select Market, was approximately $27.7 billion.$20.5 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 21, 2015,20, 2017 was 1,085,753,663.
1,153,255,224.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrant’s Fiscal 20152017 Annual Meeting of Shareholders to be held on January 28, 2016,17, 2018 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 itsour consolidated 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 Notes2021 MSAC Term Loan | | 1.875% Convertible NotesVariable Rate MSAC Senior Secured Term Loan due 20142021 | | LPDRAM | | Mobile Low-Power DRAM |
2022 Notes2021 MSTW Term Loan | | 5.875%Variable Rate MSTW Senior NotesSecured Term Loan due 20222021 | | MAI | | Micron Akita, Inc. |
20232022 Notes | | 5.250%5.88% Senior Notes due 20232022 | | MCP | | Multi-Chip Package |
2024 Notes2022 Term Loan B | | 5.250% Senior NotesSecured Term Loan B due 20242022 | | Micron | | Micron Technology, Inc. (Parent Company) |
20252023 Notes | | 5.500%5.25% Senior Notes due 2025 | | MIT | | Micron Technology, Italia, S.r.l. |
2026 Notes | | 5.625% Senior Notes due 20262023 | | MLC | | Multi-Level Cell (two bits per cell) |
20272023 Secured Notes | | 1.875% Convertible7.50% Senior Secured Notes due 20272023 | | MMJ | | Micron Memory Japan, Inc. |
20312024 Notes | | 2031A and 2031B5.25% Senior Notes due 2024 | | MMJ Companies | | MAI and MMJ |
2031A2025 Notes | | 1.500% Convertible5.50% Senior Notes due 20312025 | | MMJ Group | | MMJ and its subsidiaries |
2031B2026 Notes | | 1.875% Convertible5.63% Senior Notes due 20312026 | | MMT | | Micron Memory Taiwan Co., Ltd. |
| 2032 Notes | | 2032C and 2032D Notes | | MP MaskMSP | | MP Mask Technology Center, LLCMicron Semiconductor Products, Inc. |
| 2032C Notes | | 2.375%2.38% Convertible Senior Notes due 2032 | | OEMMSTW | | Original Equipment ManufacturerMicron Semiconductor Taiwan Co., Ltd. |
| 2032D Notes | | 3.125%3.13% Convertible Senior Notes due 2032 | | PhotronicsMTTW | | Photronics,Micron Technology Taiwan, Inc. |
| 2033 Notes | | 2033E and 2033F Notes | | PSRAMNanya | | Pseudo-static DRAMNanya Technology Corporation |
| 2033E Notes | | 1.625%1.63% Convertible Senior Notes due 2033 | | Qimonda | | Qimonda AG |
| 2033F Notes | | 2.125%2.13% Convertible Senior Notes due 2033 | | R&D | | Research and Development |
| 2043G Notes | | 3.00% Convertible Senior Notes due 2043 | | RexchipSG&A | | Rexchip Electronics Corporation |
Aptina | | Aptina Imaging Corporation | | RLDRAM | | Reduced Latency DRAMSelling, General, and Administration |
| Elpida | | Elpida Memory, Inc. | | SECSLC | | Securities and Exchange Commission |
Gb | | Gigabit | | SG&A | | Selling, General and AdministrationSingle-Level Cell |
| HMC | | Hybrid Memory Cube | | SLC | | Single-Level Cell |
HP | | Hewlett-Packard Company | | SSD | | Solid-State Drive |
| IMFT | | IM Flash Technologies, LLC | | STTAIBOR | | STMicroelectronics S.r.l.Taipei Interbank Offered Rate |
| 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 |
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 increasedcontroller development; increasing sales of DDR4, products,3D NAND, and client and cloud SSD products; growth in demandthe market for NAND Flash productsproducts; the need to obtain additional patent licenses or renew existing license agreements; the entry into additional sales or licenses of intellectual property and SSDs,partnering agreements; debt incurred to finance our capital investments; and production of 3D NAND Flashcash expenditures for property, plant, and 3D XPoint™ memory, and in "Manufacturing" regarding the transition to smaller line-width process technologies and 3D NAND Flash.equipment. 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, a Delaware corporation, was incorporated in 1978. 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 SEC. Materials filed or furnished by us with the SEC are also available at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling (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
Micron Technology, Inc., including its consolidated subsidiaries, is a globalan industry leader in advanced semiconductor systems. Ourinnovative memory and storage solutions. Through our global brands – Micron®, Crucial®, and Ballistix®– our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash, and NOR Flash,3D XPoint™ memory, is transforming how the basis for solid-state drives, modules, multi-chip packages,world uses information to enrich life. Backed by more than 35 years of technology leadership, our memory and other system solutions. Our memorystorage solutions enable the world's most innovative computing, consumer, enterprise storage,disruptive trends, including artificial intelligence, machine learning, and autonomous vehicles in key market segments like cloud, data center, networking, mobile, embedded, and automotive applications. We market our products through our internal sales force, independent sales representatives, and distributors primarily to 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 generating a return on R&D investments.mobile.
We obtainmanufacture our products for sale toat our customers from ourworldwide, wholly-owned manufacturing facilities and our joint ventures.venture facilities. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions, expansion, and various partnering arrangements.
We make significant investments to develop the proprietary product and process technologies that aretechnology, which is 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.facilities. We generally increase the density per wafer and reduce the manufacturing costcosts of each generation of product through advancements in product and process technologies,technology, such as our leading-edge line-width process technology.technology and 3D NAND architecture. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, reduced package size, lower power consumption, improved read/write reliability, and increased memory density. Storage products incorporating NAND, a controller, and firmware constitute a significant and increasing portion of our sales. We generally develop firmware and expect to introduce proprietary controllers into our SSDs in 2018. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and target high-growth markets.
We market our products through our internal sales force, independent sales representatives, and distributors primarily to original equipment manufacturers and retailers located around the world. We face intense competition in the semiconductor memory and storage markets and, in order to remain competitive, we must continuously develop and implement new products and technologies and decrease manufacturing costs. Our success is largely dependent on market acceptance of our diversified portfolio of semiconductor-based memory and storage solutions, efficient utilization of our manufacturing infrastructure, successful ongoing development and integration of advanced product and process technology, return-driven capital spending, and successful R&D investments.
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 and storage product and process technologiestechnology with joint venture partners.third parties. 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 31, 2013,Through December 6, 2016, we completed the acquisition of Elpida, nowheld a 33% ownership interest in Inotera (now known as MMJ,MTTW), Nanya and certain of its affiliates held a controlling32% ownership interest, and the remaining ownership interest was publicly held. On December 6, 2016, we acquired the remaining 67% interest in Rexchip, now known as MMT (together, the "MMJ Acquisition"). The MMJ Acquisition included aInotera and began consolidating Inotera's operating results. Inotera manufactures DRAM products at its 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in TaichungTaoyuan City, Taiwan, and an assemblypreviously sold such products exclusively to us through supply agreements. The Inotera acquisition enhances our flexibility to drive new technology, optimize the deployment of capital, and test facility locatedadapt our product offerings to changes in Akita, Japan. These wafer fabrication facilities together represented approximately 30% of our total wafer capacity for 2015. The operations frommarket conditions. For more information regarding 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
Inotera acquisition, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc.Acquisition of Inotera.")
Business Segments
We have the following four business units, which are our reportable segments:
Compute 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 and storage products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Mobile Business Unit ("MBU"):Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Embedded Business Unit ("EBU"):Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.
For more information regarding our segments, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Segment Information."
Products
Our product portfolio of memory and storage solutions is based on our high-performance semiconductor memory and storage technologies, which include DRAM, NAND, 3D XPoint memory, and other technologies. We offer products in various forms, including wafers, components, and modules, as well as SSDs and multiple chip packages that combine our NAND with controllers and firmware.
DRAM
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%58%, and 48%64% of our total net sales in 2017, 2016, and 2015, 2014,respectively.
Wafer, Component, and 2013, respectively.Module DRAM: DDR3 and DDR4 DRAM products are sold by CNBU, MBU, and EBU.
DDR3 DRAM is a standardized, high-density, high-volume, DRAM product, which offersoffer high speed and high bandwidth, at a relatively low cost. DDR3 products are primarily targeted atfor use in computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications. In 2015,2017, we offered DDR4 and DDR3 products in 1Gb 2Gb, 4Gb, andto 8Gb densities. We also offered next generationSales of DDR4 DRAM products increased significantly in 4Gb and 8Gb densities in 20152017 and we expect sales of these products to increase significantlyfurther increases in 20162018 as they replaceDDR4 DRAM replaces DDR3 DRAM products in many applications. SalesAggregate sales of DDR3 and DDR4 DRAM products were 38%40%, 40%31%, and 31%38% of our total net sales in 2017, 2016, and 2015, 2014, and 2013, respectively.
LPDRAM products offer lower power consumption relative to other DRAM products and are used primarily in mobile phones,smartphones, tablets, embeddedautomotive applications, ultra-thin laptop computers, and other mobile consumer devices that require low power consumption. We offer DDR4, DDR3, DDR2,Aggregate sales of our LPDDR4, LPDDR3, and DDRother versions of LPDRAM. Sales of LPDRAM products were 18%, 20%, and 6% of our total net sales in 2015, 2014,each of 2017, 2016, and 2013, respectively.2015.
We also offer other DRAM products targeted to specialty markets, including DDR2 DRAM, DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, RLDRAM, and PSRAM.RLDRAM. These products are used primarily in networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades.
Other: 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 and storage devices that retain content when power is turned off. NAND Flash sales were 33%32%, 27%37%, and 40%33% of our total net sales in 2015, 2014,2017, 2016, and 2013,2015, respectively. 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-basedNAND-based storage devices are utilized in mobile phones,smartphones, SSDs, tablets, computers, industrialautomotive and automotiveindustrial 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, and mobile phones.smartphones. 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 embedded and removable storage devices. NAND Flash products are sold by SBU, EBU, MBU, and CNBU.
Wafer and Component NAND:Our NAND Flash products feature a small cell structure that enables higher densities for demanding applications. We offer high-speed SLC, MLC, and TLC NAND Flash products that are compatible with advanced interfaces. MLC and TLC products have two and three times, respectively, the bit densitybegan selling commercial volumes of SLC products. In 2015, we offered SLC NAND Flash products in 1Gb to 64Gb densities; 2-bit-per-cell MLC NAND Flash products in 8Gb to 128Gb densities; and 3-bit-per-cell TLC NAND Flash in 128Gb density. In 2015, we began samplingnew products featuring our new 3D NAND Flash technology whichin 2016 and it composed 43% of our total Trade NAND sales in 2017. We expect 3D NAND sales to continue to increase in 2018. 3D NAND stacks layers of data storage cells vertically to create storage devices with three times higher capacity than competing planar 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 expect to beare currently in production of a 256Gb MLC version and 384Gb TLC versionversions of 3D NAND Flashand, in 2017, TLC comprised a majority of our 3D NAND production. The significant majority of our 3D NAND products by the endsold in 2017 featured 32 layers and we began ramping next generation 3D NAND products with 64 layers in 2017. We also offer high speed SLC, MLC, and TLC planar NAND products that are compatible with advanced interfaces in 1GB to 128GB densities.
SSDs: SSDs incorporate NAND, a controller, and firmware and are a significant portion of calendar year 2015.
our net sales. We offer client, cloud, and enterprise SSDs which feature higher performance, reduced-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. Increasingly our SSDs are being utilized in large-scale cloud environments. Using our 3D NAND Flash process technology, and 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 encryptionincluding our newest line of 3D NAND SSDs, deliver world-class data storage, endurance, power efficiency, reliability, and performance for corporate users and are offered in a 2.5-inch, M.2.,SATA and mSATA modules,PCIe NVMe solutions, with densities up to 1 terabyte.2 terabytes, in 2.5-inch and M.2 form factors. Our enterprise SSDs are targeted at server and storage applications and incorporate our Extended Performance and Enhanced Reliability Technology ("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 offer enterprise SSDs with both PCIe NVMe, SAS, and SATA interfaces, andwith capacities up to 1.43.2 terabytes.
We generally develop firmware and expect that demandto introduce proprietary controllers into our SSDs in 2018, which will enable us to offer additional differentiated storage solutions for bothour customers. Sales of our client and enterprisecloud SSDs willincreased significantly in 2017, both in aggregate and as a percentage of our overall sales, and we expect this trend to continue to increase significantly over the next several years.
MCPs and Managed NAND: We offer MCP products that combine NAND with LPDRAM to enable small form-factor solutions that combine storage and execution memory. We also offer managed MCPNAND products which incorporate our NAND Flash. These managed NAND Flash products includeincluding e-MMC, e-MCP,UFS, 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. MCP products are used in smartphone, automotive, industrial, and other consumer applications. Our MCP and managed NAND products generally feature proprietary firmware and leverage our expertise in NAND and DRAM technologies.
3D XPoint Memory and Other
Through our Lexar3D XPoint Memory®: 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® 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 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.
In the fourth quarter of 2015, we introduced 3D XPoint technology, a new category of non-volatile memory.memory, in 2015. 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 plan to produce commercial volumes ofbegan producing 3D XPoint memory products in 2016.
Other2016 and significantly increased production in 2017.
Other:Other products included primarily NOR Flash, which are electrically re-writeable semiconductor memory devices that offer fast read times whichand are used in wirelessautomotive, industrial, connected home, and embeddedconsumer applications.
Partnering Arrangements
The following is a summary of our partnering arrangements as of September 3, 2015:IMFT
Since 2006, we have owned 51% of IMFT, a joint venture between us and Intel to manufacture memory products exclusively for its members, who share the output of IMFT in proportion to their investment under a long-term supply agreement at prices approximating cost. In 2017, IMFT began to transition its manufacturing from NAND to 3D XPoint memory products. We generally share with Intel the costs of product design and process development activities for NAND and 3D XPoint memory at IMFT and our other facilities. 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. Through December 2018, Intel can put to us, and from January 2019 through December 2021, 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 such time either member exercises its right. If Intel exercises its put right, 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 "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – IMFT.")
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| Entity | | | | Member or Partner | | Micron Ownership Interest | | Formed/ Acquired | | Product Market |
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| IMFT | (1) | | | Intel Corporation | | 51% | | 2006 | | Non-Volatile |
| MP Mask | (2) | | | Photronics, Inc. | | 50% | | 2006 | | Photomasks |
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| Equity method investments: | | | | | | | | |
| Inotera | (3) | | | Nanya Technology Corporation | | 33% | | 2009 | | DRAM |
| 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 3D XPoint memory products. In connection therewith, we formed the IMFT joint venture with Intel to manufacture NAND Flash and 3D XPoint memory products for the exclusive use of the members. The members share the output of IMFT generally in proportion to their investment. We sell a 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 process development activities for NAND Flash memory and 3D XPoint memory. 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. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – IMFT.")
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(2) | MP Mask: We produce photomasks for leading-edge and advanced next-generation semiconductors through MP Mask, a joint venture with Photronics. 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. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – MP Mask.")
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(3) | Inotera: We partner with Nanya for 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 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. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Inotera.")
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(4) | Tera Probe: We have an approximate 40% ownership interest in Tera Probe, an entity that provides semiconductor wafer testing and probe services to us and others.
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Manufacturing
Our manufacturing facilities are located in the United States, China, Japan, Malaysia, Singapore, and Taiwan. Our Inotera joint venture has a wafer fabrication facility in Taiwan. Nearly all of our products are manufactured on 300mm wafers in 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 generally replaced every threefive to fiveseven years with increasingly advanced equipment. Our DRAM, NAND, Flash,3D XPoint memory, and NOR Flash products share a number of common manufacturing processes, enabling us to leverage our product and process technologiestechnology 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, 3D non-volatile layers, NAND cell levels, process complexity, including number of mask layers number ofand fabrication steps, and number of good die produced on each wafer.manufacturing yield. 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 theour manufacturing environment. We continuously enhance our production processes, reducing die sizes,increasing bits per wafer and transitioning to higher density products. In 2015,2017, we significantly increased our volume production of 1Xnm process node DRAM and, beginning in the majorityfirst quarter of our DRAM production was2017, manufactured on our 25nm line-width process technologies. We expect that by the second half of 2016 the majority of our DRAM production will be manufactured on our 20nm line-width process technology. In 2015, a majority of our NAND Flash production was manufactured onusing our 20nm and 16nm line-width processfirst generation 32-layer 3D NAND technology. WeIn 2017, we began ramping production of our second generation 64-layer 3D NAND Flashtechnology and TLC products in 2015 and expect that in 2016became the majority of our NAND Flash production will be manufactured using 16nm line-width process technology or 3D NAND technology.output.
Wafer fabrication occurs in a highly controlled,highly-controlled clean environment to minimize dust and other 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.air particle defects. 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.
We sell semiconductor products in both packaged and unpackaged (i.e., "bare die") forms. Our packaged products include memory modules, SSDs, MCPs, managed NAND, and HMCs. We assemble many products in-house and, in some cases, outsource assembly services where we can reduce costs and minimize our capital investment. We subcontract assembly services for the production of certain memory modules, SSDs, and MCPs.
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.flow, and perform high temperature burn-in on finished products. 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 use subcontractors to perform certain testing services.
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 many products in-house and, in some cases, outsource assembly services where we can reduce costs and minimize our capital investment. We contract with independent foundries and assembly and testing companies to manufacture NAND Flash media products such as memory cards and USB devices.
In recent years, we have produced an increasingly broad portfolio of products and system solutions, which enhances our ability to allocate resources to our most profitable products but also increases the complexity of our manufacturing 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 and Use of Service Providers
Our operations require raw materials, and in some cases, third-party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials; however,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 and increase the cost of raw materials or components such as chemicals, silicon wafers, photomasks, chemicals, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and molding compound.reticle glass blanks. 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. IfThe disruption of our supply of raw materials is disrupted or services or the extension of our lead times extended,could have a material adverse effect on our business, resultsresult of operations, or financial condition could be materially adversely affected.condition.
Our manufacturing processes are also dependent on our relationships with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers. We have supply chain risk monitoring and management to mitigate our risks associated with raw materials and service providers.
Marketing and Customers
Our products are sold intoFor 2017, 20% of our net sales were to the compute and graphics mobile, SSD and other storage, automotive, industrial, medical, and other embedded and server markets. Market concentrations from 2015 net sales were approximately as follows: 25% for compute and graphicsmarket (including desktop PCs, notebooks, and workstations); 25% for20% were to mobile; 20% forwere to SSD and other storage; 15% for server; and 10% forwere to automotive, industrial, medical, and other embedded.embedded; and 15% were to server. Sales to Kingston Technology Corporation consisted primarily of DRAM were 11%and, as a percentage of ourtotal net sales, inwere 10%, 7%, and 11% for 2017, 2016, and 2015, respectively. Sales to Intel, including Non-Trade sales through IMFT, as a percentage of total net sales, were 9%, 14%, and 8% for 2017, 2016, and 2015, respectively. No other customer exceeded 10% of our total net sales in 2014. Sales to Intel, primarily NAND Flash products through IMFT were 8% of our net sales in 2015, 8% of our net sales in 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 2014, and 10% of our net sales in 2013.for 2017, 2016, or 2015.
Our semiconductor memory and storage products are offered under theour Micron,®, Lexar, Crucial,®, SpecTek®, and Elpida®Ballistix brand names and private labels. We market our semiconductor memory and storage 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 representativesdistributors, who obtain orders subject to final acceptance by us and are compensated on a commission basis. We then make shipments against these orders directly to the customer.our customers. 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 customerapplicable 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 ourapplicable specifications existing at the time of delivery.delivery and will operate to those specifications during a stated warranty period. Under our generalstandard 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 generalstandard terms and conditions.
Competition
We face intense competition in the semiconductor memory marketand storage markets from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; Toshiba Corporation; and ToshibaWestern Digital 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 technology,compete. 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 generally seek to increase silicon capacity improve yields, reduce die size, and minimize mask levelsbits per wafer, which may result in their product designs resultingsignificant increases in significantly increased worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage products also result from capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures or increase capacity at existing or new facilities, resulting in future increases in worldwide supply. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by commensurate increases in demand, would lead to declines in average selling prices for our products and materially adversely affect our business, results of operations, or financial condition. Many of our high-volume memory and storage 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 over pricing.
Research and Development
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies, as well astechnology that enables continuous improvement to cost structures and performance enhancements for our future DRAM and NAND products. We are also focused on developing 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, storage, 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 DDR3DDR4 and DDR4DDR5 DRAM and LPDRAM products as well as high density and mobile NAND Flash memory (including 3D NAND (including TLC and MLC and TLCQLC technologies), 3D XPoint memory, NOR Flash memory,SSDs (including firmware and controllers), managed NAND, specialty memory, SSDs, HMCs, and other memory technologies and systems.
Our R&D expenses were $1.82 billion, $1.62 billion, and $1.54 billion $1.37 billion,in 2017, 2016, and $931 million in 2015, 2014, and 2013, respectively. 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 reflect net reductions of $231$213 million, $162$205 million, and $176$224 million in 2015, 2014,for 2017, 2016, and 2013,2015, respectively, as a result of reimbursements under our Intel and other cost-sharing arrangements.arrangements with Intel.
To compete in the semiconductor memory industry,and storage markets, 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 and storage products and solutions. Our process, design, and package development efforts occur at multiple locations across the world, with our largest R&D center located in Boise, Idaho and other significant R&D centers in Japan, China, Italy, Singapore, and other sites in the U.S.United States. In addition,2017, we develop photolithography mask technology atbegan ramping operations in an expansion of our MP Mask joint ventureR&D 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 developmentDevelopment of a
product is deemed complete once the product has been thoroughly reviewedwhen it is qualified through thorough reviews and testedtests 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 $13.63$17.56 billion for 20152017 and included sales of $6.66$10.39 billion in China, $2.24$2.54 billion in Taiwan, $1.25$1.36 billion in Europe, $1.03 billion in Japan, and $2.04$1.81 billion in the rest of the Asia Pacific region (excluding China, Japan, and Taiwan).region. Sales to customers outside the United States totaled $13.81$10.47 billion for 20142016 and $7.56$13.63 billion for 2013.2015. As of September 3, 2015,August 31, 2017, we had net property, plant, and equipment of $3.64$6.52 billion in Taiwan, $5.26 billion in Singapore, $4.25 billion in the United States, $3.24 billion in Singapore, $2.17$2.83 billion in Japan, $1.07 billion in Taiwan, $331$453 million in China, and $96$118 million in other countries. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information" and "Item 1A. Risk Factors.")
Patents and Licenses
In recent years, we have been recognized as a leader in per capita and quality of patents issued. As of September 3, 2015August 31, 2017, we owned approximately 16,80015,500 U.S. patents and 4,2005,000 foreign patents. In addition, we have thousands of U.S. and foreign patent applications pending. Our patents have various terms expiring through 2034.2037.
We have a number of patent and intellectual property license 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, 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 terms acceptable terms.to us.
Employees
As of September 3, 2015,August 31, 2017, we had approximately 31,80034,100 employees.
Environmental Compliance
GovernmentWe approach environmental stewardship and sustainability proactively to ensure we meet all government regulations impose various environmental controls onregarding raw materials, and discharges, emissions, and solid wastes from our manufacturing processes. In 2015, ourOur wafer fabrication facilities continued to conform to the requirements of the International Organization for Standardization ("ISO") 14001 environmental management systems standard to ensure we are continuously improving our performance. As part of the ISO 14001 certification. To continue certification,framework, we must 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 theour Board of Directors (the "Board") 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 theour 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 September 3, 2015,August 31, 2017, 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 | | 51 | | President |
| April S. Arnzen | | 4446 | | Senior Vice President, Human Resources |
| Scott J. DeBoer | | 4951 | | Executive Vice President, Research &Technology Development |
D. Mark Durcan | | 54 | | Director and Chief Executive Officer |
| Ernest E. Maddock | | 5759 | | Senior Vice President and Chief Financial Officer |
| Sanjay Mehrotra | | 59 | | President and Vice President, FinanceChief Executive Officer, Director |
| Joel L. Poppen | | 5153 | | Senior Vice President, Legal Affairs, General Counsel, and Corporate Secretary |
Brian M. ShirleySumit Sadana | | 4648 | | Executive Vice President Memory Technology and SolutionsChief Business Officer |
| Steven L. Thorsen, Jr. | | 5052 | | Senior Vice President, Worldwide Sales |
| Robert L. Bailey | | 5860 | | Director |
| Richard M. Beyer | | 6668 | | Director |
| Patrick J. Byrne | | 54 | | Director |
D. Warren A. East | | 5356 | | Director |
| Mercedes Johnson | | 6163 | | Director |
| Lawrence N. Mondry | | 5557 | | Director |
| Robert E. Switz | | 6870 | | Chairman of the Board of Directors |
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 became an officer in January 2015 and was appointed ournamed Senior Vice President, Human Resources in January 2015.June 2017. Ms. Arnzen holds a BS in Human Resource Management and Marketing from the University of Idaho.
Scott J. DeBoer joined us in February 1995 and has served in various leadership positions since that time. Dr. DeBoer became an officer in May 2007 and in January 2013, he was appointed ournamed Executive Vice President, Research & Development.Technology Development in June 2017. 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.
Ernest E. Maddock joined us as an officer in June 2015 as ourand was named Senior Vice President and Chief Financial Officer and Vice President, Finance.in June 2017. From April 2013 until he joined us, Mr. Maddock served as Executive Vice President and Chief Financial Officer of Riverbed Technology. From October 2008 to April 2013, Mr. Maddock 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 servesalso served as a member of the Board of Directors for Intersil Corporation.Corporation from July 2015 to February 2017. Mr. Maddock holds a BS in Industrial Management from the Georgia Institute of Technology and an MBA from Georgia State University.
Sanjay Mehrotra joined us in May 2017 as our President, Chief Executive Officer, and Director. Mr. Mehrotra co-founded and lead SanDisk Corporation as a start-up in 1988 until its eventual sale in May 2016, serving as its President and Chief Executive Officer from January 2011 to May 2016, and as a member of its Board of Directors from July 2010 to May 2016. Mr. Mehrotra currently serves on the Board of Directors of Cavium, Inc. Mr. Mehrotra served as a member of the Board of Directors for Western Digital Corp. from May 2016 to February 2017. Mr. Mehrotra holds a BS and an MS in Electrical Engineering and Computer Science from the University of California, Berkeley and is a graduate of the Stanford Graduate School of Business Executive Program.
Joel L. Poppen joined us in October 1995 and has held various leadership positions since that time. He was appointed to his current positionbecame an officer in December 2013.2013 and was named Senior Vice President, Legal Affairs, General Counsel, and Corporate Secretary in June 2017. Mr. Poppen holds a BS in Electrical Engineering from the University of Illinois and a JD from the Duke University School of Law.
Brian M. ShirleySumit Sadana joined us in August 1992June 2017 as our Executive Vice President and hasChief Business Officer. From April 2010 to May 2016, Mr. Sadana served in various leadership positions since that time. Mr. Shirley becameroles at SanDisk Corporation, including most recently as Executive Vice President, Chief Strategy Officer, and General Manager, Enterprise Solutions. Mr. Sadana serves on the Board of Memory in February 2006, Vice PresidentDirectors of DRAM Solutions in June 2010 and has served as Vice President, Memory Technology and Solutions since April 2014.Silicon Laboratories, Inc. Mr. ShirleySadana holds a BSB.Tech. in Electrical Engineering from the Indian Institute of Technology, Kharagpur, India and an MS 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 Presidenttime. He became an officer in April 2012 and Chief Procurement Officer. Mr. Thorsen becamewas named Senior Vice President, Worldwide Sales in April 2012.June 2017. Mr. Thorsen holds a BA in Business Administration from Washington State University.
Robert L. Bailey has served as Chief Executive Officer of Blue Willow Systems, Inc. since August 2017 and as Blue Willow's Chairman since March 2015. Blue Willow is a software as a service resident safety platform for senior living facilities. Mr. Bailey was the Chairman of the Board of Directors of PMC-Sierra, Inc. from 2005 until May 2011 and also served as PMC's Chairman from February 2000 until February 2003. Mr. Bailey served as a director of PMC from October 1996 to May 2011. He also served as the Chief Executive Officer of PMC from July 1997 until May 2008. PMC is a leading providerWithin the past five years, Mr. Bailey also served on the Board of broadband communication and semiconductor storage solutions for the next-generation Internet.Directors of Entropic Communications. Mr. Bailey holds a BS in Electrical Engineering from the University of Bridgeport and an MBA from the University of Dallas. Mr. Bailey has served on our Board of Directors since 2007.
Richard M. Beyer was Chairman and CEOChief Executive Officer 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 Directordirector 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. Within the past five years, Mr. Beyer served on the Board of Directors of Analog Devices, Inc. and Freescale. He currently serves on the Board of Directors of Dialog Semiconductor and Analog Devices, Inc.Microsemi Corporation. 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 Senior Vice President of Fortive Corporation since July 2016, when Danaher Corporation completed the separation of its Test & Measurement and Industrial Technologies segments. Mr. Byrne was President of Tektronix, a subsidiary of Danaher, Corporation, sincefrom July 2014. Mr. Byrne2014 to July 2016. Previously, he 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. from 2007 to May 2012. Within the past five years, Mr. Byrne was with Agilent Technologies,served on the Board of Directors of Flow International and Intermec, Inc. from 1999 to 2007 and served in various management positions. Mr. Byrne holds a BS in Electrical Engineering from the University of California, Berkeley and an MS in Electrical Engineering from Stanford University. Mr. Byrne has 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 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 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, Juniper Networks, Inc., and Teradyne, Inc., and Synopsys, Inc. She also served on the Board of Directors for Intersil Corporation from August 2005 to February 2017. Ms. Johnson is the Chairman of the Board'sBoard of Directors' Audit Committee and Finance Committee and has served on our Board of Directors since 2005.
Lawrence N. Mondry has been the President and Chief Executive Officer of Stream Gas & Electric, Ltd., a provider of energy, mobile and protective services, since February 2016. Mr. 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, 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'sBoard of Directors' Compensation Committee and Governance and Sustainability Committee and has served on our Board of Directors since 2005.
Robert E. Switz was the Chairman, President, and Chief Executive Officer of ADC Telecommunications, Inc., 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. Within the past five years, Mr. Switz served on the Board of Directors of GT Advanced Technologies Inc., Broadcom Corporation, Cyan, Inc., Pulse Electronics Corporation, and Leap Wireless International, Inc. Mr. Switz currently serves on the Board of Directors for Marvell Technology Group Ltd., Gigamon, Inc., and FireEye, Inc. Mr. Switz holds an MBA from the University of Bridgeport and a BS in Business Administration from Quinnipiac University. Mr. Switz also serves on the Board of Directors for Broadcom Corporation, GT Advanced Technologies, and Gigamon Inc. Mr. Switz was appointed Chairman of the Board of Directors in 2012 and has served on our Board of Directors since 2006.
There are no family relationships between any of our directors or executive officers.
Available Information
Micron, a Delaware corporation, was incorporated in 1978. 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 at our website, www.micron.com. Also available on our website are our: Corporate Governance Guidelines, Governance and Sustainability Committee Charter, Compensation Committee Charter, Audit Committee Charter, Finance 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 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.
We use our investor relations website, http://investors.micron.com, as a routine channel for distribution of important information, including news releases, analyst presentations, and financial information. Our filings are available free of charge on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission, including our annual and quarterly reports on Forms 10-K and 10-Q and current reports on Form 8-K, our proxy statements, and any amendments to those reports or statements. The Securities and Exchange Commission’s ("SEC") website, www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Materials filed or furnished by us with the SEC are also available at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling (800) SEC-0330. The content on any website referred to in this Form 10-K is not incorporated by reference in this Form 10-K unless expressly noted.
Additional Information
Micron, Lexar, Crucial, SpecTek, Elpida, JumpDrive,Ballistix, any associated logos, and all other Micron trademarks are the property of Micron. 3D XPoint is a trademark of Intel in the U.S.United States 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, the order of which is not necessarily indicative of the level of risk that each poses to us, which could cause actual results or events to differ materially from those contained in any forward-looking statements made by us. Our operations could also be affected by other factors that are presently unknown to us or not considered significant. Any of the factors below could have a material adverse effect on behalfour business, results of us.operations, financial condition, or stock price.
We have experienced dramatic declinesvolatility in average selling prices for our semiconductor memory and storage products which havemay adversely affectedaffect 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 decreasesvolatility in our average selling prices, per gigabit in previous yearsincluding dramatic declines, as noted in the table below and may continue to experience such decreasesvolatility 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.
Decreases in average selling prices for our products that decline faster than our costs could have a material adverse effect on our business, results of operations, or financial condition.
| | | | | DRAM | | Trade NAND Flash* | | DRAM | | Trade NAND |
| | | | | | | | | |
| | | (percentage change in average selling prices) | | (percentage change in average selling prices) |
| 2017 from 2016 | | | 19 | % | | (9 | )% |
| 2016 from 2015 | | | (35 | )% | | (20 | )% |
| 2015 from 2014 | | (11 | )% | | (17 | )% | | (11 | )% | | (17 | )% |
| 2014 from 2013 | | 6 | % | | (23 | )% | | 6 | % | | (23 | )% |
| 2013 from 2012 | | (11 | )% | | (18 | )% | | (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 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, but not limited to, process line-width, additional 3D memory layers, additional bits per cell (i.e., cell levels), architecture, number of 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 maintain or improve 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, difficultydifficulties in transitioning to smaller line-width process technologies, 3D memory layers, NAND cell levels, process complexity including number of mask layers and fabrication steps, manufacturing yield, technological barriers, and changes in process technologies, orand new products that may require relatively larger die sizes. Per gigabit manufacturing costs may also be affected by the relativelya broader product portfolio, which may have smaller production quantities and shorter product lifecycleslifecycles. Our inability to maintain or improve gross margins could have a material adverse effect on our business, results of certain specialty memory products.operations, or financial condition.
The semiconductor memory industry isand storage markets are highly competitive.
We face intense competition in the semiconductor memory marketand storage markets from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; Toshiba Corporation; and ToshibaWestern Digital 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. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments, such as China, have provided, and may continue to provide, significant financial assistance to some of our competitors or to new entrants. Our competitors generally seek to increase silicon capacity, improve yields, and reduce die size and minimize mask levels in their product designs. Transitions to smaller line-width process technologies and product and process improvements have resulteddesigns which may result in significant increases in the worldwide supply of semiconductor memory.and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from semiconductor memory fabfabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. In recent periods, weWe and some of our competitors have begun construction on or announced plans to buildramp, or are constructing or ramping, production at new fabrication facilities. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by 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. If competitors are more successful at developing or implementing new product or process technology their products could have
cost or performance advantages. The competitive nature of our industry could have a material adverse effect on our business, results of operations, or financial condition.
Debt obligations could adversely affect our financial condition.
In recent periods, our debt levels have increased due to the capital intensive nature of our business, business acquisitions, and the restructuring of our capital structure. As of September 3, 2015,August 31, 2017, we had debt with a carrying value of $7.34$11.13 billion. In addition, the conversion value in excess of principal amount forof our convertible notes, outstanding as of September 3, 2015August 31, 2017 was $553 million.$1.91 billion, based on the trading price of our common stock of $31.97 as of August 31, 2017. In 2017, 2016, and 2015 we paid $1.63 billion, $94 million, and $1.43 billion, respectively, to repurchase and settle conversion obligations for convertible notes with a principal amountamounts of $1.55 billion, $57 million, and $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.million, respectively. As of September 3, 2015,August 31, 2017, we had (1)a revolving credit facilities availablefacility that provideprovided for additional borrowings of up to $842$750 million of additional financing and (2) a term loan agreement available 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 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.based on eligible receivables. Events and circumstances may occur which would cause us to not be able to satisfy these applicable drawdowndraw-down conditions and utilize these facilities.this revolving credit facility. We have incurred in the past, and expect to incur 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;
require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
result in certain of our debt instruments being accelerated to be immediately due and payable or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
result in all obligations owing under the 2021 MSTW Term Loan being accelerated to be immediately due and payable if MSTW fails to comply with certain covenants, including financial covenants;
increase the interest rate under the 2021 MSTW Term Loan if we or MSTW fails to maintain certain financial covenants;
adversely impact our credit rating, which could increase future borrowing costs;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
increase our vulnerability to adverse economic and semiconductor memory and storage industry conditions;
increase our exposure to interest rate risk from variable rate indebtedness;
continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
require us to continue to pay cash amounts substantially in excess of the 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 rating, which could increase future borrowing costs; and
increase our vulnerability to adverse economic and semiconductor memory industry conditions.share.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to generalmarket, 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 amountamounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flowflows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we wereare unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and make adequate capital investments.
Our cash flows from operations depend primarily on the volume of semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technologies,technology, 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 net cash expenditures in 20162018 for property, plant, and equipment will be approximately $5.3$7.5 billion plus or minus 5 percent, which reflects the offset of amounts we expect to $5.8 billion.be funded by our partners. Investments in capital expenditures, offset by amounts funded by our partners, were $5.13 billion for 2015 were $4.12 billion. In addition, as a result of the MMJ acquisition and our capacity expansion in Singapore, we expect our future capital spending will be higher than our historical levels.2017. As of September 3, 2015,August 31, 2017, we had cash and marketable investments of $5.63$6.05 billion. As of August 31,
2017, $1.29 billion which included $748 millionof cash and marketable investments, including substantially all of the cash held by the MMJ Group, MSTW, and $134MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of these funds to the United States would subject these funds to U.S. federal income taxes. In addition, cash of $87 million held by IMFT none of which iswas generally not available to finance our other operations.
The 2021 MSTW Term Loan contains covenants that limit or restrict MSTW's ability to create liens in or dispose of collateral securing obligations under the 2021 MSTW Term Loan, mergers involving MSTW and/or MTTW, loans or guarantees to third parties by MTTW and/or MSTW, and MSTW's and/or MTTW's distribution of cash dividends. As a result, the assets of MSTW and/or MTTW are not available for use by us in our other operations.
As a result of the Japan Proceedings,corporate reorganization proceedings of MMJ initiated in 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 Companiesis prohibited from paying dividends, including any cash dividends, to us and such proceedings require that excess earnings be used in their businessesMMJ's business or to fund the MMJ Companies' installmentcreditor 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 CompaniesCourt and may, under certain circumstances, be considered outside of the ordinary course of business and subject to approval of the legal trustees and Japan Court.trustee. 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 of MMJ and MMT or further investments 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 we will be able to generate sufficient cash flows, use cash held by MMJ to fund its capital expenditures, access 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 any of the foregoing could have a material adverse effect on our business, results of operations, or financial conditions.condition.
The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against Micron 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 Micron B.V. and Qimonda signed in fall 2008 pursuant to which Micron 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 re-transfer those shares 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-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on 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 on the matter has not yet been scheduled.
We are unable to predict the outcome of the 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 monetary damages, unspecified 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, which could have a material adverse effect on our business, results of operation, or financial condition. As of September 3, 2015, the Inotera Shares had a carrying value for purposes of our financial reporting of $683 million and a market value of $846 million.
Our future success depends on our ability to develop and produce competitive new memory and storage technologies.
Our key semiconductor memory technologies of DRAM, NAND Flash, and NOR Flashstorage products and technologies face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on stacking additional 3D memory layers, additional bits per cell (i.e., cell levels), 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 and storage industry. Our competitors are working to develop new memory and storage technologies that may offer performance and/orand 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.and storage technologies. There can be no assurance of the following:
that we will be successful in developing competitive new semiconductor memory and storage 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 newWe develop and produce 3D XPoint technology,memory, which is an entirelya new class of non-volatile memory.technology. There is no assurance that our efforts to develop and market this new product technology will be successful. If ourOur unsuccessful efforts to develop new semiconductor memory and storage technologies are unsuccessful,could have a material adverse effect on our business, results of operations, or financial condition may be materially adversely affected.condition.
New product development may be unsuccessful.
We are developing new products, including system-level memory and storage products thatand solutions, which complement our traditional memory products or leverage their underlying design or process technology. We have made significant investments in product and process technologiestechnology 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 memorynew products requires us to demonstrate advanced functionality and performance, many timesoften 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;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products;
•that we will be able to qualify new products with our customers on a timely basis; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.
If ourOur unsuccessful efforts to develop new products and solutions could have a material adverse effect on our business, results of operations, or financial condition.
Our joint ventures and strategic relationships involve numerous risks.
We have entered into strategic relationships, including our IMFT joint venture with Intel, to manufacture products and develop new manufacturing process technologies and products. 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' interests or we may not be able to agree with our partners on ongoing manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint ventures;
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;
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, we and our partners may not participate to the same extent on funding capital investments in our joint ventures;
cash flows may be inadequate to fund increased capital requirements of our joint ventures;
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.
Our joint ventures and strategic relationships, if unsuccessful, could have a material adverse effect on our business, results of operations, or financial condition.
A significant concentration of our net sales are to a select number of customers.
In each of the last three years, approximately one-half of our total net sales were to our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. We could experience fluctuations in our customer base or the mix of revenue by customer as markets and strategies evolve. In addition, any consolidation of our customers could reduce the number of customers to whom our products could be sold. Our inability to meet our customers' requirements or to qualify our products with them could adversely impact our sales. The loss of one or more of our major customers or any significant reduction in orders from, or a shift in product mix by, these customers could have a material adverse effect on our business, results of operations, or financial condition.
Increases in sales of system solutions may increase our dependency upon specific customers and our costs to develop and qualify our system solutions.
Our development of system-level memory and storage products is dependent, in part, upon successfully identifying and meeting our customers' specifications of those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products in sufficient volume, quantity, and in a timely manner. If we fail to identify or develop products on a timely basis, or at all, that comply with our customers' specifications or achieve design wins with our customers, we may experience a significant adverse impact on our sales and margins. Even if our products meet customer specifications, our sales of system-level solutions are dependent upon our customers choosing our products over those of our competitors and purchasing our products at sufficient volumes and prices. Our competitors' products may be less costly, provide better performance, or include additional features when compared to our products. Our long-term ability to sell system-level memory and storage products is reliant upon our customer's ability to create, market, and sell their products containing our system-level solutions at sufficient volumes and prices in a timely manner. If we fail to successfully develop and market system-level products, our business, results of operations, or financial condition may be materially adversely affected.
Even if we are successful in selling system-level solutions to our customers in sufficient volume, we may be unable to generate sufficient profit if our per-unit manufacturing costs exceed our per-unit selling prices. Manufacturing system-level solutions to customer specifications requires a longer development cycle, as compared to discreet products, to design, test, and qualify, which may increase our costs. Additionally, some of our system solutions are increasingly dependent on sophisticated firmware that may require significant customization to meet customer specifications, which increases our costs and time to market. Additionally, we may update our firmware or develop new firmware as a result of new product introductions or changes in customer specifications and/or industry standards, which increases our costs. System complexities and extended warranties for system-level products could also increase our warranty costs. Our failure to cost-effectively manufacture system-level solutions and/or firmware in a timely manner, may result in reduced demand for our system-level products, and could have a material adverse effect on our business, results of operations, or financial condition.
Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. 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 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. As a result, of these problems we could be adversely affected in several ways, including the following:
we may be required or agree to compensate customers for costs incurred or damages caused by defective or incompatible product orproducts and to 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.products or harm our relationships with existing or potential customers.
14Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property.
We maintain a system of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secret laws, licensing arrangements, confidentiality procedures, non-disclosure agreements with employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.
Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. Global competition for such skilled employees in our industry is intense. Due to the volatile nature of our industry and our operating results, a decline in our operating results and/or stock price may adversely affect our ability to retain key employees whose compensation is dependent, in part, upon the market price of our common stock, achieving certain performance metrics, levels of company profitability, or other financial or company-wide performance. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment.
Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.
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 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 upon 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 upon 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 –II Item 8. Financial Statements and Supplementary Data – 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 timeone-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 terms acceptable terms.
Our joint ventures and strategic relationships involve numerous risks.
Weto us. Any of the foregoing results could 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 partnersa material adverse effect 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.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. 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.,United States, 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.Intel. 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 affecthave a material adverse effect on our business, results of operations, or financial condition.
The operationsacquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the MMJ Companies are subject to continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings.insolvency proceedings for Qimonda.
BecauseOn January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda's insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the plansDistrict Court of reorganizationMunich, Civil Chamber. The complaint seeks to void, under Section 133 of the MMJ Companies provide for ongoing paymentsGerman Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to creditors following the closingwhich Micron B.V. purchased substantially all of our acquisitionQimonda's shares of MMJ, the Japan Proceedings are continuing,Inotera (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares, and the MMJ Companies remain subjectseeks an order requiring us to re-transfer those shares to the oversightQimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the Japan Courtjoint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the trustees (includingGerman Insolvency Code, a trustee designated bypatent cross-license between us who we refer toand Qimonda entered into at the same time as the business trustee,share purchase agreement.
Following a series of hearings with pleadings, arguments, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completionwitnesses on behalf of the Japan Proceedings. The Japan Proceedings and oversightQimonda 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 Japan Court are expectedInotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to continue until the final creditor payment is madejoint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later datepatent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the extentQimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any claimsInotera 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 Micron B.V. from ownership of creditors remain unfixedthe Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on the final scheduled installment payment date. Althoughus, and, accordingly, we mayexpect to be able to petitioncontinue to operate with full control of the courtInotera Shares subject to terminatefurther developments in the Japan Proceedings once two-thirdscase. We have filed a notice of all payments underappeal, and the plans of reorganization are made, there can be no assurance thatparties have submitted briefs to the Japan Court will grant any such petition.appeals court.
DuringWe are unable to predict the pendencyoutcome of the Japan Proceedings,matter and, therefore, cannot estimate the MMJ Companies are obligated to provide periodic financial reports torange of possible loss. The final resolution of this lawsuit could result in the Japan Court and may be required to obtain the consentloss of the Japan Court prior to taking a number of significant actions relating to their businesses, including transferringInotera Shares or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling disputes, or entering into certain material agreements. The consentmonetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the legal trustee may also be required for matters that would likelyInotera Shares, and/or the termination of the patent cross-license, which could have a material impactadverse effect 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 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.condition.
We may incur additional restructuring charges in future periods.
In separate transactions in 2017, we sold our assembly and test facility located in Akita, Japan and our 40% ownership interest in Tera Probe; assets associated with our 200mm fabrication facility in Singapore; and assets related to our Lexar brand. In 2016, we initiated a restructure plan in response to business conditions and the need to accelerate focus on our key priorities. The plan included the elimination of certain projects and programs, the permanent closure of a number of open headcount requisitions, workforce reductions in certain areas of our business, and other non-headcount related spending reductions. As a result of these and other actions, we incurred charges of $18 million, $67 million, and $3 million in 2017, 2016, and 2015, respectively.
We may not realize expected savings or other benefits from our restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products, which could have a material adverse effect on our business, results of operations, or financial condition.
Breaches of our security systems could expose us to losses.
We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons or employees may gain access to our facilities or network systems to steal trade secrets or other 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. Breaches of our physical security and attacks on our network systems could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised, which could have a material adverse effect on our business, results of operations, or financial condition.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, there aresignificant transactions and balances are 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.yen. We recorded net losses from changes in currency exchange rates of $74 million for 2017, $24 million for 2016, and $27 million for 2015, $28 million for 2014, and $229 million for 2013.2015. Based on our foreign currency exposures frombalances of monetary assets and liabilities, offset by balance sheet hedges,as of August 31, 2017, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $3 million as$391 million. Although we hedge our primary exposures to changes in currency exchange rates from our monetary assets and liabilities, the effectiveness of September 3, 2015.these hedges is dependent upon our ability to accurately forecast our monetary assets and liabilities. 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 exchangeExchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a material adverse effect on our business, results of operations, or financial condition may be adversely affected.condition.
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, or other assets as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business.
In previous years, supply of memory and storage products has significantly exceeded customer demand resulting in significant declines in average selling prices for 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 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 theNAND. The global memory and storage industry is experiencing a period ofhas experienced consolidation as a result of these market conditions and other factors, and we may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities arising out of these industry conditions.opportunities. 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-technologytechnology companies are inherently risky and may not be successful and maycould have a material adverse effect on our business, results of operations, or financial condition.
The limited availability of raw materials, supplies, or capital equipment could materially adversely affect our business, results of operations, or financial condition.
BreachesOur 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 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 chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks. 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 network securityraw materials. In addition, disruptions in transportation lines could expose us to losses.delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. The disruption of our supply of raw materials or services or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.
We manage and storeOur operations are dependent on our network systems various proprietary informationability 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. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers' limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and sensitive or confidential data relatingreduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our operations. We also process, store, and transmit large amountsoverall costs of data relatinga ramp. Our inability 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. Attacksobtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our network systemsbusiness, results of operations, or financial condition.
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, SSDs, 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 damageinvestments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our reputation withaccounts receivables due to credit defaults. As a result, a downturn in the worldwide economy could have a material adverse effect on our business, results of operations, or financial condition.
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, such as earthquakes or tsunamis, that could expose usdisrupt 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 litigation ifour
operations, or the confidential informationoperations of our customers or suppliers, could have a material adverse effect on our business, results of operations, or employeesfinancial condition.
The operations of MMJ are subject to continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings.
Because MMJ's plan of reorganization provides for ongoing payments to creditors following the closing of our acquisition of MMJ, the reorganization proceedings in Japan (the "Japan Proceedings") are continuing and MMJ remains 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 is compromised.responsible for overseeing the operation of the business of MMJ, other than oversight in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. MMJ's reorganization proceedings in Japan, and oversight of the Japan Court, will continue until the final creditor payment is made under MMJ's plan 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. MMJ may petition the Japan Court for an early termination of the reorganization proceedings once two-thirds of all payments under the plan 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 this particular case.
During the pendency of the reorganization proceedings in Japan, MMJ is 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 its 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 would likely have a material impact on the operations or assets of MMJ or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of MMJ's plan of reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, our ability to operate MMJ as part of our global business or to cause MMJ to take certain actions that we deem advisable for its business 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 MMJ.
17
The operations of MMJ being subject to the continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings could have a material adverse effect on our business, results of operations, or financial condition.
We may incur additional tax expense or become subject to additional tax exposure.
We operate in a number of locations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our earnings among these jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax positions and intercompany transfer pricing agreements, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of 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 2013 through 2017. In addition, tax returns that remain open to examination in Japan range from the years 2011 to 2017 and in Singapore and Taiwan from 2012 to 2017. 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. The foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
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 August 31, 2017, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $3.88 billion and $1.95 billion, respectively, which, if not utilized, will expire at various dates from 2028 through 2037 and 2018 through 2037, respectively. As of August 31, 2017, our foreign net operating loss carryforwards were $6.30 billion, which will, if not utilized, substantially all expire at various dates from 2019 through 2026. As of August 31, 2017, we had gross deferred tax assets of $3.78 billion and valuation allowances of $2.32 billion against our deferred tax assets. If we repatriate earnings from our subsidiaries whose earnings are deemed to be indefinitely reinvested, a portion of our net operating losses would be utilized. Utilization of all of our net operating loss and credit carryforwards would increase the amount of our annual cash taxes
reducing the overall amount of cash available to be used in other areas of the business and could have a material adverse effect on our business, results of operations, or financial condition.
A change in ownership may limit our ability to utilize our net operating loss carryforwards.
On January 18, 2017, our shareholders approved a Section 382 Rights Agreement (the "Rights Agreement"), under which our shareholders of record as of the close of business on August 1, 2016 received one right for each share of common stock outstanding, which entitles certain shareholders to purchase additional shares of our common stock at a significant discount in the event of certain transactions that may result in an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur when the percentage of our ownership by one or more 5% shareholders has increased by more than 50% at any time during the prior three years. Rights will attach to all shares of the Company’s common stock issued prior to the earlier of the rights' distribution date or expiration date as set forth in the Rights Agreement. Pursuant to the Rights Agreement, if a shareholder (or group) acquires beneficial ownership of 4.99% or more of the outstanding shares of our common stock without prior approval of our Board or without meeting certain customary exceptions, the rights (other than rights held by the acquiring shareholder (or group) and certain related persons) would become exercisable. The Rights Agreement is intended to avoid an adverse ownership change, thereby preserving our current ability to utilize certain net operating loss and credit carryforwards; however, there is no assurance that the Rights Agreement will prevent all transfers that could result in such an ownership change.
If we experience a 50% or greater change in ownership involving shareholders owning 5% or more of our common stock, it could adversely impact our ability to utilize our existing net operating loss and credit carryforwards. The inability to utilize existing net operating loss and credit carryforwards would significantly increase the amount of our annual cash taxes and reduce the overall amount of cash available to be used in other areas of the business which could have a material adverse effect on our business, results of operations, or financial condition.
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 CommissionSEC 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 customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products are DRC conflict free.
We may incur additional tax expense or become subject Our inability to additional tax exposure.
We operate in a number of locations outside the U.S., including in 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. 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 future 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 higher than anticipated in countries with higher statutory tax rates, changes in the valuation of 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 returnscomply with the U.S. federal government, various U.S. states, and various other jurisdictions throughoutregulations regarding 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 resultsuse of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures mayconflict minerals could have ana material 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 sourcesare subject to a variety of supply for our raw 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 enactedthat may result in response to concerns regarding climate change, which could increase the costadditional costs and limit the supplyliabilities.
The manufacturing of our raw materials. In addition, disruptionsproducts requires the use of facilities, equipment, and materials that are subject to a broad array of laws and regulations in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extendednumerous jurisdictions 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,which we operate. Additionally, we are sometimes dependent onsubject to a single supplier. From time to time we have experienced difficulties in obtaining some equipment on a timely basis duevariety of other laws and regulations relative to the supplier's limited capacity. Our inabilityconstruction, maintenance, and operations of our facilities. Any of these laws or regulations could cause us to obtain this equipment timely could adversely affectincur additional direct costs, as well as increased indirect costs related to our ability to transition to next generation manufacturing processesrelationships with our customers and reduce costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilitiessuppliers, and increase our overall costs of the ramp. If we are unable to 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 mayotherwise 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,financial condition. Any failure to comply with these laws or regulations could adversely impact our reputation and our financial results. Additionally, we may experience losses onpartner with other companies in our holdingsjoint ventures, which are also subject to a broad array of cashlaws and investments due to failures of financial institutions and other parties. Difficult economic conditionsregulations. Our ownership in these joint ventures may also result in a higher rate of loss on our accounts receivables dueexpose us to credit defaults.risks associated with their respective compliance with these laws and regulations. As a result of these items, we could experience the following:
suspension of production;
remediation costs;
alteration of our business, results of operations, or financial condition could be materially adversely affected.manufacturing processes;
regulatory penalties, fines, and legal liabilities; and
reputational challenges.
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,failure, or the operationsfailure of our customers or suppliers, may materially adversely affectjoint ventures, to comply with these laws and regulations could have a material adverse effect on our business, results of operations, or financial condition.
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 84%86% of our consolidated net sales for 2015.2017. 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, 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 of 1977, as amended, export and import laws, and similar rules and regulations;
protectiontheft 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 affectcould have a material adverse effect on our business, results of operations, or financial condition.
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, capped-callcapped call contracts on our common 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 not 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.proceedings. In the event of such default, we could incur significant losses, which could adversely impacthave a material adverse effect on 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 September 3, 2015:
August 31, 2017:
|
| | |
| Location | | Principal Operations |
Boise, IdahoUnited States | | R&D, including wafer fabrication;fabrication facilities, reticle manufacturing;manufacturing, assembly, and test |
| Singapore | | Wafer fabrication, assembly, 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 |
Xi’an, China | | ModuleAssembly, test, and module assembly and test |
Muar, Malaysia | | Assembly and test |
Taichung City, Taiwan | | Wafer fabrication |
Hiroshima, Japan | | Wafer fabrication and R&D |
Akita, Japan | | Module assembly and test |
Substantially allCertain 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.properties are collateral to secured borrowing arrangements. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.") We also own andor lease a number of other facilities in locations throughout the world that are used for design, R&D, and sales and marketing activities. Substantially all of the capacity of the facilities listed above is fully utilized.
Our facility in Lehi, Utah is owned and operated by our IMFT joint venture with Intel. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – 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.segment, other than goodwill. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information.")
ITEM 3. LEGAL PROCEEDINGS
See "Part II Financial Information – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Contingencies" and "Item 1A. Risk Factors." for a discussion of other legal proceedings.
Reorganization Proceedings of the MMJ Companies
On July 31,In 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,in 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 plansplan of reorganization consistent with such support.
The trustees initially submitted the proposed plansplan 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, 2013, 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 Verified Petition for Recognition and Chapter 15 Relief in the United States Bankruptcy Court for the District of Delaware (the "U.S. Court") on March 19, 2012 and, on April 24, 2012, the U.S. Court entered an order that, among other things, recognized 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 provideprovides for payments by the MMJ Companies to their secured and unsecured creditors in an aggregate amount of 200 billion yen, less certain expenses of the reorganization proceedings and certain other items. The plansplan 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 plansplan 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 actual recovery of unsecured creditors will be higher, however, based, in part, on events and circumstances occurring following the plan approval. The remaining portion of the unsecured claims will be discharged, without payment, over the period that payments are made pursuant to the plansplan 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. The unsecured creditors of MAI were scheduled to be paid in seven installments; however, in connection with our sale of MAI in 2017, the remaining MAI creditor obligation was paid in full and MAI's reorganization proceedings were closed.
Because MMJ's plan of reorganization provides that secured creditors will recover 100% of the amount of their claims, whereas unsecured creditors will recover 19% of the amount of their claims. The secured creditors of MAI were paid in full on the first installment payment date, while the unsecured creditors will be paid in seven installments.
Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of the MMJ acquisition, the reorganization proceedings in Japan Proceedings are continuing and the MMJ Companies remainremains 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 tois responsible for overseeing the operation of the businesses of the MMJ Companies, other than decisionsoversight in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. TheMMJ's reorganization proceedings in Japan, Proceedings and oversight of the Japan Court, will continue until the final creditor payment is made under the MMJ Companies' plansMMJ's plan 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 Proceedingsreorganization proceedings once two-thirds of all payments under the plansplan 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 thesethis particular cases.case.
During the pendency of the reorganization proceedings in Japan, Proceedings, the MMJ Companies areis 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 theirits 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 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 plansMMJ's plan of reorganization of the MMJ Companies.reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, Proceedings, our ability to 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 theirits 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.
For a discussion of other legal proceedings, see "Part II Financial Information – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Contingencies" and "Item 1A. Risk Factors."MMJ.
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." The following table represents the high and low closing sales prices for our common stock as reported by NASDAQ for each quarter of 20152017 and 2014, as reported by Bloomberg L.P.:
2016:
| | | | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| 2015: | | | | | | | | | |
| 2017 | | | | | | | | | |
| High | | $ | 26.59 |
| | $ | 29.52 |
| | $ | 36.49 |
| | $ | 36.10 |
| | $ | 32.50 |
| | $ | 30.77 |
| | $ | 24.79 |
| | $ | 20.13 |
|
| Low | | 14.27 |
| | 26.31 |
| | 28.35 |
| | 27.03 |
| | 27.49 |
| | 25.15 |
| | 18.61 |
| | 16.62 |
|
| | | | | | | | | | | | | | | | | |
| 2014: | | | | | | | | | |
| 2016 | | | | | | | | | |
| High | | $ | 34.64 |
| | $ | 28.61 |
| | $ | 25.49 |
| | $ | 21.17 |
| | $ | 16.91 |
| | $ | 13.11 |
| | $ | 15.50 |
| | $ | 19.16 |
|
| Low | | 28.59 |
| | 21.13 |
| | 20.67 |
| | 13.57 |
| | 11.73 |
| | 9.56 |
| | 9.69 |
| | 14.06 |
|
Holders of Record
As of October 21, 2015,20, 2017, there were 2,3782,170 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. In addition, the 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and/or MTTW to distribute cash dividends. 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 forthincluded in our 20152017 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.
August 31, 2017.
Issuer Purchases of Equity Securities
SinceOur Board has authorized the first quarter of 2015, our Board of Directors authorized thediscretionary 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 marketopen-market purchases, block trades, privately negotiatedprivately-negotiated transactions, and/or derivative transactions. Through 2017, we had repurchased a total of 49 million shares for $956 million through open-market transactions pursuant to such authorization. Repurchases are subject to market conditions and our ongoing determination that it isof the best use of available cash. DuringIn the fourth quarter of 2015,2017, we purchased 35,495,175did not repurchase any shares and, as of our common stock through open market transactions.August 31, 2017, the maximum dollar value of shares that we may repurchase under the authorization of the Board was $294 million.
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) Excludes commissions.
(2) Does not include $250 million repurchase authorization received in the first quarter of 2016.
In our consolidated financial statements, we also treat sharesShares of common stock withheld as payment of withholding taxes orand exercise prices in connection with the vesting or exercise of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchases under an authorized common stock repurchase plan and accordingly are excluded from the above table.plan.
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 31, 2010,2012, through August 31, 2015.2017. 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, 20102012 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:
| | | | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| Micron Technology, Inc. | | $ | 100 |
| | $ | 92 |
| | $ | 96 |
| | $ | 210 |
| | $ | 505 |
| | $ | 254 |
| | $ | 100 |
| | $ | 219 |
| | $ | 525 |
| | $ | 264 |
| | $ | 266 |
| | $ | 515 |
|
| S&P 500 Composite Index | | 100 |
| | 119 |
| | 140 |
| | 166 |
| | 208 |
| | 209 |
| | 100 |
| | 119 |
| | 149 |
| | 149 |
| | 168 |
| | 195 |
|
| Philadelphia Semiconductor Index (SOX) | | 100 |
| | 117 |
| | 132 |
| | 156 |
| | 223 |
| | 217 |
| | 100 |
| | 118 |
| | 169 |
| | 164 |
| | 219 |
| | 309 |
|
ITEM 6. SELECTED FINANCIAL DATA
| | | | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | |
| | | (in millions except per share amounts) | | (in millions except per share amounts) |
| Net sales | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 8,234 |
| | $ | 8,788 |
| | $ | 20,322 |
| | $ | 12,399 |
| | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
|
| Gross margin | | 5,215 |
| | 5,437 |
| | 1,847 |
| | 968 |
| | 1,758 |
| | 8,436 |
| | 2,505 |
| | 5,215 |
| | 5,437 |
| | 1,847 |
|
| Operating income (loss) | | 2,998 |
| | 3,087 |
| | 236 |
| | (612 | ) | | 761 |
| |
| Operating income | | | 5,868 |
| | 168 |
| | 2,998 |
| | 3,087 |
| | 236 |
|
| Net income (loss) | | 2,899 |
| | 3,079 |
| | 1,194 |
| | (1,031 | ) | | 190 |
| | 5,090 |
| | (275 | ) | | 2,899 |
| | 3,079 |
| | 1,194 |
|
| Net income (loss) attributable to Micron | | 2,899 |
| | 3,045 |
| | 1,190 |
| | (1,032 | ) | | 167 |
| | 5,089 |
| | (276 | ) | | 2,899 |
| | 3,045 |
| | 1,190 |
|
| Diluted earnings (loss) per share | | 2.47 |
| | 2.54 |
| | 1.13 |
| | (1.04 | ) | | 0.17 |
| | 4.41 |
| | (0.27 | ) | | 2.47 |
| | 2.54 |
| | 1.13 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Cash and short-term investments | | 3,521 |
| | 4,534 |
| | 3,101 |
| | 2,559 |
| | 2,160 |
| | 5,428 |
| | 4,398 |
| | 3,521 |
| | 4,534 |
| | 3,101 |
|
| Total current assets | | 8,596 |
| | 10,245 |
| | 8,911 |
| | 5,758 |
| | 5,832 |
| | 12,457 |
| | 9,495 |
| | 8,596 |
| | 10,245 |
| | 8,911 |
|
| Property, plant and equipment, net | | 10,554 |
| | 8,682 |
| | 7,626 |
| | 7,103 |
| | 7,555 |
| |
| Property, plant, and equipment, net | | | 19,431 |
| | 14,686 |
| | 10,554 |
| | 8,682 |
| | 7,626 |
|
| Total assets | | 24,143 |
| | 22,416 |
| | 19,068 |
| | 14,295 |
| | 14,730 |
| | 35,336 |
| | 27,540 |
| | 24,143 |
| | 22,416 |
| | 19,068 |
|
| Total current liabilities | | 3,905 |
| | 4,791 |
| | 4,122 |
| | 2,243 |
| | 2,480 |
| | 5,334 |
| | 4,835 |
| | 3,905 |
| | 4,791 |
| | 4,122 |
|
| Long-term debt | | 6,252 |
| | 4,893 |
| | 4,406 |
| | 3,005 |
| | 1,839 |
| | 9,872 |
| | 9,154 |
| | 6,252 |
| | 4,893 |
| | 4,406 |
|
| Redeemable convertible notes | | 49 |
| | 68 |
| | — |
| | — |
| | — |
| | 21 |
| | — |
| | 49 |
| | 68 |
| | — |
|
| Total Micron shareholders’ equity | | 12,302 |
| | 10,760 |
| | 9,142 |
| | 7,700 |
| | 8,470 |
| | 18,621 |
| | 12,080 |
| | 12,302 |
| | 10,760 |
| | 9,142 |
|
| Noncontrolling interests in subsidiaries | | 937 |
| | 802 |
| | 864 |
| | 717 |
| | 1,382 |
| | 849 |
| | 848 |
| | 937 |
| | 802 |
| | 864 |
|
| Total equity | | 13,239 |
| | 11,562 |
| | 10,006 |
| | 8,417 |
| | 9,852 |
| | 19,470 |
| | 12,928 |
|
| 13,239 |
|
| 11,562 |
|
| 10,006 |
|
Through December 6, 2016, we held a 33% ownership interest in Inotera (now known as MTTW), Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest was publicly held. On December 6, 2016, we acquired the 67% remaining interest in Inotera and began consolidating Inotera's operating results. Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and previously sold such products exclusively to us through supply agreements. The cash paid for the Inotera Acquisition was funded, in part, with a term loan of 80 billion New Taiwan dollars and $986 million from the sale of 58 million shares of our common stock.
On July 31, 2013, we completed the MMJ Acquisition,acquisition, in which we acquired Elpida, now known as MMJ, and a controlling interest in Rexchip Electronics Corporation, 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 Acquisitionacquisition 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, weWe recorded net assets of $2.60 billion, noncontrolling interests of $168 million, and a gain on the transaction of $1.48$1.48 billion in 2013. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc.")
We entered into a joint venture relationship with Intel to form IMFT in 2006 and IM Flash Singapore, LLP ("IMFS") in 2007 to manufacture NAND Flash memory products for the exclusive use of the members. We have owned 51% of IMFT from inception through September 3, 2015. 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 IMFT 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 IMFT (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 – Equity – Noncontrolling Interests in Subsidiaries – IMFT.")
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in "Liquidity and Capital Resources" regarding future restructure charges; our pursuit ofexpectation, from time to time, to engage in additional financing and debt restructuring, regarding capital spending in 2016, regarding the expansion of our clean room space in Singapore, regardingtransactions; the sufficiency of our cash and investments, cash flows from operations, and available financing to meet our requirements for at least the next 12 months,months; capital spending in 2018; and regarding the timing of payments for certain contractual obligations; and in "Recently Issued Accounting Standards" regarding the impact of adoptingobligations. We are under no obligation to update these new standards.forward-looking statements. 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 "Part I, Item 1A. Risk Factors." This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended September 3, 2015.August 31, 2017. 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 31. Our fiscal 2015 contains 532017 and 2016 each contain 52 weeks and our fiscal 2014 and fiscal 2013 each2015 contained 5253 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions, except per share amounts.
Our Management's Discussion and Analysis ("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&AThis discussion is organized as follows:
Overview: Overview of our operations and business.
Results of Operations: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: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: Arrangements:Description of off-balance sheet arrangements.
Critical Accounting Estimates:Estimates: Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
Recently Adopted and Issued Accounting Standards
Overview
For an overview of our business, see "Part I – Item 1. – Business – Overview."
Results of Operations
Consolidated Results
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 16,192 |
| | 100 | % | | $ | 16,358 |
| | 100 | % | | $ | 9,073 |
| | 100 | % | | $ | 20,322 |
| | 100 | % | | $ | 12,399 |
| | 100 | % | | $ | 16,192 |
| | 100 | % |
| Cost of goods sold | | 10,977 |
| | 68 | % | | 10,921 |
| | 67 | % | | 7,226 |
| | 80 | % | | 11,886 |
| | 58 | % | | 9,894 |
| | 80 | % | | 10,977 |
| | 68 | % |
| Gross margin | | 5,215 |
| | 32 | % | | 5,437 |
| | 33 | % | | 1,847 |
| | 20 | % | | 8,436 |
| | 42 | % | | 2,505 |
| | 20 | % | | 5,215 |
| | 32 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | 719 |
| | 4 | % | | 707 |
| | 4 | % | | 562 |
| | 6 | % | |
| Selling, general, and administrative | | | 743 |
| | 4 | % | | 659 |
| | 5 | % | | 719 |
| | 4 | % |
| Research and development | | 1,540 |
| | 10 | % | | 1,371 |
| | 8 | % | | 931 |
| | 10 | % | | 1,824 |
| | 9 | % | | 1,617 |
| | 13 | % | | 1,540 |
| | 10 | % |
| Restructure and asset impairments | | 3 |
| | — | % | | 40 |
| | — | % | | 126 |
| | 1 | % | | 18 |
| | — | % | | 67 |
| | 1 | % | | 3 |
| | — | % |
| Other operating (income) expense, net | | (45 | ) | | — | % | | 232 |
| | 1 | % | | (8 | ) | | — | % | | (17 | ) | | — | % | | (6 | ) | | — | % | | (45 | ) | | — | % |
| Operating income | | 2,998 |
| | 19 | % | | 3,087 |
| | 19 | % | | 236 |
| | 3 | % | | 5,868 |
| | 29 | % | | 168 |
| | 1 | % | | 2,998 |
| | 19 | % |
| | | | |
|
| | | | | | | | | | | |
|
| | | | | | | | |
| Interest income (expense), net | | (336 | ) | | (2 | )% | | (329 | ) | | (2 | )% | | (217 | ) | | (2 | )% | | (560 | ) | | (3 | )% | | (395 | ) | | (3 | )% | | (336 | ) | | (2 | )% |
| Gain on MMJ Acquisition | | — |
| | — | % | | (33 | ) | | — | % | | 1,484 |
| | 16 | % | |
| Other non-operating income (expense), net | | (53 | ) | | — | % | | 8 |
| | — | % | | (218 | ) | | (2 | )% | | (112 | ) | | (1 | )% | | (54 | ) | | — | % | | (53 | ) | | — | % |
| Income tax (provision) benefit | | (157 | ) | | (1 | )% | | (128 | ) | | (1 | )% | | (8 | ) | | — | % | | (114 | ) | | (1 | )% | | (19 | ) | | — | % | | (157 | ) | | (1 | )% |
| Equity in net income (loss) of equity method investees | | 447 |
| | 3 | % | | 474 |
| | 3 | % | | (83 | ) | | (1 | )% | | 8 |
| | — | % | | 25 |
| | — | % | | 447 |
| | 3 | % |
| Net income attributable to noncontrolling interests | | — |
| | — | % | | (34 | ) | | — | % | | (4 | ) | | — | % | | (1 | ) | | — | % | | (1 | ) | | — | % | | — |
| | — | % |
| Net income attributable to Micron | | $ | 2,899 |
| | 18 | % | | $ | 3,045 |
| | 19 | % | | $ | 1,190 |
| | 13 | % | |
| Net income (loss) attributable to Micron | | | $ | 5,089 |
| | 25 | % | | $ | (276 | ) | | (2 | )% | | $ | 2,899 |
| | 18 | % |
Business Segments
We have the following four business units, which are our reportable segments:
Compute 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 assets 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 Memory 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 2015. 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 the MMJ Acquisition are included primarily in the MBU and CNBU segments.
Net Sales
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| CNBU | | $ | 6,725 |
| | 42 | % | | $ | 7,333 |
| | 45 | % | | $ | 3,462 |
| | 38 | % | | $ | 8,624 |
| | 42 | % | | $ | 4,529 |
| | 37 | % | | $ | 6,725 |
| | 42 | % |
| SBU | | | 4,514 |
| | 22 | % | | 3,262 |
| | 26 | % | | 3,687 |
| | 23 | % |
| MBU | | 3,692 |
| | 23 | % | | 3,627 |
| | 22 | % | | 1,214 |
| | 13 | % | | 4,424 |
| | 22 | % | | 2,569 |
| | 21 | % | | 3,692 |
| | 23 | % |
| SBU | | 3,687 |
| | 23 | % | | 3,480 |
| | 21 | % | | 2,824 |
| | 31 | % | |
| EBU | | 1,999 |
| | 12 | % | | 1,774 |
| | 11 | % | | 1,275 |
| | 14 | % | | 2,695 |
| | 13 | % | | 1,939 |
| | 16 | % | | 1,999 |
| | 12 | % |
| All Other | | 89 |
| | 1 | % | | 144 |
| | 1 | % | | 298 |
| | 3 | % | | 65 |
| | — | % | | 100 |
| | 1 | % | | 89 |
| | 1 | % |
| | | $ | 16,192 |
| |
| | $ | 16,358 |
| |
|
| | $ | 9,073 |
| |
|
| | $ | 20,322 |
| |
| | $ | 12,399 |
| |
|
| | $ | 16,192 |
| |
|
|
Percentages of total net sales reflect rounding and may not total 100%.
Total net sales for 2015 decreased 1%2017 increased 64% as compared to 20142016 due to strong conditions across our primary markets, particularly for enterprise, mobile, client, and SSD storage. The strong market conditions drove higher sales in 2017 for all
operating segments and significant increases in sales volumes for both DRAM and Trade NAND products as well as increases in average selling prices for DRAM products. Increases in sales volumes for 2017 as compared 2016 were enabled by higher manufacturing output due to improvements in product and process technology and solid execution.
Total net sales for 2016 decreased 23% as compared to 2015 primarily due to lower CNBU, sales as a result of decreases in DRAMMBU, and SBU sales as declines in average selling prices outpaced increases in gigabit sales volumes. SBU and MBU sales for 2015 increased as compared to 2014 as a result of higher NAND Flash sales 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 20152016 were primarily attributable to higher manufacturing output due to improvements in product and process technologies.
Total net sales for 2014 increased 80% as compared to 2013 primarily due to higher CNBU and MBU salestechnology partially offset by reductions resulting from the MMJ Acquisition. Net sales for all segments in 2014 also benefitted, as compared to 2013, from increases in DRAM and NAND Flash sales volumes driven primarily by higher manufacturing output as a result of improvements in product and process technology and an increased share of output from Inotera.node transitions.
Gross Margin
Our overall gross margin percentage increased to 42% for 2017 from 20% for 2016 reflecting increases in the gross margin percentages for all operating segments, primarily due to strong markets that drove favorable pricing conditions and to manufacturing cost reductions from improvements in product and process technology and solid execution.
Our overall gross margin percentage declined to 20% for 2016 from 32% for 2015 from 33% for 2014 primarily due to declines in the gross margin percentages for CNBU, MBU, and SBU, as decreases in average selling prices partially offset byoutpaced manufacturing cost reductions. CNBU and SBU experienced declines inEBU's gross margin percentage for 2016 was relatively unchanged from 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 outpacedoffset declines in average selling prices.
SinceWe periodically assess the estimated useful lives of our property, plant, and equipment. In the fourth quarter of 2016, we identified factors such as the lengthening period of time between DRAM product technology node transitions, an increased re-use rate of equipment, and industry trends. As a result, we revised the estimated useful lives of equipment in our DRAM wafer fabrication facilities from five to seven years in the fourth quarter of 2016. The effect of the revision was not material for 2016 and reduced depreciation costs by approximately $100 million per quarter in 2017.
From January 2013 through December 2015, we have purchased all of Inotera's DRAM output under supply agreements at prices reflecting discounts from market prices for our comparable components under a supply agreement. Incomponents. After December 2015 through December 6, 2016, the second quarter of 2015,date we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replaceacquired the current agreement. Under the 2016 Supply Agreement,remaining interest in Inotera, the price for DRAM products sold topurchased by us will befrom Inotera was based on a formula that equally sharesshared 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,Under these agreements, 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, 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. We purchased $2.37 billion, $2.68$504 million, $1.43 billion, and $1.26$2.37 billion of DRAM products from Inotera in 2017, 2016, and 2015, 2014,respectively, which represented 9% of our aggregate DRAM gigabit production for 2017, 30% for 2016, and 2013, respectively.
Our overall gross margin percentage improved to 33%35% for 2014 from 20%2015. In accounting for 2013 primarily due to improvements in the gross margin percentage for CNBU and MBU as a result of higher margins for DRAM products. The gross margin improvements for CNBU and MBU for 2014 as compared to 2013 resulted primarily from the MMJ Acquisition, manufacturing cost reductions, and higher average selling prices for CNBU. 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'sAcquisition, Inotera's work in process inventories were recorded at fair value, in the MMJ Acquisition, whichbased on their estimated future selling prices, estimated costs to complete, and other factors, and was approximately $107 million higher than the manufacturing cost of such inventories. This increased our costs of goodswork in process inventory recorded by Inotera prior to the acquisition. The acquired inventory was sold by approximately $153 million for 2014 and $41 million for 2013.in 2017.
Operating Results by Business Segments
CNBU
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 6,725 |
| | $ | 7,333 |
| | $ | 3,462 |
| | $ | 8,624 |
| | $ | 4,529 |
| | $ | 6,725 |
|
| Operating income | | 1,481 |
| | 1,957 |
| | 160 |
| |
| Operating income (loss) | | | 3,755 |
| | (25 | ) | | 1,549 |
|
CNBU sales and operating results are significantly impacted byfor 2017 increased 90% as compared to 2016 due to increases in average selling prices gigabitfor our products sold in the client market, growth in the cloud market driven by significant increases in DRAM content per server, and increases in sales of our GDDR5 and GDDR5X products into the graphics market driven by strong demand from the gaming industry. Growth in CNBU markets drove increases for 2017 in average selling prices and sales volumes as compared to 2016. CNBU operating margin for 2017 improved from 2016 primarily due to improved pricing from strong market conditions, manufacturing cost reductions, and cost per gigabit of our DRAM products. (Seeproduct mix. See "Operating Results by Product – DRAM" for further detail.)
CNBU sales for 20152016 decreased 8%33% as compared to 20142015 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.sales volumes. CNBU operating incomemargin for 20152016 declined from 20142015 as decreases in average selling prices outpaced manufacturing cost reductions.
CNBU
SBU
|
| | | | | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 4,514 |
| | $ | 3,262 |
| | $ | 3,687 |
|
| Operating income (loss) | | 552 |
| | (123 | ) | | (39 | ) |
SBU sales of Trade NAND products for 20142017 increased 112%41% as compared to 20132016 primarily due to (1) the MMJ Acquisition, (2) higherincreases in sales volumes from strong demand, particularly for component NAND and client and cloud SSD storage products, partially offset by declines in average selling prices, (3)prices. SBU sales of SSD storage products increased DRAM supply from Inoteraby 137% for 2017 as compared to 2016 primarily as a result of the restructuringlaunch of new SSD products incorporating our supply agreement,3D TLC NAND technology. SBU sales included Non-Trade sales of $553 million, $501 million, and (4) higher output due to improvements in product$463 million, for 2017, 2016, and process technologies. CNBU sales2015, respectively. SBU operating margin 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 20142017 improved from 20132016 primarily due to the MMJ Acquisition, highermanufacturing cost reductions, partially offset by declines in average selling prices. See "Operating Results by Product – Trade NAND" for further details.
SBU sales of Trade NAND products for 2016 decreased 16% from 2015 primarily due to declines in average selling prices andpartially offset by increases in sales volumes. SBU operating margin for 2016 declined from 2015 as decreases in average selling prices outpaced manufacturing cost reductions.
MBU
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 3,692 |
| | $ | 3,627 |
| | $ | 1,214 |
| | $ | 4,424 |
| | $ | 2,569 |
| | $ | 3,692 |
|
| Operating income (loss) | | 1,126 |
| | 683 |
| | (265 | ) | |
| Operating income | | | 927 |
| | 97 |
| | 1,166 |
|
In 2015 and 2014, MBU sales wereare comprised primarily of DRAM NAND Flash, and NOR Flash, in decreasing order of revenue,NAND, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for 20152017 increased 2%72% as compared to 20142016 primarily due to significant increases in gigabit sales
volumes, driven by customer qualifications for LPDRAM and managed NAND Flashproducts, combined with higher memory content in smartphones and MCP products partially offset by lowergrowth in sales of mobile DRAM products as a result of declineseMCP products. Sales growth 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 – Non-Volatile Memory" for further details.) SBU sales for 2015 increased 6% from 2014 primarily due to increases in gigabits sold2017 was partially offset by declines in average selling prices. SBU sells a portion of its products to Intel through our 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 SBU products are sold to OEMs, resellers, retailers, and other customers (including Intel), which we collectively refer to as "trade customers."
SBU sales ofTrade NAND Flash products to trade customersproducts. MBU operating income for 2015 increased 7% as compared to 20142017 improved from 2016 primarily due to increases in gigabits soldmanufacturing cost reductions and higher sales volumes, partially offset by higher R&D costs and declines in average selling prices. Increases in gigabits soldprices for 2015Trade NAND products.
MBU sales for 2016 decreased 30% as compared to 2014 were2015 primarily due to higher manufacturing output. SBUdeclines in average selling prices and DRAM sales volumes. MBU operating marginincome for 20152016 declined from 20142015 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. SBU operating income for 2014 improved from 2013 primarily due to higher gigabit sales volumes as manufacturing cost reductions were essentially offset by declines in average selling prices.reductions.
EBU
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 1,999 |
| | $ | 1,774 |
| | $ | 1,275 |
| | $ | 2,695 |
| | $ | 1,939 |
| | $ | 1,999 |
|
| Operating income | | 435 |
| | 331 |
| | 227 |
| | 975 |
| | 473 |
| | 459 |
|
In 2015 and 2014, EBU sales wereare comprised of DRAM, NAND, Flash, and NOR Flash in decreasing order of revenue. EBU sales for 20152017 increased 13%39% as compared to 20142016 primarily due to strong demand and higher sales volumes for DRAM and eMCP in consumer markets and DRAM and eMMC products in the automotive markets. EBU operating income for 2017 increased as compared to 2016 as a result of manufacturing cost reductions, which outpaced declines in average selling prices, and increases in sales volumes.
EBU sales for 2016 decreased 3% as compared to 2015 primarily due to declines in average selling prices for DRAM and NAND Flash products, which were partially offset by higher sales volumes as a result of increases in demand. EBU operating income for 2016 was relatively unchanged from 2015 improved as compared to 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 partiallymanufacturing cost reductions offset by declines in average selling prices. EBU operating income for 2014 improved as compared to 2013 primarily due to higher margins on sales of DRAM and NAND Flash products as a result of the increase in sales and cost reductions.
Operating Results by Product
Net Sales by Product
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| DRAM | | $ | 10,339 |
| | 64 | % | | $ | 11,164 |
| | 68 | % | | $ | 4,361 |
| | 48 | % | | $ | 12,963 |
| | 64 | % | | $ | 7,207 |
| | 58 | % | | $ | 10,339 |
| | 64 | % |
| Non-Volatile Memory | | 5,274 |
| | 33 | % | | 4,468 |
| | 27 | % | | 3,589 |
| | 40 | % | |
| Trade NAND | | | 6,228 |
| | 31 | % | | 4,138 |
| | 33 | % | | 4,811 |
| | 30 | % |
| Non-Trade | | | 553 |
| | 3 | % | | 501 |
| | 4 | % | | 463 |
| | 3 | % |
| Other | | 579 |
| | 4 | % | | 726 |
| | 4 | % | | 1,123 |
| | 12 | % | | 578 |
| | 3 | % | | 553 |
| | 4 | % | | 579 |
| | 4 | % |
| | | $ | 16,192 |
| | | | $ | 16,358 |
| | | | $ | 9,073 |
| | | | $ | 20,322 |
| | | | $ | 12,399 |
| | | | $ | 16,192 |
| | |
Percentages of total net sales reflect rounding and may not total 100%.
Non-Volatile Memory includesNon-Trade primarily consists of 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.manufactured and sold to Intel through IMFT under a long-term supply agreement at prices approximating cost. Information regarding our MCP products whichthat combine both NAND Flash and DRAM components is reported within Non-Volatile Memory.Trade NAND. Other includes sales of NOR and trade 3D XPoint products.
DRAM
| | | For the year ended | | 2015 | | 2014 | | 2017 | | 2016 |
| | | | | | | | | |
| | | (percentage change from prior period) | | (percentage change from prior year) |
| Net sales | | (7 | )% | | 156 | % | | 80 | % | | (30 | )% |
| Average selling prices per gigabit | | (11 | )% | | 6 | % | | 19 | % | | (35 | )% |
| Gigabits sold | | 4 | % | | 142 | % | | 52 | % | | 7 | % |
| Cost per gigabit | | (12 | )% | | (20 | )% | | (21 | )% | | (17 | )% |
The increaseStrong conditions in gigabit2017 for enterprise, client, mobile, graphics, and networking markets as well as key customer qualifications drove increases in sales volumes of DRAM products for 2015and prices as compared to 2014 was2016. The reductions in cost for 2017 and 2016 as compared to prior years were primarily due to increasesimprovements 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 shift 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 wafer 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 astechnology. For 2017 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,2016, lower depreciation due to the pricing formula of the current agreement and strong market conditions. Under the market conditions prevailingchange made 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.in estimated useful lives for equipment at our DRAM products acquired from Inotera accounted for 35% of our aggregate DRAM gigabit production for 2015 as comparedwafer fabrication facilities contributed to 38% for 2014 and 54% for 2013.cost reductions.
Our gross margin percentage on sales of DRAM products for 20152017 improved from 20142016 primarily due to manufacturing cost reductions, increases in average selling prices, and shifts in product mix, while our gross margin percentage for 2016 declined as compared to 2015 as decreases in average selling prices outpaced manufacturing cost reductions.
Trade NAND
|
| | | | | | |
| For the year ended | | 2017 | | 2016 |
| | | | | |
| | | (percentage change from prior year) |
| Net sales | | 50 | % | | (14 | )% |
| Average selling prices per gigabit | | (9 | )% | | (20 | )% |
| Gigabits sold | | 65 | % | | 8 | % |
| Cost per gigabit | | (26 | )% | | (16 | )% |
Strong conditions in 2017 for SSD, mobile, and client storage markets drove increases in net sales as compared to 2016, particularly for SSD and mobile products. Our ability to meet this demand was due in part to increases in production, primarily from the ramp of capacity and improvements in product and process technology, including our transition to 3D NAND products. The increase in sales volumes of Trade NAND for 2016 as compared to 2015 was primarily due to increases in demand and increases in production due to improvements in product and process technology. Increases in production for 2016 were constrained in connection with transitioning to 3D NAND products.
Our gross margin percentage on sales of Trade NAND for 2017 improved from 2016 as manufacturing cost reductions outpaced declines in average selling prices. Ourprices, while our gross margin percentage on sales of DRAM products for 2014 improved2016 declined 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 IMFT at long-term negotiated prices approximating cost.
|
| | | | | | |
| For the year ended | | 2015 | | 2014 |
| | | | | |
| | | (percentage change from prior period) |
| Sales to trade customers: | | | | |
| Net sales | | 20 | % | | 27 | % |
| Average selling prices per gigabit | | (17 | )% | | (23 | )% |
| Gigabits sold | | 45 | % | | 65 | % |
| Cost per gigabit | | (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 2014 as compared to 2013 were primarily due to the transition of our wafer fabrication facility in Singapore from DRAM to NAND Flash production and improvements in product and process technologies.
Our gross margin percentage on sales of trade NAND Flash products for 2015 declined from 2014 as the declinesdecreases in average selling prices outpaced manufacturing cost reductions resulting from improvements in product and process technologies. Our gross margin percentage on sales of trade NAND Flash products for 2014 was relatively unchanged from 2013 as manufacturing cost reductions offset declines in average selling prices. Manufacturing cost reductions for 2014 as compared to 2013 primarily resulted from improvements in product and process technologies.
reductions.
Operating Expenses and Other
Selling, General, and Administrative
SG&A expenses for 2015 increased 2% as compared to 20142017 were 13% higher than 2016 primarily due to increases in performance-based pay, transaction costs related to the Inotera Acquisition, and stock-based compensation, partially offset by a reduction in other payroll costs. SG&A expenses for 2016 were 8% lower than 2015 due to decreases in performance-based pay and travel costs and to an additional week in 2015 and higher legal costs.
SG&A expenses for 2014 increased 26% as compared to 2013 primarily due to the incremental costs resulting from the MMJ Acquisition and higher payroll costs resulting primarily from the reinstatement of variable pay plans.2015.
Research and Development
R&D expenses for 2015 increased 12% from 20142017 were 13% higher than 2016 primarily due to a higher volumevolumes of development wafersproduct being processed that had not been qualified and increases in performance-based pay, partially offset by lower subcontracted engineering and other professional services costs. R&D expenses for 2016 were 5% higher than 2015 primarily due to higher volumes of product being processed that had not been qualified, higher payroll costs, an increase in depreciation expense due tofrom R&D capital expenditures, higher payroll costs, higher subcontracted engineering and other professional service costs, andpartially offset by 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 2014 increased 47% from 2013 primarily due to the incremental costs resulting from the MMJ Acquisition, higher payroll costs resulting primarily from the reinstatement of variable pay plans, and increased resources dedicated to development efforts.
We generally share with Intel the costs of product design and process development activities for NAND Flash memory and 3D XPoint memory.memory at IMFT and our other facilities. 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 reimbursements under our cost-sharing arrangements with Intel of $213 million, $205 million, and other cost-sharing arrangements.$224 million in 2017, 2016, and 2015, respectively.
Our process technologySee further discussion of our 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 computingin "Part I – Item 1. – Business – Research 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, Mobile LPDRAM products, high density NAND Flash memory (including 3D NAND and MLC and TLC technologies), 3D XPoint memory, SSDs, Hybrid Memory Cubes, specialty memory, NOR Flash memory, and other memory technologies and systems.Development."
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)
Net interest expense for 2015, 2014, and 2013, included aggregate amounts of amortization of debt discount and other costs of $138 million, $167 million, and $122 million, respectively.
Income Taxes
Our effective tax rates were 6.0%, 4.7%, and 0.6% for 2015, 2014, and 2013, respectively. Our effective tax ratesincome taxes 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.,United States, including Singapore,and, to a lesser extent Taiwan, where we have tax incentive arrangements that further decrease our effective tax rates; and
a valuation allowance against substantially all of our U.S. net deferred tax assets. assets in the United States. Income tax (provision) benefit consisted of the following:
|
| | | | | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and Inotera | | $ | 54 |
| | $ | (114 | ) | | $ | (80 | ) |
| U.S. valuation allowance release resulting from business acquisition | | — |
| | 41 |
| | — |
|
| Other income tax (provision) benefit, primarily other non-U.S. operations | | (168 | ) | | 54 |
| | (77 | ) |
| | | $ | (114 | ) | | $ | (19 | ) | | $ | (157 | ) |
| | | | | | | |
| Effective tax rate | | 2.2 | % | | (6.8 | )% | | 6.0 | % |
Income taxes for 20152017 and 20142016 included $80tax benefits of $28 million and $59$58 million, respectively, related to changes in amounts of net deferred tax assets associated with the MMJ Group. Income taxes for 2013 included benefits of $19 million from the favorable resolution of prior yearcertain tax matters, and a change inwhich were previously reserved as uncertain 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.positions.
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.allowance. The amount of the deferred tax asset considered realizable could be adjusted if significantsufficient positive evidence increases.exists.
We operate in a number of locations outside the U.S.,Unites States, including Singapore, and, to a lesser extent, Taiwan, where we have tax incentive agreementsarrangements that are conditional, in part, 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$742 million (benefitting(benefiting our diluted earnings per share by $0.29), $286$0.64) for 2017, were not material in 2016, and by $338 million ($0.240.29 per diluted share), and $141 million ($0.13 per diluted share), respectively. for 2015.
(See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 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 | | 2017 | | 2016 | | 2015 |
| Inotera | | $ | 445 |
| | $ | 465 |
| | $ | (79 | ) | | $ | 9 |
| | $ | 32 |
| | $ | 445 |
|
| Tera Probe | | 1 |
| | 11 |
| | — |
| | (3 | ) | | (11 | ) | | 1 |
|
| Other | | 1 |
| | (2 | ) | | (4 | ) | | 2 |
| | 4 |
| | 1 |
|
| | | $ | 447 |
| | $ | 474 |
| | $ | (83 | ) | | $ | 8 |
| | $ | 25 |
| | $ | 447 |
|
On December 6, 2016, we ceased accounting for Inotera as an equity method investment due to our acquisition of the remaining interest in Inotera. Our shareequity in net income (loss) of Inotera declined for 2016 as compared to 2015 primarily due to the effect to Inotera, under our supply agreements with them, of declines in average selling prices and Inotera's cost of technology node transitions. Included in our earnings for 2015 includedwas $49 million for the net effectfrom our equity share of Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforwardcarryforward.
In 2017, we ceased recognizing our share of Tera Probe's earnings due to our sale of our equity interest in Tera Probe. We recorded impairment charges of $16 million, $25 million, and the resulting tax provision$10 million in subsequent periods. As a result of the release, Inotera's future net income is subject to tax provisions. Our2017, 2016, and 2015, respectively, within equity in net income (loss) of Inotera declinedequity method investees to write down the carrying value of our investment in Tera Probe to its then fair value in each of those periods based on its trading price.
Other
Net interest expense increased 42% for 20152017 as compared to 20142016 primarily due to a decreaseincreases in Inotera's operating results as a resultdebt obligations, including our borrowings of declines in average selling prices.
Since January 2013, we have purchased all80 billion New Taiwan dollars at an effective interest rate 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 the3.02% on December 6, 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 our acquisition of Inotera and $1.25 billion at an effective interest rate of 7.69% in April 2016 under the MMJ Acquisition.
On August 15, 2014, ON Semiconductor Corporation acquired Aptina2023 Secured Notes. Net interest expense increased 18% 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 shares2016 as compared to 2015 primarily due to increases 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.debt obligations.
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 Plans
Restructure and Asset Impairments
Other Operating (Income) Expense,Income (Expense), Net
Other Non-Operating Income (Expense), Net
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets. We generated cash from operations of $5.21 billion in 2015markets and $5.70 billion in 2014.financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We obtained $2.50 billion from debt and lease 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 additional financing based on eligible receivables and inventories and (2) a term loan agreement available 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 our capital expenditures dilution-management activities (including repurchases of convertible notes and our common stock), and ongoing operations. We expect, from time to time in the future, to engage in a variety of financing transactions for such purposes, including the issuance or incurrence of securedsecurities. We have a revolving credit facility that expires in February 2020 and unsecured debt and the refinancing and restructuring of existing 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 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 cash expenditures in 2016provides for property, plant, and equipment will be approximately $5.3 billion to $5.8 billion, which includes amounts we expect to be funded by our partners. The actual amounts for 2016 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 September 3, 2015, we had commitments of approximately $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 repurchaseborrowings of up to $1.25 billion of our outstanding common stock, $250$750 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.
based on eligible receivables. 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 |
|
Cash and marketable investments totaled $6.05 billion and $4.81 billion as of August 31, 2017 and September 1, 2016, respectively. Our investments consist primarily of liquid investment-grade fixed-income securities, diversified among industries
and individual issuers. As of September 3, 2015, $2.17August 31, 2017, $2.82 billion of our cash and equivalents and short-termmarketable investments was held by our foreign subsidiaries, of which $149 million was denominated in currencies other than the U.S. dollar.subsidiaries. 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.
In October 2017, subsequent to the end of 2017, we issued 34 million shares of our common stock for $41.00 per share in a public offering, for net proceeds of $1.36 billion, net of underwriting fees and other offering costs. On October 12, 2017, we issued a notice to redeem $438 million of principal amount of our 2023 Secured Notes on November 13, 2017 for $470 million in cash, excluding accrued and unpaid interest. The amount redeemed represents 35% of the original principal amount of the 2023 Secured Notes issued and will be settled with proceeds from our common stock issuance in October 2017. On October 17, 2017, we issued a notice to redeem the remaining $812 million of principal amount of our 2023 Secured Notes on November 16, 2017 for approximately $885 million, excluding accrued and unpaid interest. Additionally, on October 17, 2017, we issued a notice to redeem all of our 2023 Notes on November 16, 2017 for approximately $1.05 billion in cash, excluding accrued and unpaid interest. In connection with these redemptions, we expect to recognize non-operating losses of approximately $170 million in the first quarter of 2018.
Acquisition of Inotera
Through December 6, 2016, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 32% ownership interest, and the remaining ownership interest was publicly held. On December 6, 2016, we acquired the 67% interest in Inotera for an aggregate of $4.1 billion in cash. The cash paid for the Inotera Acquisition was funded with 80 billion New Taiwan dollars of proceeds from the 2021 MSTW Term Loan (see "Acquisition Financing" below), $986 million of proceeds from the sale of 58 million shares of our common stock, and cash on hand.
Acquisition Financing
2021 MSTW Term Loan: On December 6, 2016, we drew 80 billion New Taiwan dollars under a collateralized, five-year term loan that bears interest at a variable per annum rate equal to the three-month or six-month TAIBOR, at our option, plus a margin of 2.05%. Principal under the 2021 MSTW Term Loan is payable in six equal semi-annual installments, commencing in June 2019, through December 2021. The 2021 MSTW Term Loan contains financial covenants, which if not maintained, could in certain cases constitute an event of default and result in all obligations owed under the 2021 MSTW Term Loan being accelerated to be immediately due and payable. The 2021 MSTW Term Loan also contains customary events of default. The 2021 MSTW Term Loan is collateralized by certain assets and is guaranteed by Micron. To hedge our currency exposure of this borrowing, we are party to a series of currency forward contracts to purchase New Taiwan dollars under a rolling hedge strategy. As of August 31, 2017, the forward contracts expire at various dates through March 2018. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.")
Limitations on the Use of Cash and Investments
MMJ Group: Group:Cash and equivalents and short-termmarketable investments in the table above included an aggregate of $748$580 million held by the MMJ Group as of September 3, 2015.August 31, 2017. As a result of the corporate reorganization proceedings of the MMJ Companies entered intoinitiated 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 Companiesis prohibited 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.us. 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 CompaniesCourt and may, under certain circumstances, be considered outside of the ordinary course of business and subject to the approval of the legal trustee and Japan Court.trustee. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Moreover,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.
IMFT:MSTW and MTTW: Cash and equivalentsmarketable investments included an aggregate of $56 million held by MSTW and short-termMTTW as of August 31, 2017. The 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and MTTW to pay dividends. As a result, the assets of MSTW and MTTW are not available for use by us in our other operations.
IMFT: Cash and marketable investments in the table above included $134$87 million held by IMFT as of September 3, 2015.August 31, 2017. 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.
Indefinitely Reinvested:Reinvested: As of September 3, 2015, we had $1.48August 31, 2017, $1.29 billion of cash and equivalents and short-termmarketable investments, including substantially all of the amounts held by the MMJ, Group, that wereMSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of these funds to the U.S.United States would be subject these funds to U.S. federal income taxes. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Operating Activities
Cash Flows
|
| | | | | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| Net cash provided by operating activities | | $ | 8,153 |
| | $ | 3,168 |
| | $ | 5,208 |
|
| Net cash provided by (used for) investing activities | | (7,537 | ) | | (3,044 | ) | | (6,216 | ) |
| Net cash provided by (used for) financing activities | | 349 |
| | 1,745 |
| | (718 | ) |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | | (12 | ) | | 19 |
| | (133 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | $ | 953 |
| | $ | 1,888 |
| | $ | (1,859 | ) |
NetOperating Activities:For 2017, cash provided by operating activities was $5.21 billion for 2015. Cash provided by operating activities was due primarily to net incomecash generated by our operations adjustedand the effect of working capital adjustments, which included $1.65 billion of cash used for certain non-cash items.increases in receivables, $361 million of payments attributed to intercompany balances in connection with the Inotera Acquisition, and $564 million of cash provided from increases in accounts payable and accrued expenses.
Investing ActivitiesFor 2016, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $465 million of cash provided from decreases in receivables due to a lower level of net sales, offset by $549 million of cash used for net increases in inventories.
For 2015, cash provided by operating activities was due primarily to cash generated by operations and the effect of working capital adjustments, which included $393 of cash provided from decreases in receivables due to a lower level of net sales, offset by $691 million of cash used for reductions in accounts payable and accrued expenses.
NetInvesting Activities: For 2017, net cash used for investing activities was $6.23 billion for 2015, which consisted primarily of cash$4.73 billion of expenditures of $4.02 billion for property, plant, and equipment (which excludes offsets of amounts funded by our partners), $2.63 billion of net cash paid for the Inotera Acquisition (net of $361 million of payments attributed to intercompany balances with Inotera included in operating activities), and $269 million of net outflows from sales, maturities, and purchases of available-for-sale securities.
For 2016, net cash used for investing activities consisted primarily of $5.82 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners) and $148 million for the acquisition of Tidal Systems, Ltd., partially offset by $2.66 billion of net inflows from sales, maturities, and purchases of available-for-sale securities.
For 2015, net cash used for investing activities consisted primarily of $4.02 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners) and $2.14 billion of net outflows for investmentspurchases, sales, and maturities of available-for-sale securities.
Financing Activities: For 2017, net cash provided by financing activities consisted primarily of $2.48 billion of net proceeds from the 2021 MSTW Term Loan, and $795 million of net proceeds from the 2021 MSAC Term Loan, partially offset by repurchases of $952 million in available-for-sale securities.aggregate principal of our 2025 Notes and 2026 Notes for an aggregate of $1.00 billion in cash, redemption of $600 million principal amount of our 2022 Notes for $626 million in cash, repayments of $381 million of capital lease obligations, repayments of $550 million of other debt and convertible notes, and payments of $519 million on equipment purchase contracts.
Financing Activities
NetFor 2016, net cash usedprovided by financing activities was $718consisted primarily of $1.24 billion of proceeds (net of $13 million of issuance costs) from the 2023 Secured Notes, $734 million (net of $8 million of issuance costs and $8 million of original issue discount) from the 2022 Term Loan B, and $765 million from equipment sale-leaseback financing transactions, partially offset by repurchases of $870 million of repayments of debt and $125 million for the open-market repurchases of 7 million shares of our common stock.
For 2015, which included outflowsnet cash used for financing activities consisted primarily of $2.33$2.33 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 $95 million of payments on equipment purchase contracts. Cash outflows for financing activities in 2015 werecontracts, partially offset by inflows of $2.00$1.98 billion in aggregate proceeds (net of $21 million of issuance costs) from the issuance of theour 5.25% senior notes due 2023 Notes, 2024 Notes, and 2026 Notes, $291 million from theof proceeds of sale-leaseback transactions, $125 million of proceeds from draws on our revolving credit facilities, and $87 million of net proceeds from term loans.
2015 Debt ActivitySee "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt."
Throughout 2015, we reduced 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 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 Notes
Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ended on September 30, 20152017 exceeded 130% of the conversion price per share of our 2032 Notes and 2033 Notes, holders of thosemay convert these notes havethrough the right to convert their notes at any time throughcalendar quarter ended December 31, 2015. For all of our convertible notes, we have either: (1) the requirement to pay cash for the principal amount and the option to pay either cash, shares of our common stock, or any combination thereof for any remaining conversion obligation, or (2) the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion.
2017. The following table summarizes the potential settlements as of September 3, 2015, that we could be required to make for the calendar quarter ending December 31, 2017 if all holders converted their 2032 Notes and 2033 Notes:Notes. The amounts in the table below are based on our closing share price of $31.97 as of August 31, 2017.
| | | | | Conversion Price Per Share | | Settlement Option for Principal Amount | | Outstanding Principal | | If Settled With Minimum Cash Required(1) | | If Settled Entirely With Cash(2) | | Settlement Option for | | | | If Settled With Minimum Cash Required Per the Terms | | If Settled Entirely With Cash |
| | | Cash | | Remainder in Shares | | Cash | | Principal Amount | | Amount in Excess of Principal | | Underlying Shares | | Cash | | Remainder in Shares | |
| 2032C Notes | | $ | 9.63 |
| | Cash and/or shares | | $ | 224 |
| | $ | — |
| | 23 |
| | $ | 385 |
| | Cash and/or shares | | Cash and/or shares | | 23 |
| | $ | — |
| | 23 |
| | $ | 742 |
|
| 2032D Notes | | 9.98 |
| | Cash and/or shares | | 177 |
| | — |
| | 18 |
| | 294 |
| | Cash and/or shares | | Cash and/or shares | | 18 |
| | — |
| | 18 |
| | 567 |
|
2033E Notes | | 10.93 |
| | Cash | | 233 |
| | 233 |
| | 7 |
| | 354 |
| | Cash | | Cash and/or shares | | 16 |
| | 204 |
| | 9 |
| | 425 |
|
| 2033F Notes | | 10.93 |
| | Cash | | 297 |
| | 297 |
| | 9 |
| | 451 |
| | Cash | | Cash and/or shares | | 27 |
| | 297 |
| | 18 |
| | 869 |
|
| | | | | $ | 931 |
| | $ | 530 |
| | 57 |
| | $ | 1,484 |
| |
| | 84 |
| | $ | 501 |
| | 68 |
| | $ | 2,603 |
|
| |
(1) | We are requiredIn August 2017, holders of our 2033E Notes with an aggregate principal amount of $58 million converted their notes, which were settled in the first quarter of 2018. For converted notes with an aggregate principal amount of $16 million, we elected to settle the conversion obligation in excess of the principal amount in cash. We elected to settle the remaining notes with an aggregate principal amount of $42 million with a combination of cash for the 2033 Notesprincipal amount and shares of our common stock for the remainder of the settlement amount. In the first quarter of 2018, we settled the conversions for $92 million in cash. The remaining conversion obligation paid incash and 3 million shares is based onof our closing share price of $16.59 as of September 3, 2015.treasury stock. |
Contractual Obligations
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| As of August 31, 2017 | | Total | | Less than 1 year | | 1-3 years |
| | 3-5 years |
| | More than 5 years |
Notes payable(1)(2) | | $ | 12,611 |
| | $ | 1,037 |
| | $ | 3,625 |
| | $ | 3,050 |
| | $ | 4,899 |
|
Capital lease obligations(2) | | 1,351 |
| | 401 |
| | 563 |
| | 159 |
| | 228 |
|
Operating leases(3) | | 154 |
| | 29 |
| | 51 |
| | 36 |
| | 38 |
|
Purchase obligations(4) | | 2,219 |
| | 1,895 |
| | 293 |
| | 9 |
| | 22 |
|
Other long-term liabilities(5) | | 860 |
| | 366 |
| | 447 |
| | 26 |
| | 21 |
|
| Total | | $ | 17,195 |
| | $ | 3,728 |
| | $ | 4,979 |
| | $ | 3,280 |
| | $ | 5,208 |
|
| |
(1) | Amounts include MMJ Creditor Payments, convertible notes, and other notes. |
| |
(2) | BasedAmounts include principal and interest. |
| |
(3) | Amounts include contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year. |
| |
(4) | Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are noncancelable, (2) 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. If the obligation to purchase goods or services is noncancelable, the entire value of the contract was included in the above table. If the obligation is cancelable, but we would incur a penalty if canceled, only the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in any take-or-pay contracts were included in the above table as they represent the portion of each contract that is a firm commitment. |
| |
(5) | Amounts represent future cash payments to satisfy other long-term liabilities recorded on our closing share price of $16.59 as of September 3, 2015. Assumes we elect cash settlementconsolidated balance sheet, including $366 million for the entire obligation.current portion of these long-term liabilities. We are unable to reliably estimate the timing of future certain payments related to uncertain tax positions and deferred tax liabilities; therefore, the amount has been excluded from the preceding table. However, other noncurrent liabilities recorded on our consolidated balance sheet included these uncertain tax positions and deferred tax liabilities. |
Contractual Obligations
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| As of September 3, 2015 | | Total | | Less than 1 year | | 1-3 years |
| | 3-5 years |
| | More than 5 years |
Notes payable(1)(2) | | $ | 9,429 |
| | $ | 556 |
| | $ | 1,315 |
| | $ | 1,712 |
| | $ | 5,846 |
|
Capital lease obligations(2) | | 852 |
| | 349 |
| | 304 |
| | 123 |
| | 76 |
|
Operating leases(3) | | 682 |
| | 218 |
| | 402 |
| | 27 |
| | 35 |
|
| Purchase obligations | | 2,545 |
| | 2,189 |
| | 335 |
| | 11 |
| | 10 |
|
Other long-term liabilities(4) | | 716 |
| | 222 |
| | 304 |
| | 152 |
| | 38 |
|
| Total | | $ | 14,224 |
| | $ | 3,534 |
| | $ | 2,660 |
| | $ | 2,025 |
| | $ | 6,005 |
|
(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.
(2) Amounts include principal 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, including $222 million for the current portion of these long-term 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 redemptions, repurchase, or conversions of our debt, 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 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"). If the obligation to purchase goods or services is noncancelable, the entire value of the contract was included in the above table. If the obligation is cancelable, but 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.
Inotera Supply Agreements: 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 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. 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. 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 pricing fluctuates as it is based on market prices. Therefore, we did not include any amounts under the current agreement in the contractual obligations table above. Under the 2016 Supply Agreement, payments are primarily based on fluctuating quantities and prices, but a portion of the expected costs under the agreement meet the criteria of a minimum lease payment under an operating lease and are included in the table above.
Off-Balance Sheet Arrangements
We have entered into capped calls, whichcall transactions in connection with certain of our convertible notes and are intended to reduce the effect of potential dilution from our convertible notes.dilution. 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 atprices on the expiration dates. The amounts receivable varies based onAs of August 31, 2017, the trading price of our stock, up to specified cap prices. The dollar value of the cash or shares that we would receive from theour outstanding capped calls onupon their expiration dates rangesrange from $0, if the trading price of our stock is below the initial strike priceprices for all of the capped calls at expiration, to $814$527 million, if the trading price of our stock is at or above the cap priceprices for all capped calls. Settlement of the capped calls. We paid $57 million in 2011, $103 million in 2012, and $48 million in 2013calls prior to purchase capped calls. The amounts paid were recorded as charges to additional capital.the expiration dates may be for an amount less than the maximum value at expiration. For further details of our capped call arrangements, see "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Micron Shareholders' Equity – Outstanding Capped 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 requiresrequire management's most difficult, subjective, or complex judgments.
Business Acquisitionsacquisitions: 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.recognized in subsequent periods. 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 ofinclude the following:
Property, plant,Debt, including discount rate and equipment, including determinationtiming of values in a continued-use model;payments;
Deferred tax assets, including projections of future taxable income and tax rates;
Inventory, including estimated future selling prices, timingFair value of product sales, and completion costs for work in process;
Debt, including discount rate and timing of payments; andconsideration paid or transferred;
Intangible assets, including valuation methodology, estimations of future revenue and costs, profit allocation rates attributable to the acquired technology, and discount rates.rates;
Inventory, including estimated future selling prices, timing of product sales, and completion costs for work in process; and
Property, plant, and equipment, including determination of values in a continued-use model.
ConsolidationsConsolidation: We have interests in joint venture entities that are VIEs. Determining whether to consolidate a VIE requires judgment in assessing whether an entity is a VIE and if we are the entity's primary beneficiary. If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, of a VIE, 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 assessmentassessments of whether we are the primary beneficiary of our VIEs requiresrequire significant assumptions and judgment.judgments.
Contingencies: We are subject to the possibility of losses from various contingencies. ConsiderableSignificant judgment is necessary to estimate the probability and amount of a loss, if 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, considerablesignificant 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.
Goodwill and intangible assets: We test goodwill for impairment in the fourth quarter of our fiscal year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, then we would record an impairment loss up to the difference between the carrying value and implied fair value.
Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, forecasted manufacturing costs, and other expenses and are developed as part of our long-range planning process. The same estimates are used in business planning, forecasting, and capital budgeting as part of our long-term manufacturing capacity analysis. We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current stock prices, analysts' consensus pricing, and management's expectations. These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value. The discount rate requires determination of appropriate market comparables. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
We test other identified intangible assets with definite useful lives when events and circumstances indicate the carrying value may not be recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. We test intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows. Estimating fair values involves significant assumptions, including future sales prices, sales volumes, costs, and discount rates.
Income Taxestaxes: 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 significant 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 numeroussignificant 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 net realizable value. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves numeroussignificant judgments, including projecting future average selling prices, sales volumes, 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 net realizable valuevalues below our manufacturing costs, we record a charge to cost of goods sold in advance of when the inventory isinventories are actually sold. Differences in forecasted average selling prices used in calculating lower of cost or net 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 net realizable value of our memory inventory by approximately $195$439 million as of September 3, 2015.August 31, 2017. Due to the volatile nature of the semiconductor memory industry,and storage markets, actual selling prices and
volumes often vary significantly from projected prices 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 net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. InventoriesIn determining the lower of average cost or net realizable value, inventories are primarily categorized as memory (including DRAM, non-volatile,NAND, and other memory) for purposesbased on the major characteristics of determining lower of average cost or net realizable value.product type and markets. The major characteristics we consider in determining inventory categories are product type and markets.
Property, Plantplant, and Equipmentequipment: 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 estimationestimate of future cash flows involves numerous assumptions which require significant 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, significant judgment is required in determining the groups of assets for which impairment tests are separately performed.
We periodically assess the estimated useful lives of our property, plant, and equipment. We revised the estimated useful lives of equipment in our DRAM wafer fabrication facilities from five to seven years in the fourth quarter of 2016. The effect of the revision was not material for 2016 and reduced depreciation costs by approximately $100 million per quarter in 2017. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Significant Accounting Policies.")
Research and Developmentdevelopment: 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 significant 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 valuedincluded in inventory.cost of goods sold.
Stock-based Compensationcompensation: Stock-based compensation is estimated at the grant date based on the fair 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 our assessment of the probabilitylikelihood of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires considerablesignificant judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerablesignificant judgment, including estimating stock price volatility and expected option life, and forfeiture rates.life. 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.options. 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
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting 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
We are exposed to interest rate risk related to our indebtedness and our investment portfolio. Substantially allAs of our indebtedness is atAugust 31, 2017 and September 1, 2016, we had debt with fixed interest rates. Asrates of $5.7 billion and $7.5 billion, respectively, and as a result, the fair value of our debt fluctuates based onwith changes in market interest rates. We estimate that, as of September 3, 2015August 31, 2017 and August 28, 2014,September 1, 2016, a hypothetical decrease in market interest rates of 1% would increase the fair value of our notes payablefixed-rate debt by approximately $366$273 million and $250$420 million, respectively. The increase inAs of August 31, 2017 and September 1, 2016, we had debt with variable interest expense caused byrates of $4.2 billion and $1.0 billion, respectively. As of August 31, 2017 and September 1, 2016, a 1% increase in the interest rates of our variable-rate debt would not be significant.result in an increase in interest expense of approximately $43 million and $10 million per year, respectively.
As of August 31, 2017 and September 3, 2015 and August 24, 2014,1, 2016, we held fixed-rate debt investment securities of $3.83$1.48 billion and $1.65$1.11 billion, respectively, thatwhich were subject to interest rate risk. We estimate that a 0.5% increase in market interest rates would decrease the fair value of these instruments by approximately $13 million as of September 3, 2015 and $6$2 million as of August 28, 2014.
31, 2017 and $1 million as of September 1, 2016.
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 in "Part I – Item 1A. Risk Factors." Changes in currency exchange rates could materially adversely affect our results of operations or financial condition.
The functional currency for all of our consolidated subsidiariesoperations is the U.S. dollar. The substantial majority of our revenuessales are transacted in the U.S. dollar; however, significant amounts of our debt, 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,Singapore dollar, and the yuan.yen. We have established currency risk management programs for our operating expendituresmonetary assets and capital purchasesliabilities denominated in foreign currencies to hedge against fluctuations in the fair value and volatility of future cash flows caused by changes in currency exchange rates. We generally utilize currency forward and option contracts in these 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 ourBased on 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 ourdenominated in foreign currency exposures from monetary assets and liabilities, offset by balance sheet hedges,currencies, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $3$391 million as of September 3, 2015August 31, 2017 and $7$241 million as of August 28, 2014.September 1, 2016. We hedge our exposure to changes in currency exchange rates by utilizing a rolling hedge strategy for our primary currency exposures with currency forward contracts that generally mature within nine months. In addition, we have entered into foreign currency forward contracts that mature in December 2017 and December 2018 to hedge our currency exchange rate risk on certain debt. The effectiveness of our hedges is dependent, among other factors, upon our ability to accurately forecast our monetary assets and liabilities. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain capital expenditures, we may utilize currency forward contracts that generally mature within 12 months. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Derivative Instruments.")
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
|
| |
| | Page |
| | |
Consolidated Financial Statements as of August 31, 2017 and September 3, 2015 and August 28, 20141, 2016 and for the fiscal years ended August 31, 2017, September 1, 2016, and September 3, 2015 August 28, 2014, and August 29, 2013: | |
| | |
| Consolidated Statements of Operations | |
| | |
| Consolidated Statements of Comprehensive Income (Loss) | |
| | |
| 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 | |
| |
Financial Statement Schedules: | |
| |
Schedule I – Condensed Financial Information of the Registrant | |
| |
Schedule II – Valuation and Qualifying Accounts | |
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
| | | For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 | | August 31,
2017 | | September 1,
2016 | | September 3,
2015 |
| Net sales | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 20,322 |
| | $ | 12,399 |
| | $ | 16,192 |
|
| Cost of goods sold | | 10,977 |
| | 10,921 |
| | 7,226 |
| | 11,886 |
| | 9,894 |
| | 10,977 |
|
| Gross margin | | 5,215 |
| | 5,437 |
| | 1,847 |
| | 8,436 |
| | 2,505 |
| | 5,215 |
|
| | | | | | | | | | | | | |
| Selling, general and administrative | | 719 |
| | 707 |
| | 562 |
| |
| Selling, general, and administrative | | | 743 |
| | 659 |
| | 719 |
|
| Research and development | | 1,540 |
| | 1,371 |
| | 931 |
| | 1,824 |
| | 1,617 |
| | 1,540 |
|
| Restructure and asset impairments | | 3 |
| | 40 |
| | 126 |
| | 18 |
| | 67 |
| | 3 |
|
| Other operating (income) expense, net | | (45 | ) | | 232 |
| | (8 | ) | | (17 | ) | | (6 | ) | | (45 | ) |
| Operating income | | 2,998 |
| | 3,087 |
| | 236 |
| | 5,868 |
| | 168 |
| | 2,998 |
|
| | | | | | | | | | | | | |
| Interest income | | 35 |
| | 23 |
| | 14 |
| | 41 |
| | 42 |
| | 35 |
|
| Interest expense | | (371 | ) | | (352 | ) | | (231 | ) | | (601 | ) | | (437 | ) | | (371 | ) |
| Gain on MMJ Acquisition | | — |
| | (33 | ) | | 1,484 |
| |
| Other non-operating income (expense), net | | (53 | ) | | 8 |
| | (218 | ) | | (112 | ) | | (54 | ) | | (53 | ) |
| | | 2,609 |
| | 2,733 |
| | 1,285 |
| | 5,196 |
| | (281 | ) | | 2,609 |
|
| | | | | | | | | | | | | |
| Income tax (provision) benefit | | (157 | ) | | (128 | ) | | (8 | ) | | (114 | ) | | (19 | ) | | (157 | ) |
| Equity in net income (loss) of equity method investees | | 447 |
| | 474 |
| | (83 | ) | | 8 |
| | 25 |
| | 447 |
|
| Net income | | 2,899 |
| | 3,079 |
| | 1,194 |
| |
| Net income (loss) | | | 5,090 |
| | (275 | ) | | 2,899 |
|
| | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | — |
| | (34 | ) | | (4 | ) | |
| Net income attributable to Micron | | $ | 2,899 |
| | $ | 3,045 |
| | $ | 1,190 |
| |
| Net (income) loss attributable to noncontrolling interests | | | (1 | ) | | (1 | ) | | — |
|
| Net income (loss) attributable to Micron | | | $ | 5,089 |
| | $ | (276 | ) | | $ | 2,899 |
|
| | | | | | | | | | | | | |
| Earnings per share: | | | | | | | |
| Earnings (loss) per share | | | | | | | |
| Basic | | $ | 2.71 |
| | $ | 2.87 |
| | $ | 1.16 |
| | $ | 4.67 |
| | $ | (0.27 | ) | | $ | 2.71 |
|
| Diluted | | 2.47 |
| | 2.54 |
| | 1.13 |
| | 4.41 |
| | (0.27 | ) | | 2.47 |
|
| | | | | | | | | | | | | |
| Number of shares used in per share calculations: | | | | | | | |
| Number of shares used in per share calculations | | | | | | | |
| Basic | | 1,070 |
| | 1,060 |
| | 1,022 |
| | 1,089 |
| | 1,036 |
| | 1,070 |
|
| Diluted | | 1,170 |
| | 1,198 |
| | 1,057 |
| | 1,154 |
| | 1,036 |
| | 1,170 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
| | | For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 | | August 31,
2017 | | September 1,
2016 | | September 3,
2015 |
| Net income | | $ | 2,899 |
| | $ | 3,079 |
| | $ | 1,194 |
| |
| Net income (loss) | | | $ | 5,090 |
| | $ | (275 | ) | | $ | 2,899 |
|
| | | | | | | | | | | | | |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | | |
| Foreign currency translation adjustments | | (42 | ) | | (2 | ) | | (5 | ) | | 48 |
| | (49 | ) | | (42 | ) |
| Gain (loss) on derivatives, net | | (18 | ) | | (9 | ) | | (9 | ) | | 15 |
| | 7 |
| | (18 | ) |
| Pension liability adjustments | | | 1 |
| | (9 | ) | | 20 |
|
| Gain (loss) on investments, net | | (4 | ) | | 1 |
| | (1 | ) | | — |
| | 3 |
| | (4 | ) |
| Pension liability adjustments | | 20 |
| | 3 |
| | (1 | ) | |
| Other comprehensive income (loss) | | (44 | ) | | (7 | ) | | (16 | ) | | 64 |
| | (48 | ) | | (44 | ) |
| Total comprehensive income | | 2,855 |
| | 3,072 |
| | 1,178 |
| |
| Total comprehensive income (loss) | | | 5,154 |
| | (323 | ) | | 2,855 |
|
| Comprehensive (income) loss attributable to noncontrolling interests | | 1 |
| | (34 | ) | | (5 | ) | | (1 | ) | | (1 | ) | | 1 |
|
| Comprehensive income attributable to Micron | | $ | 2,856 |
| | $ | 3,038 |
| | $ | 1,173 |
| |
| Comprehensive income (loss) attributable to Micron | | | $ | 5,153 |
| | $ | (324 | ) | | $ | 2,856 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
| | | As of | | September 3,
2015 | | August 28,
2014 | | August 31,
2017 | | September 1,
2016 |
| Assets | | | | | | | | |
| Cash and equivalents | | $ | 2,287 |
| | $ | 4,150 |
| | $ | 5,109 |
| | $ | 4,140 |
|
| Short-term investments | | 1,234 |
| | 384 |
| | 319 |
| | 258 |
|
| Receivables | | 2,507 |
| | 2,906 |
| | 3,759 |
| | 2,068 |
|
| Inventories | | 2,340 |
| | 2,455 |
| | 3,123 |
| | 2,889 |
|
| Other current assets | | 228 |
| | 350 |
| | 147 |
| | 140 |
|
| Total current assets | | 8,596 |
| | 10,245 |
| | 12,457 |
| | 9,495 |
|
| Long-term marketable investments | | 2,113 |
| | 819 |
| | 617 |
| | 414 |
|
| Property, plant and equipment, net | | 10,554 |
| | 8,682 |
| |
| Property, plant, and equipment, net | | | 19,431 |
| | 14,686 |
|
| Equity method investments | | 1,379 |
| | 971 |
| | 16 |
| | 1,364 |
|
| Intangible assets, net | | 449 |
| | 468 |
| | 387 |
| | 464 |
|
| Deferred tax assets | | 597 |
| | 816 |
| | 766 |
| | 657 |
|
| Goodwill | | | 1,228 |
| | 104 |
|
| Other noncurrent assets | | 455 |
| | 415 |
| | 434 |
| | 356 |
|
| Total assets | | $ | 24,143 |
| | $ | 22,416 |
| | $ | 35,336 |
| | $ | 27,540 |
|
| | | | | | | | | |
| Liabilities and equity | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 2,611 |
| | $ | 2,864 |
| | $ | 3,664 |
| | $ | 3,879 |
|
| Deferred income | | 205 |
| | 309 |
| | 408 |
| | 200 |
|
| Current debt | | 1,089 |
| | 1,618 |
| | 1,262 |
| | 756 |
|
| Total current liabilities | | 3,905 |
| | 4,791 |
| | 5,334 |
| | 4,835 |
|
| Long-term debt | | 6,252 |
| | 4,893 |
| | 9,872 |
| | 9,154 |
|
| Other noncurrent liabilities | | 698 |
| | 1,102 |
| | 639 |
| | 623 |
|
| Total liabilities | | 10,855 |
| | 10,786 |
| | 15,845 |
| | 14,612 |
|
| | | | | | | | | |
| Commitments and contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | |
| Redeemable convertible notes | | 49 |
| | 68 |
| | 21 |
| | — |
|
| | | | | | | | | |
| 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 |
| |
| Micron shareholders' equity | | | | | |
| Common stock, $0.10 par value, 3,000 shares authorized, 1,116 shares issued and 1,112 outstanding (1,094 shares issued and 1,040 outstanding as of September 1, 2016) | | | 112 |
| | 109 |
|
| Additional capital | | 7,474 |
| | 7,868 |
| | 8,287 |
| | 7,736 |
|
| Retained earnings | | 5,588 |
| | 2,729 |
| | 10,260 |
| | 5,299 |
|
| Treasury stock, 45 shares held as of September 3, 2015 | | (881 | ) | | — |
| |
| Accumulated other comprehensive income | | 13 |
| | 56 |
| |
| Treasury stock, 4 shares held (54 shares as of September 1, 2016) | | | (67 | ) | | (1,029 | ) |
| Accumulated other comprehensive income (loss) | | | 29 |
| | (35 | ) |
| Total Micron shareholders' equity | | 12,302 |
| | 10,760 |
| | 18,621 |
| | 12,080 |
|
| Noncontrolling interests in subsidiaries | | 937 |
| | 802 |
| | 849 |
| | 848 |
|
| Total equity | | 13,239 |
| | 11,562 |
| | 19,470 |
| | 12,928 |
|
| Total liabilities and equity | | $ | 24,143 |
| | $ | 22,416 |
| | $ | 35,336 |
| | $ | 27,540 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| | | | | Micron Shareholders | | | | | | 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 | | Common Stock | | Additional Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Micron Shareholders' Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
| | | Number of Shares | | Amount | | | 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 |
| | 1,073 |
| | $ | 107 |
| | $ | 7,868 |
| | $ | 2,729 |
| | $ | — |
| | $ | 56 |
| | $ | 10,760 |
| | $ | 802 |
| | $ | 11,562 |
|
| Net income | | | | | | | | 2,899 |
| | | | | | 2,899 |
| | — |
| | 2,899 |
| | | | | | | | 2,899 |
| | | | | | 2,899 |
| | — |
| | 2,899 |
|
| Other comprehensive income (loss), net | | | | | | | | | | | | (43 | ) | | (43 | ) | | (1 | ) | | (44 | ) | | | | | | | | | | | | (43 | ) | | (43 | ) | | (1 | ) | | (44 | ) |
| Stock issued under stock plans | | 13 |
| | 1 |
| | 73 |
| | | | | | | | 74 |
| | | | 74 |
| | 13 |
| | 1 |
| | 73 |
| | | | | | | | 74 |
| | | | 74 |
|
| Stock-based compensation expense | | | | | | 168 |
| | | | | | | | 168 |
| | | | 168 |
| | | | | | 168 |
| | | | | | | | 168 |
| | | | 168 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | — |
| | 142 |
| | 142 |
| | | | | | | | | | | | | | — |
| | 142 |
| | 142 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | — |
| | (6 | ) | | (6 | ) | | | | | | | | | | | | | | — |
| | (6 | ) | | (6 | ) |
| Repurchase and retirement of stock | | (2 | ) | | — |
| | (13 | ) | | (40 | ) | | | | | | (53 | ) | | | | (53 | ) | | (2 | ) | | — |
| | (13 | ) | | (40 | ) | | | | | | (53 | ) | | | | (53 | ) |
| Repurchase of treasury stock | | | | | | | | | | (831 | ) | | | | (831 | ) | | | | (831 | ) | | | | | | | | | | (831 | ) | | | | (831 | ) | | | | (831 | ) |
| Settlement of capped calls | | | | | | 50 |
| | | | (50 | ) | | | | — |
| | | | — |
| | | | | | 50 |
| | | | (50 | ) | | | | — |
| | | | — |
|
| Redeemable convertible notes | | | | | | 19 |
| | | | | | | | 19 |
| | | | 19 |
| |
| Reclassification of redeemable convertible notes, net | | | | | | | 19 |
| | | | | | | | 19 |
| | | | 19 |
|
| Conversion and repurchase of convertible notes | | | | | | (691 | ) | | | | | | | | (691 | ) | | | | (691 | ) | | | | | | (691 | ) | | | | | | | | (691 | ) | | | | (691 | ) |
| Balance at September 3, 2015 | | 1,084 |
| | $ | 108 |
| | $ | 7,474 |
| | $ | 5,588 |
| | $ | (881 | ) | | $ | 13 |
| | $ | 12,302 |
| | $ | 937 |
| | $ | 13,239 |
| | 1,084 |
| | $ | 108 |
| | $ | 7,474 |
| | $ | 5,588 |
| | $ | (881 | ) | | $ | 13 |
| | $ | 12,302 |
| | $ | 937 |
| | $ | 13,239 |
|
| Net income (loss) | | | | | | | | | (276 | ) | | | | | | (276 | ) | | 1 |
| | (275 | ) |
| Other comprehensive income (loss), net | | | | | | | | | | | | | (48 | ) | | (48 | ) | | — |
| | (48 | ) |
| Stock issued under stock plans | | | 11 |
| | 1 |
| | 47 |
| | | | | | | | 48 |
| | | | 48 |
|
| Stock-based compensation expense | | | | | | | 191 |
| | | | | | | | 191 |
| | | | 191 |
|
| Contributions from noncontrolling interests | | | | | | | | | | | | | | | — |
| | 37 |
| | 37 |
|
| Distributions to noncontrolling interests | | | | | | | | | | | | | | | — |
| | (34 | ) | | (34 | ) |
| Acquisitions of noncontrolling interests | | | | | | | | | | | | | | | — |
| | (93 | ) | | (93 | ) |
| Repurchase and retirement of stock | | | (1 | ) | | — |
| | (10 | ) | | (13 | ) | | | | | | (23 | ) | | | | (23 | ) |
| Repurchase of treasury stock | | | | | | | | | | | (125 | ) | | | | (125 | ) | | | | (125 | ) |
| Settlement of capped calls | | | | | | | 23 |
| | | | (23 | ) | | | | — |
| | | | — |
|
| Reclassification of redeemable convertible notes, net | | | | | | | 49 |
| | | | | | | | 49 |
| | | | 49 |
|
| Conversion and repurchase of convertible notes | | | | | | | (38 | ) | | | | | | | | (38 | ) | | | | (38 | ) |
| Balance at September 1, 2016 | | | 1,094 |
| | $ | 109 |
| | $ | 7,736 |
| | $ | 5,299 |
| | $ | (1,029 | ) | | $ | (35 | ) | | $ | 12,080 |
| | $ | 848 |
| | $ | 12,928 |
|
| Net income | | | | | | | | | 5,089 |
| | | | | | 5,089 |
| | 1 |
| | 5,090 |
|
| Other comprehensive income (loss), net | | | | | | | | | | | | | 64 |
| | 64 |
| | — |
| | 64 |
|
| Stock issued under stock plans | | | 20 |
| | 3 |
| | 139 |
| | | | | | | | 142 |
| | | | 142 |
|
| Stock-based compensation expense | | | | | | | 217 |
| | (2 | ) | | | | | | 215 |
| | | | 215 |
|
| Repurchase and retirement of stock | | | (2 | ) | | — |
| | (13 | ) | | (22 | ) | |
|
| | | | (35 | ) | | | | (35 | ) |
| Stock issued to Nanya for Inotera Acquisition | | | 4 |
| | — |
| | 70 |
| | (104 | ) | | 1,029 |
| | | | 995 |
| | | | 995 |
|
| Settlement of capped calls | | | | | | | 192 |
| | | | (67 | ) | | | | 125 |
| | | | 125 |
|
| Reclassification of redeemable convertible notes, net | | | | | | | (21 | ) | | | | | | | | (21 | ) | | | | (21 | ) |
| Conversion and repurchase of convertible notes | | | | | | | (33 | ) | | | | | | | | (33 | ) | | | | (33 | ) |
| Balance at August 31, 2017 | | | 1,116 |
| | $ | 112 |
| | $ | 8,287 |
| | $ | 10,260 |
| | $ | (67 | ) | | $ | 29 |
| | $ | 18,621 |
| | $ | 849 |
| | $ | 19,470 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 | | August 31,
2017 | | September 1,
2016 | | September 3,
2015 |
| 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: | | |
| | |
| | | |
| Net income (loss) | | | $ | 5,090 |
| | $ | (275 | ) | | $ | 2,899 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | |
| | |
| | |
| Depreciation expense and amortization of intangible assets | | 2,667 |
| | 2,103 |
| | 1,804 |
| | 3,861 |
| | 2,980 |
| | 2,667 |
|
| Amortization of debt discount and other costs | | 138 |
| | 167 |
| | 122 |
| | 125 |
| | 126 |
| | 138 |
|
| Stock-based compensation | | 168 |
| | 115 |
| | 91 |
| | 215 |
| | 191 |
| | 168 |
|
| (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 | ) | |
| Loss on debt repurchases and conversions | | | 99 |
| | 4 |
| | 49 |
|
| Gain on remeasurement of previously-held equity interest in Inotera | | | (71 | ) | | — |
| | — |
|
| Equity in net (income) loss of equity method investees | | (447 | ) | | (474 | ) | | 83 |
| | (8 | ) | | (25 | ) | | (447 | ) |
| Gain from Inotera issuance of shares | | (3 | ) | | (97 | ) | | (48 | ) | |
| Gain from disposition of interest in Aptina | | (1 | ) | | (119 | ) | | — |
| |
| Change in operating assets and liabilities: | | |
| | |
| | | |
| Change in operating assets and liabilities | | | |
| | |
| | |
| Receivables | | 393 |
| | (518 | ) | | (409 | ) | | (1,651 | ) | | 465 |
| | 393 |
|
| Inventories | | 116 |
| | 194 |
| | 83 |
| | 50 |
| | (549 | ) | | 116 |
|
| Accounts payable and accrued expenses | | (691 | ) | | 671 |
| | 28 |
| | 564 |
| | 272 |
| | (691 | ) |
| Deferred income taxes, net | | 168 |
| | 68 |
| | (7 | ) | |
| Other noncurrent liabilities | | (16 | ) | | 243 |
| | (15 | ) | |
| Payments attributed to intercompany balances with Inotera | | | (361 | ) | | — |
| | — |
|
| Deferred income | | | 218 |
| | (6 | ) | | (105 | ) |
| Other | | (297 | ) | | 29 |
| | 10 |
| | 22 |
| | (15 | ) | | 21 |
|
| Net cash provided by operating activities | | 5,208 |
| | 5,699 |
| | 1,811 |
| | 8,153 |
| | 3,168 |
| | 5,208 |
|
| | | | | | | | | | | | | |
| Cash flows from investing activities | | |
| | |
| | | | |
| | |
| | |
| Expenditures for property, plant, and equipment | | | (4,734 | ) | | (5,817 | ) | | (4,021 | ) |
| Acquisition of Inotera | | | (2,634 | ) | | — |
| | — |
|
| Purchases of available-for-sale securities | | (4,392 | ) | | (1,063 | ) | | (924 | ) | | (1,239 | ) | | (1,026 | ) | | (4,392 | ) |
| Expenditures for property, plant and equipment | | (4,021 | ) | | (3,107 | ) | | (1,442 | ) | |
| Payments to settle hedging activities | | (132 | ) | | (26 | ) | | (253 | ) | | (274 | ) | | (152 | ) | | (132 | ) |
| (Increase) decrease in restricted cash | | (15 | ) | | 536 |
| | — |
| |
| Proceeds from sales and maturities of available-for-sale securities | | 2,248 |
| | 557 |
| | 678 |
| | 970 |
| | 3,690 |
| | 2,248 |
|
| Cash received from disposition of interest in Aptina | | 1 |
| | 105 |
| | — |
| |
| Proceeds from settlement of hedging activities | | | 184 |
| | 335 |
| | 56 |
|
| Other | | 79 |
| | 96 |
| | 31 |
| | 190 |
| | (74 | ) | | 25 |
|
| Net cash provided by (used for) investing activities | | (6,232 | ) | | (2,902 | ) | | (1,910 | ) | | (7,537 | ) | | (3,044 | ) | | (6,216 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities | | |
| | |
| | | | |
| | |
| | |
| Proceeds from issuance of debt | | | 3,311 |
| | 2,199 |
| | 2,212 |
|
| Proceeds from issuance of stock under equity plans | | | 142 |
| | 48 |
| | 74 |
|
| Proceeds from equipment sale-leaseback transactions | | | — |
| | 765 |
| | 291 |
|
| Repayments of debt | | (2,329 | ) | | (3,843 | ) | | (743 | ) | | (2,558 | ) | | (870 | ) | | (2,329 | ) |
| Payments on equipment purchase contracts | | | (519 | ) | | (46 | ) | | (95 | ) |
| Cash paid to acquire treasury stock | | (884 | ) | | (76 | ) | | (5 | ) | | (35 | ) | | (148 | ) | | (884 | ) |
| 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 | ) | | 8 |
| | (203 | ) | | 13 |
|
| Net cash provided by (used for) financing activities | | (718 | ) | | (1,499 | ) | | 520 |
| | 349 |
| | 1,745 |
| | (718 | ) |
| | | | | | | | | | | | | |
| Effect of changes in currency exchange rates on cash and equivalents | | (121 | ) | | (28 | ) | | — |
| |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | | | (12 | ) | | 19 |
| | (133 | ) |
| | | | | | | | | | | | | |
| 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 |
| |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | | 953 |
| | 1,888 |
| | (1,859 | ) |
| Cash, cash equivalents, and restricted cash at beginning of period | | | 4,263 |
| | 2,375 |
| | 4,234 |
|
| Cash, cash equivalents, and restricted cash at end of period | | | $ | 5,216 |
| | $ | 4,263 |
| | $ | 2,375 |
|
| | | | | | | | | | | | | |
| Supplemental disclosures | | |
| | |
| | | | |
| | |
| | |
| Income taxes refunded (paid), net | | $ | (63 | ) | | $ | (43 | ) | | $ | 4 |
| |
| Income taxes paid, net | | | $ | (99 | ) | | $ | (90 | ) | | $ | (63 | ) |
| Interest paid, net of amounts capitalized | | (226 | ) | | (163 | ) | | (107 | ) | | (468 | ) | | (267 | ) | | (226 | ) |
| Noncash investing and financing activities: | | |
| | |
| | | |
| Exchange of convertible notes | | — |
| | 756 |
| | — |
| |
| Acquisition of noncontrolling interest | | — |
| | 127 |
| | — |
| |
| Noncash investing and financing activity | | | | | | | |
| Equipment acquisitions on contracts payable and capital leases | | | 813 |
| | 993 |
| | 345 |
|
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 Presentation: We are a globalMicron Technology, Inc., including its consolidated subsidiaries, is an industry leader in advanced semiconductor systems. Ourinnovative memory and storage solutions. Through our global brands – Micron, Crucial, and Ballistix – our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash, and NOR Flash,3D XPoint memory, is transforming how the basis for solid-state drives, modules, multi-chip packages,world uses information to enrich life. Backed by more than 35 years of technology leadership, our memory and other system solutions. Our memorystorage solutions enable the world's most innovative computing, consumer, enterprise storage,disruptive trends, including artificial intelligence, machine learning, and autonomous vehicles in key market segments like cloud, data center, networking, mobile, embedded, and automotive applications.mobile. The accompanying consolidated financial statements include the accounts of Micron Technology, Inc. and itsour consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to current period presentation. In addition, amounts for certain equipment purchases were reclassified from financing to investing within the statement of cash flows 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 retrospective basis, Accounting Standards Update 2015-03 – Simplifying the Presentation of 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. Fiscal years 2017 and 2016 each contained 52 weeks and fiscal year 2015 contained 53 weeks and fiscal years 2014 and 2013 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 (1) our monetary assets and liabilities or futuredenominated in currencies other than the U.S. dollar and (2) forecasted 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.certain capital expenditures. 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,purposes, gains or losses from changes in fair values are recognized in other non-operating income (expense). For derivative instrumentsforward contracts designated as cash-flow hedges, we exclude changes in the time value from the effectiveness assessment. 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 amountsAmounts 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. InvestmentsOther investments with remaining maturities greater than three months andof 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 us and all of our consolidated subsidiaries.
Goodwill and Non-Amortizing Intangible Assets: We perform an annual impairment assessment for goodwill and non-amortizing intangible assets in the fourth quarter of our fiscal year.
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 ofIn determining the lower of average cost or net realizable value. Thevalue, inventories are primarily categorized as memory (including DRAM, NAND, and other memory) based on 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 projecteddata of 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 ourapplicable specifications existing at the time of delivery. Under our generalstandard 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 generalstandard terms and conditions. Our warranty obligations are not significant.material.
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 assetassets to the condition of itstheir intended use and location. Capitalized interest becomes part of the cost, of the underlying assets and amortized over the useful lives of, the assets.
We periodically assess the estimated useful lives of our property, plant, and equipment. In the fourth quarter of 2016, we identified factors such as the lengthening period of time between DRAM product technology node transitions, an increased re-use rate of equipment, and industry trends. As a result, we revised the estimated useful lives of equipment in our DRAM wafer fabrication facilities from five to seven years in the fourth quarter of 2016. The effect of the revision was not material for 2016 and reduced depreciation costs by approximately $100 million per quarter in 2017.
Research and Development: Costs related to the conceptual formulation and design of products and processes are expensed as research and developmentR&D as incurred. Determining when product development is complete requires judgment. Development of a product is deemed complete once the product has been thoroughly reviewedwhen it is qualified through thorough reviews and has passed tests for performance and reliability. Subsequent to product qualification, product costs are valuedincluded in inventory.cost of goods sold. Product design and other research and developmentR&D costs for certain technologies aremay be shared with our joint venture partners.a development partner. Amounts receivable from cost-sharing arrangements are reflected as a reduction of research and developmentR&D 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 collectabilitycollectibility is reasonably assured.assured, which is generally at the time of shipment to our customers. 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. Revenue recognized upon resale by our customers under these arrangements was 20%, 25%, and 21% of our consolidated revenue for 2017, 2016, and 2015, respectively.
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: Treasury stock is carried at cost. 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 Estimates: 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.
Variable Interest Entities
We have interests in entities that are 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 judgments.
Unconsolidated VIEs
Inotera:Inotera: Prior to our acquisition of the remaining interest in Inotera ison December 6, 2016, Inotera was a VIE because of the terms of its supply agreement with us. We havehad previously determined that we dodid not have the power to direct the activities of Inotera that most significantly impactimpacted its economic performance, primarily due to limitations on our governance rights that requirerequired the consent of other parties for key operating decisions and due to Inotera's dependence on Nanya for financing and the ability of Inotera to operate in Taiwan. Therefore, we dodid not consolidate Inotera and we accountaccounted for our interest under the equity method. (See "Acquisition of Inotera" and "Equity Method Investments – Inotera" note.notes.)
EQUVO:PTI Xi'anEQUVO HK Limited: Powertech Technology Inc. Xi'an ("EQUVO"PTI Xi'an") is a special purpose entitywholly-owned subsidiary of Powertech Technology Inc. ("PTI") and was created to facilitate anprovide assembly services to us at our manufacturing site in Xi'an, China. In connection therewith, we had capital lease obligations of $80 million and net property, plant, and equipment sale-leaseback financing transaction between us and a consortium of financial institutions. Neither we nor the financing entities$76 million as of August 31, 2017. We do not have an equity interest in EQUVO. EQUVOPTI Xi'an. PTI Xi'an is a VIE because of the terms of its equity is not sufficient to permit itservice agreement with us and its dependency on PTI to finance its activities without additional support from the financing entities and because the third-party equity holder lacks characteristics of a controlling financial interest. By design, the arrangement with EQUVO is merely a financing vehicle and we do not bear any significant risks from variable interests with EQUVO. Therefore, weoperations. We have determined that we do not have the power to direct the activities of EQUVOPTI Xi'an that most significantly impact its 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 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, whichprimarily because we have determined are the activities of SCHE that most significantly impact its economic performance.no governance rights. Therefore, we do not consolidate SCHE.PTI Xi'an.
Consolidated VIEsVIE
IMFT: IMFT:IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase agreements and because IMFT is dependent upon us or Intel for additional cash requirements. 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.product designs. We consolidate 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.
MP Mask: MP Mask is a VIE because substantially all of its costs are passed to us and its other member, Photronics, through product purchase agreements and MP Mask is dependent upon us or Photronics for any additional cash requirements. We have 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 and because we have the obligation to absorb losses and the right to receive benefits from MP Mask that could potentially be significant to it.
(See (See "Equity – Noncontrolling Interests in Subsidiaries"Subsidiaries – IMFT" note.)
Recently Adopted Accounting Standards
In July 2015,January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-112017-04 – – Simplifying the MeasurementTest for Goodwill Impairment, which modified the goodwill impairment test and required an entity to write down the carrying value of Inventory, which changed the subsequent measurement guidance from the lower of cost or marketgoodwill up to the loweramount by which the carrying amount 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 inventory measurement.a reporting unit exceeded its fair value. We adopted this standard inASU as of the beginning of the fourth quarter of 2015.2017 in connection with our annual impairment test. The adoption of this standardthe ASU did not have a material impact on our financial statements.
In April 2015,November 2016, the FASB issued ASU 2015-032016-18 – – Simplifying the Presentation of Debt Issuance CostsRestricted Cash, which requires that debt issuance costs relatedrequired amounts generally described as restricted cash and restricted cash equivalents to a recognized debt liability be presented inincluded with cash and cash equivalents when reconciling the balance sheet as a direct deduction fromtotal beginning and ending amounts for the carrying amountperiods shown on the statement of that debt liability, as appropriate, consistent with debt discounts, as opposed to an asset.cash flows. We adopted this standardASU in the fourth quarter of 20152017 on a retrospective basis. As of September 1, 2016, September 3, 2015, and August 28, 2014, restricted cash was $123 million, $88 million, and $84 million, respectively. The adoption of this ASU did not have a result of adopting this standard, we presentedmaterial impact on our debt issuance costs for recognized debt liabilities as a direct reductioncash flows.
In March 2016, the FASB issued ASU 2016-09 – Improvements to Employee Share-Based Payment Accounting, which simplified several aspects of the related debt liability inaccounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, forfeitures, and classification within the consolidated balance sheetsstatement of cash flows. We adopted this ASU as of the beginning of the first quarter of 2017 and elected to account for all periods presented. (See "Debt – Retrospective Application offorfeitures when they occur, on a New Accounting Standard" note.)
Recently Issued Accounting Standardsmodified retrospective basis. At the time of adoption in the first quarter of 2017, we recognized deferred tax assets of $325 million for the excess tax benefits that arose directly from tax deductions related to equity compensation greater than amounts recognized for financial reporting and also recognized an increase of an equal amount in the valuation allowance against those deferred tax assets. The adoption did not have any other material impacts on our financial statements.
In April 2015, the FASB issued ASU 2015-05 – – Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which providesprovided additional guidance to customers about whether a cloud computing arrangement includes a software license. Under ASU 2015-05, if a software cloud computing arrangement containsarrangements that contain a software license customers should accountbe accounted for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license,licenses, otherwise customers should account for the arrangement as a service contract. ASU 2015-05 also removesremoved the requirement to analogize to ASC 840-10 – –Leases, to determine the asset acquired in a software licensing arrangement. ThisWe adopted this ASU will be effective for usas of the beginning in ourof the first quarter of 2017 and early adoption is permitted. We are evaluating the effects of theon a prospective basis. The adoption of this ASU did not have a material impact on our financial statements.
In February 2015, the FASB issued ASU 2015-02 – Amendments to the Consolidation Analysis, which amendsamended the consolidation requirements in Accounting Standards Codification 810 – –Consolidation. ASU 2015-02 makesmade targeted amendments to the current consolidation guidance for VIEs,VIEs. We adopted this ASU as of the beginning of the first quarter of 2017 under a modified-retrospective approach. The adoption of this ASU did not have an impact on our financial statements.
Recently Issued Accounting Standards
In October 2016, the FASB issued ASU 2016-16 – Intra-Entity Transfers Other Than Inventory, which could change consolidation conclusions.requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This ASU will be effective for us beginning in ourthe first quarter of 2017 and2019 with early adoption permitted and requires modified retrospective adoption. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.
In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is permitted.below amortized cost. This ASU will be effective for us in the first quarter of 2021 with adoption permitted as early as the first quarter of 2020. This ASU requires modified retrospective adoption, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.
In February 2016, the FASB issued ASU 2016-02 – Leases, which amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of- use asset and corresponding liability, measured at the present value of the lease payments. This ASU will be effective for us in the first quarter of 2020 with early adoption permitted and requires modified retrospective adoption. The adoption of this ASU will result in an increase to our consolidated balance sheets for these right-of-use assets and corresponding liabilities. We are evaluating the timing and other effects of our adoption of this ASU on our financial statements.
In January 2016, the FASB issued ASU 2016-01 – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for us in the first quarter of 2019 and requires modified retrospective adoption. We are evaluating the effects of theour 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.United States. The core principal of this ASU, as amended, 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, weWe are required to adopt this ASU beginning in ourthe first quarter of 2019; however, we are2019 with adoption permitted to adopt this ASU as early as ourthe first quarter of 2018. This ASU allows for either full retrospective or modified retrospective adoption. We expect that, as a result of the adoption of this ASU, the timing of recognizing revenue from sales of products to our distributors under
agreements allowing rights of return or price protection will be generally earlier than under the existing revenue recognition guidance. Revenue recognized upon resale by our customers under these arrangements was 20%, 25%, and 21% of our consolidated revenue for 2017, 2016, and 2015, respectively. After adoption, the impact of this change in any reporting period would be the net effect of changes to revenue recognized as of the beginning and end of each period. We are evaluating the timing, of our adoption, the transition method, we will elect, and theother effects of theour adoption of this ASU on our financial statements.
Micron Memory Japan, Inc.Acquisition of Inotera
On July 31, 2013,Through December 6, 2016, we acquired Elpida,held a 33% ownership interest in Inotera, now known as MMJ,Micron Technology Taiwan, Inc. ("MTTW"), Nanya and certain of its affiliates held a controlling32% ownership interest, and the remaining ownership interest was publicly held. On December 6, 2016, we acquired the 67% remaining interest in Rexchip, now known as MMT,Inotera not owned by us (the "Inotera Acquisition") and began consolidating Inotera's operating results. The cash paid 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 (2) the acquisition of an additional 24% interest in MMT from Powerchip Technology Corporation (the "MMT Share Purchase"). The MMJInotera Acquisition was treated as a single business combination because: (1)funded, in part, with proceeds from the two transactions were entered into2021 MSTW Term Loan and closed contemporaneously, and (2) the MMT Share Purchase was negotiated in contemplationsale of the acquisition of MMJ andMicron Shares (as defined below) to Nanya. Inotera manufactures DRAM products at 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 300mm DRAM300mm wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility located in TaichungTaoyuan City, Taiwan, and an assemblypreviously sold such products exclusively to us through supply agreements. SG&A expenses for 2017 and test facility located in Akita, Japan. The operations from the MMJ Acquisition, which are2016 included primarily in our MBUtransaction costs of $13 million 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.
We estimated the provisional fair values of the assets and liabilities of the MMJ Group as of the July 31, 2013 acquisition date using an in-use model, which reflects its value through its use in combination with other assets as a group and we recognized a gain in 2013 of $1.48 billion. In the second quarter of 2014, the provisional amounts recorded$3 million, respectively, incurred in connection with the MMJInotera Acquisition.
In connection with the Inotera Acquisition, were adjusted, primarily for pre-petition liabilities,we revalued our previously-held 33% equity interest to its fair value. In determining the fair value, we used various valuation techniques, including the share price of Inotera prior to the announcement of the Inotera Acquisition and discounted cash flow projections using inputs including discount rate and terminal growth rate (Level 3). As a result, we recognized a chargenon-operating gain of $71 million in 20142017.
In connection with the Inotera Acquisition, we sold 58 million shares of our common stock to Nanya (the "Micron Shares") and received cash proceeds of $986 million. Because the sale of the Micron Shares to Nanya was contemporaneous with, and contingent upon, the closing the Inotera Acquisition, the issuance of the Micron Shares was treated in purchase accounting as a non-cash exchange for these measurement period adjustments.a portion of the shares of Inotera held by Nanya. The Micron Shares were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, and are subject to certain restrictions on transfers. To reflect the lack of transferability, the fair value of the Micron Shares (based on the trading price of our common stock on the acquisition date) was reduced by a discount of $81 million, based on the implied volatility derived from traded options on our stock and on the duration of the lack of transferability (Level 2).
We provisionally estimated the fair value of the Inotera assets acquired and liabilities assumed as of the December 6, 2016 acquisition date. In 2017, we incorporated additional information in our analysis about facts and circumstances that existed as of the acquisition date and adjusted our provisional values, which resulted in a decrease in the amount of purchase price allocated to property, plant, and equipment of $59 million and increases in the amounts allocated to other noncurrent assets of $13 million, deferred income taxes of $8 million, and goodwill of $38 million. The allocation of purchase price to assets acquired and liabilities assumed of Inotera could further change as additional information becomes available. The consideration and provisional valuation of assets acquired and liabilities assumed, as adjusted in 2017, 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 |
|
|
| | | | |
| Consideration | | |
| Cash paid for Inotera Acquisition | | $ | 4,099 |
|
| Less cash received from sale of Micron Shares | | (986 | ) |
| Net cash paid for Inotera Acquisition | | 3,113 |
|
| Fair value of our previously-held equity interest in Inotera | | 1,441 |
|
| Fair value of Micron Shares exchanged for Inotera shares | | 995 |
|
| Other | | 3 |
|
| Payments attributed to intercompany balances with Inotera | | (361 | ) |
| | | $ | 5,191 |
|
| | | |
| Assets acquired and liabilities assumed | | |
| Cash and equivalents | | $ | 118 |
|
| Inventories | | 285 |
|
| Other current assets | | 27 |
|
| Property, plant, and equipment | | 3,722 |
|
| Deferred tax assets | | 82 |
|
| Goodwill | | 1,124 |
|
| Other noncurrent assets | | 130 |
|
| Accounts payable and accrued expenses | | (232 | ) |
| Debt | | (56 | ) |
| Other noncurrent liabilities | | (9 | ) |
| | | $ | 5,191 |
|
Our resultsThe Inotera Acquisition enhances our flexibility to drive new technology, optimize the deployment of operations for 2013 included $355 million of net salescapital, and $46 million of operating income from the MMJ Group's operations after the July 31, 2013 acquisition date. Selling, general, and administrative expensesadapt our product offerings to changes 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.market conditions. As a result of these synergies, we allocated goodwill of $829 million, $198 million, and $97 million to CNBU, MBU, and EBU, respectively. Goodwill resulting from the Japan Proceedings,Inotera Acquisition is not deductible 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 availableTaiwan corporate income tax purposes; however, it is deductible 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.Taiwan surtax purposes.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations as if the MMJInotera Acquisition had occurred on September 2, 2011.4, 2015. The pro forma financial information includes the accounting effects of the business combination, including adjustments to the amortization of intangible assets;for depreciation of property, plant, and equipment;equipment, interest expense; andexpense, elimination of intercompany activities. The historical resultsactivities, and revaluation 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.inventories. 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 the MMJInotera Acquisition occurred on September 2, 2011.
4, 2015.
|
| | | | |
| For the year ended | | 2013 |
| Net sales | | $ | 12,494 |
|
| Net income | | 3,825 |
|
| Net income attributable to Micron | | 3,770 |
|
| | | |
| Earnings per share: | | |
| Basic | | $ | 3.69 |
|
| Diluted | | 3.57 |
|
|
| | | | | | | | |
| | | Year ended |
| | | August 31,
2017 | | September 1,
2016 |
| Net sales | | $ | 20,317 |
| | $ | 12,341 |
|
| Net income (loss) | | 5,172 |
| | (543 | ) |
| Net income (loss) attributable to Micron | | 5,171 |
| | (544 | ) |
| Earnings (loss) per share | | | | |
| Basic | | 4.68 |
| | (0.50 | ) |
| Diluted | | 4.42 |
| | (0.50 | ) |
The unaudited pro forma financial information for 20132017 includes our results for the year ended August 29, 2013, which31, 2017 (which includes one month of results from the MMJ Group following the closing of the MMJ Acquisition, and the results of Inotera since our acquisition of Inotera on December 6, 2016), the MMJ Group, includingresults of Inotera for the three months ended November 30, 2016, and the adjustments described above,above. The pro forma information for 2016 includes our results for the elevenyear ended September 1, 2016, the results of Inotera for the twelve months ended MayAugust 31, 2013.2016, and the adjustments described above.
Technology Transfer and License Agreements with Nanya
Effective December 6, 2016, under the terms of technology transfer and license agreements, Nanya has options to require us to transfer to Nanya certain technology for Nanya's use and deliverables related to the next DRAM process node generation after our 20nm process node (the "1X Process Node") and the next DRAM process node generation after the 1X Process Node. Under the terms of the agreements, Nanya would pay royalties to us for a license to the transferred technologies based on revenues from products utilizing the technologies, subject to specified caps, and we would also receive an equity interest in Nanya upon the achievement of certain milestones.
Cash and Investments
Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:
| | | As of | | September 3, 2015 | | August 28, 2014 | | 2017 | | 2016 |
| | | 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 and Equivalents | | Short-term Investments | | Long-term Marketable Investments(1) | | Total Fair Value | | Cash and Equivalents | | Short-term Investments | | Long-term Marketable Investments(1) | | Total Fair Value |
| Cash | | $ | 1,684 |
| | $ | — |
| | $ | — |
| | $ | 1,684 |
| | $ | 2,445 |
| | $ | — |
| | $ | — |
| | $ | 2,445 |
| | $ | 2,237 |
| | $ | — |
| | $ | — |
| | $ | 2,237 |
| | $ | 2,258 |
| | $ | — |
| | $ | — |
| | $ | 2,258 |
|
Level 1(1)(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Money market funds | | 168 |
| | — |
| | — |
| | 168 |
| | 1,281 |
| | — |
| | — |
| | 1,281 |
| | 2,332 |
| | — |
| | — |
| | 2,332 |
| | 1,507 |
| | — |
| | — |
| | 1,507 |
|
| Marketable equity securities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| |
| | | 168 |
| | — |
| | — |
| | 168 |
| | 1,281 |
| | — |
| | 1 |
| | 1,282 |
| |
Level 2(2) | | | | | | | | | | | | | | | | | |
Level 2(3) | | | | | | | | | | | | | | | | | |
| Certificates of deposit | | | 483 |
| | 24 |
| | 3 |
| | 510 |
| | 373 |
| | 33 |
| | — |
| | 406 |
|
| Corporate bonds | | 2 |
| | 616 |
| | 1,261 |
| | 1,879 |
| | — |
| | 154 |
| | 407 |
| | 561 |
| | — |
| | 193 |
| | 315 |
| | 508 |
| | — |
| | 142 |
| | 235 |
| | 377 |
|
| Government securities | | 58 |
| | 391 |
| | 254 |
| | 703 |
| | — |
| | 136 |
| | 284 |
| | 420 |
| | 1 |
| | 90 |
| | 126 |
| | 217 |
| | 2 |
| | 62 |
| | 82 |
| | 146 |
|
| Asset-backed securities | | — |
| | 8 |
| | 575 |
| | 583 |
| | — |
| | 1 |
| | 127 |
| | 128 |
| | — |
| | 2 |
| | 173 |
| | 175 |
| | — |
| | 12 |
| | 97 |
| | 109 |
|
| Certificates of deposit | | 311 |
| | 28 |
| | 23 |
| | 362 |
| | 402 |
| | 8 |
| | — |
| | 410 |
| |
| Commercial paper | | 64 |
| | 191 |
| | — |
| | 255 |
| | 22 |
| | 85 |
| | — |
| | 107 |
| | 56 |
| | 10 |
| | — |
| | 66 |
| | — |
| | 9 |
| | — |
| | 9 |
|
| | | 435 |
| | 1,234 |
| | 2,113 |
| | 3,782 |
| | 424 |
| | 384 |
| | 818 |
| | 1,626 |
| | 5,109 |
| | $ | 319 |
| | $ | 617 |
| | $ | 6,045 |
| | 4,140 |
| | $ | 258 |
| | $ | 414 |
| | $ | 4,812 |
|
| | | $ | 2,287 |
| | $ | 1,234 |
| | $ | 2,113 |
| | $ | 5,634 |
| | $ | 4,150 |
| | $ | 384 |
| | $ | 819 |
| | $ | 5,353 |
| |
Restricted cash(4) | | | 107 |
| | | | | | | | 123 |
| | | | | | |
| Cash, cash equivalents, and restricted cash | | | $ | 5,216 |
| | | | | | | | $ | 4,263 |
| | | | | | |
| |
(1) | The maturities of long-term marketable securities range from one to four years. |
| |
(2) | The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets. |
| |
(2)(3)
| 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, noNo adjustments were made to such pricing information.information as of August 31, 2017 or September 1, 2016. |
| |
(3)(4)
| Restricted cash is included in other noncurrent assets and generally represents balances related to the MMJ Creditor Payments and interest reserve balances related to the 2021 MSTW Term Loan. The maturitiesrestrictions on the MMJ Creditor Payments lapse upon approval by the trustees and/or Japan Court. The restrictions on the interest reserve balances lapse in proportion to the reduction in the amount of our long-term marketable securities generally range from oneinterest expected to four years.be paid under the 2021 MSTW Term Loan for the subsequent six months. (See "Debt" note.) |
Proceeds from sales of available-for-sale securities for 2017, 2016, and 2015 2014,were $776 million, $2.31 billion, and 2013 were $1.49$1.49 billion,, $355 million, and $526 million, respectively. Gross realized gains and losses from sales of available-for-sale securities were not significantmaterial for any period
presented. As of September 3, 2015, none of ourAugust 31, 2017, there were no available-for-sale securities that had been in a loss position for longer than 12 months.
Receivables
|
| | | | | | | | |
| As of | | 2015 | | 2014 |
| Trade receivables | | $ | 2,188 |
| | $ | 2,524 |
|
| Income and other taxes | | 116 |
| | 104 |
|
| Other | | 203 |
| | 278 |
|
| | | $ | 2,507 |
| | $ | 2,906 |
|
As of September 3, 2015 and August 28, 2014, other receivables included $120 million and $70 million, respectively, due from Intel for amounts related to product design and process development activities under cost-sharing agreements for NAND Flash memory and 3D XPoint memory. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.) |
| | | | | | | | |
| As of | | 2017 | | 2016 |
| Trade receivables | | $ | 3,490 |
| | $ | 1,765 |
|
| Income and other taxes | | 100 |
| | 119 |
|
| Other | | 169 |
| | 184 |
|
| | | $ | 3,759 |
| | $ | 2,068 |
|
Inventories
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| Finished goods | | $ | 785 |
| | $ | 898 |
| | $ | 856 |
| | $ | 899 |
|
| Work in process | | 1,315 |
| | 1,372 |
| | 1,968 |
| | 1,761 |
|
| Raw materials and supplies | | 240 |
| | 185 |
| | 299 |
| | 229 |
|
| | | $ | 2,340 |
| | $ | 2,455 |
| | $ | 3,123 |
| | $ | 2,889 |
|
Property, Plant, and Equipment
| | | As of | 2014 | | Additions | | Retirements and Other | | 2015 | | 2017 | | 2016 |
| Land | $ | 86 |
| | $ | 2 |
| | $ | — |
| | $ | 88 |
| | $ | 345 |
| | $ | 145 |
|
| 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 |
| |
| Buildings (includes $475 and $347, respectively, under capital leases) | | | 7,958 |
| | 6,653 |
|
Equipment(1) (includes $1,331 and $1,374, respectively, under capital leases) | | | 32,187 |
| | 25,910 |
|
Construction in progress(2) | 114 |
| | 345 |
| | (23 | ) | | 436 |
| | 499 |
| | 475 |
|
| Software | 358 |
| | 39 |
| | (24 | ) | | 373 |
| | 544 |
| | 422 |
|
| | 23,432 |
| | 4,464 |
| | (621 | ) | | 27,275 |
| | 41,533 |
| | 33,605 |
|
| Accumulated depreciation (includes $695 as of 2014 and $717 as of 2015 for capital leases) | (14,750 | ) | | (2,550 | ) | | 579 |
| | (16,721 | ) | |
| Accumulated depreciation (includes $626 and $492, respectively, under capital leases) | | | (22,102 | ) | | (18,919 | ) |
| | $ | 8,682 |
| | $ | 1,914 |
| | $ | (42 | ) | | $ | 10,554 |
| | $ | 19,431 |
| | $ | 14,686 |
|
| |
(1) | Included costs related to equipment not placed into service of $928$994 million and $826 million,$1.47 billion, as of August 31, 2017 and September 3, 2015 and August 28, 2014,1, 2016, respectively. |
| |
(2) | Included building-related construction and tool installation costs onfor assets not placed into service. |
Depreciation expense was $2.553.76 billion, $1.992.86 billion, and $1.722.55 billion for 20152017, 20142016, and 20132015, respectively. Other noncurrent assets included land held for development of $58 million as of September 3, 2015 and $57 million as ofAugust 28, 2014. As of September 3, 2015,August 31, 2017, production equipment, buildings, and buildingsland with an aggregate carrying value of $248 million6.14 billion and land with a carrying value of $42 million were pledged as collateral under various notes payable. (See "Debt – Other Facilities" note.)Interest capitalized as part of the cost of property, plant, and equipment was $7 million, $43 million, and $20 million for 2017, 2016, and 2015, respectively. In the fourth quarter of 2016, we revised the estimated useful lives of equipment in our DRAM wafer fabrication facilities from five to seven years, which reduced depreciation costs by approximately $100 million per quarter in 2017.
Equity Method Investments
|
| | | | | | | | | | | | | | |
| As of | | 2015 | | 2014 |
| | | Investment Balance | | Ownership Percentage | | Investment Balance | | Ownership Percentage |
Inotera(1) | | $ | 1,332 |
| | 33 | % | | $ | 914 |
| | 33 | % |
| Tera Probe | | 38 |
| | 40 | % | | 48 |
| | 40 | % |
| Other | | 9 |
| | Various |
| | 9 |
| | Various |
|
| | | $ | 1,379 |
| | |
| | $ | 971 |
| | |
|
(1) Entity is a variable interest entity. |
| | | | | | | | | | | | | | |
| As of | | 2017 | | 2016 |
| | | Investment Balance | | Ownership Percentage | | Investment Balance | | Ownership Percentage |
| Inotera | | $ | — |
| | — | % | | $ | 1,314 |
| | 33 | % |
| Tera Probe | | — |
| | — | % | | 36 |
| | 40 | % |
| Other | | 16 |
| | Various |
| | 14 |
| | Various |
|
| | | $ | 16 |
| | |
| | $ | 1,364 |
| | |
|
As 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 our 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 income (loss) of equity method investees, net of tax, included the following:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Inotera | | $ | 445 |
| | $ | 465 |
| | $ | (79 | ) | | $ | 9 |
| | $ | 32 |
| | $ | 445 |
|
| Tera Probe | | 1 |
| | 11 |
| | — |
| | (3 | ) | | (11 | ) | | 1 |
|
| Other | | 1 |
| | (2 | ) | | (4 | ) | | 2 |
| | 4 |
| | 1 |
|
| | | $ | 447 |
| | $ | 474 |
| | $ | (83 | ) | | $ | 8 |
| | $ | 25 |
| | $ | 447 |
|
The summarized financial information in the tables below reflects aggregate amounts for 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. Summarized results of operations are presented only for the periods subsequent to the acquisition, or through the disposition of, our ownership interests.
|
| | | | | | | | |
| As of | | 2017 | | 2016 |
| Current assets | | $ | 107 |
| | $ | 1,222 |
|
| Noncurrent assets | | 256 |
| | 4,294 |
|
| Current liabilities | | 19 |
| | 604 |
|
| Noncurrent liabilities | | 66 |
| | 411 |
|
|
| | | | | | | | |
| As of | | 2015 | | 2014 |
| Current assets | | $ | 1,980 |
| | $ | 2,233 |
|
| Noncurrent assets | | 3,038 |
| | 2,502 |
|
| Current liabilities | | 436 |
| | 1,417 |
|
| Noncurrent liabilities | | 119 |
| | 254 |
|
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 2,647 |
| | $ | 3,382 |
| | $ | 1,788 |
| | $ | 557 |
| | $ | 1,671 |
| | $ | 2,647 |
|
| Gross margin | | 1,253 |
| | 1,576 |
| | 1 |
| | 82 |
| | 155 |
| | 1,253 |
|
| Operating income (loss) | | 1,191 |
| | 1,371 |
| | (203 | ) | |
| Net income (loss) | | 1,361 |
| | 1,339 |
| | (188 | ) | |
| Operating income | | | 126 |
| | 199 |
| | 1,191 |
|
| Net income | | | 76 |
| | 184 |
| | 1,361 |
|
Inotera
We have partnered with Nanyaheld a 33% interest in Inotera, a Taiwan DRAM memory company, since 2009. In 2013,through December 6, 2016, at which time we acquired the remaining 67% interest in Inotera. Historically, we accounted for our interest in Inotera issued 634 million common shares to Nanya and certain of its affiliates inon 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.two-month lag under the equity method. As a result of the issuance,Inotera Acquisition, we account for Inotera without a lag, consistent with 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 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. As of September 3, 2015, we held a 33% ownership interest in Inotera, Nanya and certain of its affiliates held a 33% ownership interest, and the remaining ownership interest in Inotera was publicly held.
As of September 3, 2015, the market value of our equity interest in Inotera was $1.53 billion based on the closing trading price of 23.20 New Taiwan dollars per share in an active market. As of September 3, 2015 and August 28, 2014, there were gains of $13 million and $44 million, respectively, in accumulated other comprehensive income (loss) for cumulative translation adjustments from our equity investment in Inotera.wholly-owned subsidiaries.
SinceFrom January 2013 through December 2015, we have purchased all of Inotera's DRAM output under supply agreements at prices reflecting discounts from market prices for our comparable components under a supply agreement. Incomponents. After December 2015 and until our acquisition of 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,remaining interest in Inotera, the price for DRAM products sold topurchased by us will bewas based on a formula that equally sharesshared 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,Under these agreements, 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$504 million, $1.43 billion and $1.26$2.37 billion of DRAM products in 2017 through the date of our acquisition, 2016, and 2015 2014,respectively. In 2016, we manufactured and 2013 respectively.sold specialized equipment to Inotera and recognized net sales of $55 million and margin of $16 million.
Tera Probe
In 2013, as part of the MMJ Acquisition,2017, we acquired asold our 40% interest in Tera Probe, which providesprovided semiconductor wafer testing and probe services to us, and others. The initial net carrying valuein a transaction that included the sale of our investment was less than our proportionate shareassembly and test facility located in Akita, Japan. (See "Restructure and Asset Impairments" note.) In 2017, 2016, and 2015, we recorded impairment charges of Tera Probe's equity$16 million, $25 million, and the difference is being amortized as a credit to our earnings through$10 million, respectively, within 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 is expected to be amortized over a weighted-average period of seven years. Based on closing trading prices, the market value of our equity interest in 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 recorded an impairment charge of $10 million within equity in net income of equity method investees to write down the carrying value of our investment
in Tera Probe to its fair value based on its trading price (Level 1 fair value measurement)1). We incurred manufacturing costs for 2015, 2014, and 2013 of $90 million, $117 million, and $13 million respectively, for services performed by Tera Probe.
Other
Aptina: We held an equity interest in Aptina until August 15, 2014. On August 15, 2014, ON Semiconductor Corporation acquired Aptina for approximately $433Probe of $47 million, $70 million, and we recognized a non-operating gain$90 million in 2017 through the date of $119 million based on our diluted ownership interest of approximately 27%. The gain approximated our share of the consideration because the carrying value of our investment had been reduced to zero in 2012, at which time we ceased recognizing our proportionate share of Aptina's losses.
Through May 3, 2013, we manufactured components for Complementary 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 2014sale, 2016, and 2013, we recognized net sales of $43 million and $182 million, respectively, from products sold to and services performed for Aptina, and cost of goods sold of $37 million and $219 million,2015, 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 Asset Impairments" note.)
Intangible Assets and Goodwill
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| Amortizing assets | | | | | | | | | |
| Product and process technology | | $ | 864 |
| | $ | (416 | ) | | $ | 809 |
| | $ | (341 | ) | | $ | 755 |
| | $ | (476 | ) | | $ | 757 |
| | $ | (402 | ) |
| Other | | 2 |
| | (1 | ) | | 1 |
| | (1 | ) | | 1 |
| | (1 | ) | | 1 |
| | — |
|
| | | $ | 866 |
| | $ | (417 | ) | | $ | 810 |
| | $ | (342 | ) | | 756 |
| | (477 | ) | | 758 |
| | (402 | ) |
| Non-amortizing assets | | | | | | | | | |
| In-process R&D | | | 108 |
| | — |
| | 108 |
| | — |
|
| | | | | | | | | | |
| Total intangible assets | | | $ | 864 |
| | $ | (477 | ) | | $ | 866 |
| | $ | (402 | ) |
| | | | | | | | | | |
| Goodwill | | | $ | 1,228 |
| | | | $ | 104 |
| | |
DuringIn 2017, 2016, and 2015, and 2014, we capitalized $98$29 million, $30 million, and $177$98 million, respectively, for product and process technology with weighted-average useful lives of seven11 years, 10 years, and six7 years, respectively. Amortization expense was $117106 million, $110117 million, and $83117 million for 2015, 2014,2017, 2016, and 2013,2015, respectively. The expected annualExpected amortization expense for intangible assets held as of September 3, 2015 is $118$99 million for 2018, $49 million for 2019, $33 million for 2020, $28 million for 2021, and $17 million for 2022.
In 2016, we acquired Tidal Systems, Ltd., $102a developer of PCIe NAND Flash storage controllers, to enhance our NAND Flash controller technology for $148 million. In connection therewith, we recognized $108 million of in-process R&D; $81 million of goodwill, which was derived from expected cost reductions and other synergies and was assigned to SBU; and $41 million of deferred tax liabilities; which, in aggregate, represented substantially all of the purchase price. The in-process R&D was valued using a replacement cost approach, which included inputs of reproduction cost, including developer's profit, and opportunity cost. We will begin amortizing the in-process R&D when development is complete, estimated to be in 2018, and will amortize it over its then estimated useful life. The goodwill is not deductible for 2017, $93 million for 2018, $43 million for 2019, and $26 million for 2020.tax purposes.
Accounts Payable and Accrued Expenses
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| Accounts payable | | $ | 1,020 |
| | $ | 996 |
| | $ | 1,333 |
| | $ | 1,186 |
|
| Property, plant and equipment payables | | 577 |
| | 289 |
| |
| Property, plant, and equipment payables | | | 1,018 |
| | 1,649 |
|
| Salaries, wages, and benefits | | | 603 |
| | 289 |
|
| Related party payables | | 338 |
| | 673 |
| | — |
| | 273 |
|
| Salaries, wages and benefits | | 321 |
| | 456 |
| |
| Customer advances | | | 197 |
| | 132 |
|
| Income and other taxes | | 85 |
| | 71 |
| | 163 |
| | 41 |
|
| Customer advances | | 15 |
| | 98 |
| |
| Other | | 255 |
| | 281 |
| | 350 |
| | 309 |
|
| | | $ | 2,611 |
| | $ | 2,864 |
| | $ | 3,664 |
| | $ | 3,879 |
|
As of September 3, 2015 and August 28, 20141, 2016, related party payables included $327266 million and $660 million, respectively, due to Inotera primarily for the purchase of DRAM 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 28, 2014, customer advances included $90 million, and other noncurrent liabilities also included $90 million, for amounts received from a customer in 2014 under a DRAM supply agreement, all of which was applied to purchases during 2015.
Debt
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| | | | | | | | | Net Carrying Amount | | | | Net Carrying Amount |
| Instrument | | Stated Rate | | Effective Rate | | Principal | | Current | | Long-Term | | Total(1) | | Principal | | Current | | Long-Term | | Total(1) |
| MMJ Creditor Payments | | N/A |
| | 6.52 | % | | $ | 695 |
| | $ | 157 |
| | $ | 474 |
| | $ | 631 |
| | $ | 985 |
| | $ | 189 |
| | $ | 680 |
| | $ | 869 |
|
| Capital lease obligations | | N/A |
| | 3.68 | % | | 1,190 |
| | 357 |
| | 833 |
| | 1,190 |
| | 1,406 |
| | 380 |
| | 1,026 |
| | 1,406 |
|
| 2021 MSAC Term Loan | | 3.61 | % | | 3.85 | % | | 800 |
| | 99 |
| | 697 |
| | 796 |
| | — |
| | — |
| | — |
| | — |
|
| 2021 MSTW Term Loan | | 2.85 | % | | 3.02 | % | | 2,652 |
| | — |
| | 2,640 |
| | 2,640 |
| | — |
| | — |
| | — |
| | — |
|
| 2022 Notes | | 5.88 | % | | 6.14 | % | | — |
| | — |
| | — |
| | — |
| | 600 |
| | — |
| | 590 |
| | 590 |
|
| 2022 Term Loan B | | 3.80 | % | | 4.22 | % | | 743 |
| | 5 |
| | 725 |
| | 730 |
| | 750 |
| | 5 |
| | 730 |
| | 735 |
|
| 2023 Notes | | 5.25 | % | | 5.43 | % | | 1,000 |
| | — |
| | 991 |
| | 991 |
| | 1,000 |
| | — |
| | 990 |
| | 990 |
|
| 2023 Secured Notes | | 7.50 | % | | 7.69 | % | | 1,250 |
| | — |
| | 1,238 |
| | 1,238 |
| | 1,250 |
| | — |
| | 1,237 |
| | 1,237 |
|
| 2024 Notes | | 5.25 | % | | 5.38 | % | | 550 |
| | — |
| | 546 |
| | 546 |
| | 550 |
| | — |
| | 546 |
| | 546 |
|
| 2025 Notes | | 5.50 | % | | 5.56 | % | | 519 |
| | — |
| | 515 |
| | 515 |
| | 1,150 |
| | — |
| | 1,139 |
| | 1,139 |
|
| 2026 Notes | | 5.63 | % | | 5.73 | % | | 129 |
| | — |
| | 128 |
| | 128 |
| | 450 |
| | — |
| | 446 |
| | 446 |
|
2032C Notes(2) | | 2.38 | % | | 5.95 | % | | 223 |
| | — |
| | 211 |
| | 211 |
| | 223 |
| | — |
| | 204 |
| | 204 |
|
2032D Notes(2) | | 3.13 | % | | 6.33 | % | | 177 |
| | — |
| | 159 |
| | 159 |
| | 177 |
| | — |
| | 154 |
| | 154 |
|
2033E Notes(2) | | 1.63 | % | | 4.50 | % | | 173 |
| | 202 |
| | — |
| | 202 |
| | 176 |
| | — |
| | 168 |
| | 168 |
|
2033F Notes(2) | | 2.13 | % | | 4.93 | % | | 297 |
| | 278 |
| | — |
| | 278 |
| | 297 |
| | — |
| | 271 |
| | 271 |
|
2043G Notes(3) | | 3.00 | % | | 6.76 | % | | 1,025 |
| | — |
| | 671 |
| | 671 |
| | 1,025 |
| | — |
| | 657 |
| | 657 |
|
| Other notes | | 2.13 | % | | 2.66 | % | | 216 |
| | 164 |
| | 44 |
| | 208 |
| | 512 |
| | 182 |
| | 316 |
| | 498 |
|
| | | | | | | $ | 11,639 |
| | $ | 1,262 |
| | $ | 9,872 |
| | $ | 11,134 |
| | $ | 10,551 |
| | $ | 756 |
| | $ | 9,154 |
| | $ | 9,910 |
|
| |
(1) | We have either the obligation or the option to pay cash forNet carrying amount is the principal amount due upon conversionless unamortized debt discount and issuance costs. In addition, the net carrying amount for allour 2033E Notes for 2017 included $31 million 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 thederivative debt and equity components. The equity component was reclassified to a debt liabilityliabilities recognized as a result of our obligationelection to settle the conversionsentirely in cash converted notes with an aggregate principal amount of the 2031B Notes in cash.$16 million. |
| |
(4)(2)
| Since the closing price of our common stock exceeded 130% of the conversion price per share for at least 20 trading days in the 30 trading day period endingended on June 30, 2015 exceeded 130% of2017, these notes are convertible by the conversion price per share, holders had the right to convert their notes at any time duringthrough the calendar quarter ended September 30, 2015.2017. The closing price of our common stock also exceeded the thresholds for the calendar quarter ended September 30, 2015;2017; therefore, these notes are convertible by the holders through December 31, 2015.2017. The 2033 Notes arewere classified as current as of August 31, 2017 because the terms of these notes require us to pay cash for the principal amount of any converted notes.notes and holders of these notes had the right to convert their notes as of that date. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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)(3)
| Expected remainingThe 2043G Notes have an original principal amount of $820 million that accretes up to $917 million through the expected term for amortization of the remaining unamortized discountin November 2028 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.$1.03 billion at maturity in 2043. |
(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 other senior notes are unsecured obligations that rank equally in right of payment with all of our other existing and future unsecured indebtedness, and are effectively subordinated to all of our other existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. Our parent company,As of August 31, 2017, Micron has $5.18had $3.70 billion of unsecured debt (net of unamortized discount and debt issuance costs), including all of ourits convertible notes and the 2022 Notes, 2023 Notes, 2024 Notes, 2025 Notes, and 2026 Notes, that iswas structurally subordinated to all liabilities of its subsidiaries, including trade payables. The terms of our indebtedness generally contain cross payment default and cross acceleration provisions. Micron guarantees certain debt obligations of its subsidiaries. Micronsubsidiaries, but does not guarantee the MMJ creditor installment payments.Creditor 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 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.
2033E Notes: 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 settlements, 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 ofcorporate reorganization proceedings, 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 7seven annual installment payments (the "MMJ Creditor Installment Payments"). The MMJ Creditor Installment Payments do not provide for interest and, wereas a result of our acquisition of the MMJ Companies in 2013, we recorded the MMJ Creditor Payments at fair value in the MMJ Acquisition.value. 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 theirthe amount of their fixed claims in 6six annual installment payments through December 2018 and the unsecured creditors will recover at least 17.4% of the amount of their fixed claims in 7seven 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 securedunsecured creditors of MAI were scheduled to be paid in fullseven installments; however, in connection with a portion of the first installment payment made in October 2013, while the unsecured creditorsour sale of MAI will recover at least 19% ofin 2017, the amount of their claimsremaining MAI creditor obligations were paid in 7 installment payments through December 2019.full. The remaining portion of the unsecured claims of the creditors of the MMJ Companies not recovered pursuant to the Reorganization Proceedingscorporate reorganization proceedings will be discharged, without payment, through December 2019.
The following 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:
August 31, 2017:
| | | 2016 | | ¥ | 19,813 |
| | $ | 165 |
| |
| 2017 | | 19,840 |
| | 165 |
| |
| 2018 | | 19,762 |
| | 164 |
| | ¥ | 17,675 |
| | $ | 160 |
|
| 2019 | | 28,687 |
| | 238 |
| | 27,154 |
| | 246 |
|
| 2020 | | 33,642 |
| | 280 |
| | 31,762 |
| | 289 |
|
| | | 121,744 |
| | 1,012 |
| | 76,591 |
| | 695 |
|
| Less unamortized discount | | (17,981 | ) | | (150 | ) | | (7,075 | ) | | (64 | ) |
| | | ¥ | 103,763 |
| | $ | 862 |
| | ¥ | 69,516 |
| | $ | 631 |
|
Pursuant to the terms of an Agreement on Support for Reorganization Companies that we executed in the Sponsor Agreement,fourth quarter of 2012 with the trustees of the MMJ Companies' pending corporate reorganization proceedings, 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 2015,2017, 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$220 million at a weighted-average effective interest rate of 4.6%5.1%, payable in periodic installments through December 2023.with a weighted-average expected term of ten years. In 2016, we recorded capital lease obligations aggregating $882 million, including $765 million related to equipment sale-leaseback transactions.
1.258% Notes2021 MSAC Senior Secured Term Loan
On December 20, 2013,In November 2016, we issued $462entered into a five-year variable-rate facility agreement to obtain up to $800 million in principal amount of the 1.258% Notes. The 1.258% Notes mature on January 15, 2019 and arefinancing, collateralized by certain production equipment, which hadand drew $800 million under the facility in 2017. Interest is payable quarterly at a carrying value of $95 million as of September 3, 2015. The principal amount of the 1.258% Notesper annum rate equal to three-month LIBOR plus 2.4%. Principal is payable in 10 semiannual16 equal quarterly installments beginning in January and July of each year, commencing in July 2014.March 2018. 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 contain2021 MSAC Term Loan contains 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. Eventsfacility agreement. The 2021 MSAC Term Loan also contains customary events of default also include, among others, the occurrence of any event or circumstance that,which could result in the reasonable judgmentacceleration of Ex-Im Bank,all amounts to be immediately due and payable. The 2021 MSAC Term Loan is likely materiallyguaranteed by Micron.
2021 MSTW Senior Secured Term Loan
In connection with the Inotera Acquisition, on December 6, 2016, we drew 80 billion New Taiwan dollars under a collateralized, five-year term loan that bears interest at a variable per annum rate equal to the three-month TAIBOR plus a margin of 2.05%. Principal under the 2021 MSTW Term Loan is payable in six equal semi-annual installments from June 2019 through December 2021. The 2021 MSTW Term Loan is collateralized by certain assets, including a real estate mortgage on MTTW's main production facility and adversely to affectsite, a chattel mortgage over certain equipment of MTTW, all of the stock of our MSTW subsidiary, and the 82% of stock of MTTW owned by MSTW. The 2021 MSTW Term Loan is guaranteed by Micron.
The 2021 MSTW Term Loan contains affirmative and negative covenants, including covenants that limit or restrict our ability to perform any payment obligation,create liens in or anydispose of our other materialcollateral securing obligations under the indenture, the 1.258% Notes, 2021 MSTW Term Loan, mergers involving MSTW and/or under any other related transaction documentsMTTW, loans or guarantees to third parties by MTTW and/or MSTW, and MSTW's and/or MTTW's distribution of cash dividends. The 2021 MSTW Term Loan also contains financial covenants, 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 premiumare tested semi-annually, as described in the indenture, together with accrued and unpaid interest.follows:
MSTW must maintain a consolidated ratio of total liabilities to adjusted EBITDA not higher than 5.5x in 2017 and 2018, and not higher than 4.5x in 2019 through 2021;
MSTW must maintain adjusted consolidated tangible net worth of not less than 4.0 billion New Taiwan dollars in 2017 and 2018, not less than 6.5 billion New Taiwan dollars in 2019 and 2020, and not less than 12.0 billion New Taiwan dollars in 2021;
on a consolidated basis, Micron must maintain a ratio of total liabilities to adjusted EBITDA not higher than 3.5x in 2017, not higher than 3.0x in 2018 and 2019, and not higher than 2.5x in 2020 and 2021; and
on a consolidated basis, Micron must maintain adjusted tangible net worth not less than $9.0 billion in 2017, not less than $12.5 billion in 2018 and 2019, and not less than $16.5 billion in 2020 and 2021.
If MSTW fails to maintain a required financial covenant, the interest rate will be increased by 0.25% until such time as the required financial ratios are maintained. If MSTW's failure continues for two consecutive semi-annual periods, such failure will constitute an event of default that could result in all obligations owed under the loan being accelerated to be immediately due and payable. Micron's failure to maintain a required financial covenant will only result in a 0.25% increase to the interest rate but will not constitute an event of default. The loan also contains customary events of default.
Unsecured 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 seniorunsecured notes abovein the table below (the " Unsecured Senior Notes") 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:Option: We have the option to redeem these notes.the Unsecured Senior Notes. The applicable redemption price will be determined as follows:
|
| | | | | | | | | | | |
| | | Maturity Date | | Redemption Period Requiring Payment of: | | Redemption of up to 35% of Original Principal Amount Using Cash Proceeds From an Equity Offering(3) |
| | | Make-Whole(1) | | Premium(2) | | Date | | Specified Price |
20222023 Notes | Prior to Feb 15, 2017(4) | | On or after Feb 15, 2017Aug 2023 | | 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 | | Jan 2024 | | Prior to May 1, 2018 | | On or after May 1, 2018 | | Prior to May 1, 2018 | | 105.250 | % |
| 2025 Notes | | Feb 2025 | | Prior to Aug 1, 2019 | | On or after Aug 1, 2019 | | Prior to Aug 1, 2017N/A | | 105.500 | %N/A |
| 2026 Notes | | Jan 2026 | | Prior to May 1, 2020 | | On or after May 1, 2020 | | Prior to May 1, 2018N/A | | 105.625 | %N/A |
| |
(1) | If we redeem prior to the applicable date, the redemption 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.indenture. |
| |
(2) | If we redeem on or after the applicable date, the redemption price is principal plus a premium which declines over time as specified in the applicable indenture, together with accrued and unpaid interest.indenture. |
| |
(3) | If we redeem prior to the applicable date with net cash proceeds of one or more equity offerings, the redemption price is equal to the amount specified above, together with accrued and unpaid interest, subject to a maximum redemption of 35% of the aggregate original principal amount of the respective series of notes being redeemed. The 2025 Notes and 2026 Notes can not be redeemed with cash proceeds from an equity offering because the principal amount outstanding as of August 31, 2017 of such notes is less than 65% of the original principal amount issued. |
| |
(4) | In the first quarter of 2018, we issued a notice to redeem our 2023 Notes. See "Debt Repurchases and Conversions" below. |
Senior Secured Borrowings
2022 Senior Secured Term Loan B: In April 2016, we issued $750 million in principal amount of 2022 Term Loan B notes due April 2022. Interest was payable at a rate equal to LIBOR plus 6.00%. In April 2017 and October 2016, we amended our
2022 Term Loan B, substantially all of which was treated as a debt modification, to reduce the interest rate margins, and as of August 31, 2017, the 2022 Term Loan B generally bears interest at LIBOR plus 2.50%. We may elect to convert outstanding term loans to other variable-rate indexes. Principal payments are due quarterly in an amount equal to 0.25% of the initial aggregate principal amount with the balance due at maturity and may be prepaid without penalty. Interest is payable at least quarterly.
2023 Senior Secured Notes: In April 2016, we issued $1.25 billion in principal amount of 2023 Secured Notes due September 2023. In the first quarter of 2018, we issued notices to redeem our 2023 Secured Notes. See "Debt Repurchases and Conversions" below.
Senior Secured Borrowings Collateral and Covenants: The 2022 Term Loan B and 2023 Secured Notes are collateralized by substantially all of the assets of Micron and MSP, a subsidiary of Micron, subject to certain permitted liens on such assets. Included in our consolidated balance sheet as of August 31, 2017 were $6.22 billion of assets which collateralize these notes. The 2022 Term Loan B and 2023 Secured Notes are structurally subordinated to the indebtedness and other liabilities of all of Micron's subsidiaries that do not guarantee these debt obligations. MSP guarantees both of these notes.
The 2022 Term Loan B and 2023 Secured Notes each contain covenants that, among other things, limit, in certain circumstances, the ability of Micron and/or its domestic restricted subsidiaries to (1) create or incur certain liens and enter into sale-leaseback financing transactions; (2) in the case of domestic restricted subsidiaries, create, assume, incur, or guarantee additional indebtedness; and (3) in the case of Micron, consolidate or merge with or into, or sell, assign, convey, transfer, lease, or otherwise dispose of all or substantially all of its assets to another entity. These covenants are subject to a number of limitations, exceptions, and qualifications.
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 a 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 interest rate for similar nonconvertible debt issued by entities with credit ratings similar to ours at the time of issuance. The difference between the debt recorded at inception and its principal amount is accreted to principal through interest expense over 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 following table summarizes our convertible notes outstanding as of September 3, 2015:
| | | | | 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) | | Holder Put
Date(1) | | Maturity Date | | Conversion Price Per Share | | Conversion Price Per Share Threshold(2) | | Underlying Shares of Common Stock | | Conversion Value in Excess of Principal(3) | | Principal Settlement Option(4) |
| 2032C Notes | | May 2019 | | $ | 224 |
| | 23 |
| | $ | 9.63 |
| | $ | 12.52 |
| | $ | 161 |
| | May 2019 | | May 2032 | | $ | 9.63 |
| | $ | 12.52 |
| | 23 |
| | $ | 519 |
| | Cash and/or shares |
| 2032D Notes | | May 2021 | | 177 |
| | 18 |
| | 9.98 |
| | 12.97 |
| | 117 |
| | May 2021 | | May 2032 | | 9.98 |
| | 12.97 |
| | 18 |
| | 390 |
| | Cash and/or shares |
2033E Notes | | February 2018 | | 233 |
| | 21 |
| | 10.93 |
| | 14.21 |
| | 121 |
| | Feb 2018 | | Feb 2033 | | 10.93 |
| | 14.21 |
| | 16 |
| | 332 |
| | Cash |
2033F Notes | | February 2020 | | 297 |
| | 27 |
| | 10.93 |
| | 14.21 |
| | 154 |
| | Feb 2020 | | Feb 2033 | | 10.93 |
| | 14.21 |
| | 27 |
| | 572 |
| | Cash |
2043G Notes(4) | | November 2028 | | 1,025 |
| | 35 |
| | 29.16 |
| | 37.91 |
| | — |
| | Nov 2028 | | Nov 2043 | | 29.16 |
| | 37.91 |
| | 35 |
| | 99 |
| | Cash and/or shares |
| | | $ | 1,956 |
| | 124 |
| | | | | | $ | 553 |
| | | | | | 119 |
| | $ | 1,912 |
| |
| |
(1) | The terms of our convertible notes give holdersDebt discount and debt issuance costs are amortized through 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.earliest holder put date. |
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(2) | Holders haveRepresents 130% of the right to convert all or a portion of their notes at a date prior toconversion price per share. If the contractual maturity if, during any calendar quarter, the closingtrading price of our common stock price exceeds such threshold 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 thea specified period, holders through December 31, 2015.may convert such notes. See "Conversion Rights" below. |
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(3) | Based on our closing sharethe trading price of $16.59our common stock of $31.97 as of September 3, 2015.August 31, 2017. |
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(4) | See "2043G Notes."It is our current intent to settle in cash the principal amount of our convertible notes upon conversion. As a result, only the amounts payable in excess of the principal amounts upon conversion of our convertible notes are considered in diluted earnings per share under the treasury stock method. For each of our convertible notes, we may elect to settle any amounts in excess of the principal in cash, shares of our common stock, or a combination thereof. |
Carrying amounts of the equity components of our convertible notes, which are included in additional capital in the accompanying consolidated balance sheets were as follows:
|
| | | | | | | | |
| 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, consisting of contractual interest and amortization 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:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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.
2031B Notes:On July 26, 2011, we issued $345 million of 2031B Notes due August 2031. During 2014, we exchanged $205 million of aggregate principal amount of 2031B Notes for a portion of the 2043G Notes, repurchased $26 million of aggregate principal amount for 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 cash with payments of $389 million in 2015.
2032C and 2032D Notes: On April 18, 2012, we issued $550 million of the 2032C Notes and $450 million of the 2032D Notes, each due May 2032. 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. During 2015 and 2014, we repurchased $139 million and $188 million, respectively of aggregate principal amounts of the 2032C Notes and $166 million and $106 million, respectively of aggregate principal amounts of the 2032D Notes, for cash. | |
(5) | Holders of the 2033E Notes and 2033F Notes may also put their notes to us on February 15, 2023. |
Conversion Rights: Holders of our convertible notes may convert their 2032 Notesnotes 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); (3) if the trading price of the 2032 Notes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 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 intent to settle the principal amount of the 2032 Notes in cash upon any conversion. As a result, 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 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 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 at a price 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 price equal to the principal amount plus accrued and unpaid interest.
2033E and 2033F Notes: On February 12, 2013, we issued $300 million of the 2033E Notes and $300 million of the 2033F Notes. The initial conversion rate for the 2033 Notes is 91.4808 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $10.93 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 2033 Notes under the following circumstances: (1) if the 2033 Notesnotes 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(see "Conversion Price Per Share Threshold" in the 2033 Notes (approximately $14.21 per share)table above); (3) if the trading price of the 2033 Notesnotes is less than 98% of the product of the closing price of our common stock and the conversion rate of the 2033 Notesnotes during the periods specified in the indenture;indentures; (4) if specified distributions or corporate events occur, as set forth in the indenture for the notes; or (5) during the last three months prior to the maturity date of the notes. For the calendar quarter ended September 30, 2017, the closing price of our common stock exceeded 130% of the conversion price for our 2032 Notes and 2033 Notes; or (5) at any time after November 15, 2032.therefore, those notes are convertible by the holders through December 31, 2017.
66In August 2017, holders of our 2033E Notes with an aggregate principal amount of $58 million converted their notes, which were settled in the first quarter of 2018. For converted notes with an aggregate principal amount of $16 million, we
Upon conversion, we will pay cash equalelected to the lesser of the aggregate principal amount andsettle 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 obligation. As a result, only the amounts payableobligation in excess of the principal amount in cash. We elected to settle the remaining notes with an aggregate principal amount of $42 million with a combination of cash for the principal amount and shares of our common stock for the remainder of the settlement amount. As a result of our election to settle all amounts due upon conversion in cash for some of these notes, such settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment based on the volume-weighted-average price of our common stock over a period of 20 consecutive trading days. Accordingly, at the dates of our elections to settle the conversions in cash, we reclassified the fair values of the 2033 Notes are consideredequity components of each of the converted notes from additional capital to derivative debt liabilities within current debt in diluted earnings per share underour consolidated balance sheet. The net carrying amount for 2017 included $31 million for the fair values of the derivative debt liabilities as of August 31, 2017. The 20 consecutive trading day period ended in the first quarter of 2018, and we settled the conversion for $92 million in cash and 3 million shares of our treasury stock method.stock.
Cash Redemption at Our Option: We may redeem our convertible notes under the circumstances listed in the table below. The redemption price for cash the 2033Enotes will equal the principal amount at maturity, or the accreted principal amount in the case of the 2043G Notes redeemed on or after FebruaryNovember 20, 2018, and the 2033F Notes on or after February 20, 2020 at a price equal the principal amount plus accrued and unpaid interest.
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| | | | | | |
| | Conditional Redemption Period at Our Option(1) | | Unconditional Redemption Period at Our Option | | Redemption Period Requiring Make-Whole |
| 2032C Notes | | On or after May 1, 2016 | | On or after May 4, 2019 | | Prior to May 4, 2019(2) |
| 2032D Notes | | On or after May 1, 2017 | | On or after May 4, 2021 | | Prior to May 4, 2021(2) |
| 2033E Notes | | N/A | | On or after Feb 20, 2018 | | N/A |
| 2033F Notes | | N/A | | On or after Feb 20, 2020 | | N/A |
| 2043G Notes | | Prior to Nov 20, 2018 | | On or after Nov 20, 2018 | | Prior to Nov 20, 2018(3) |
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(1) | We may redeem for cash on or after the applicable dates if the volume weighted average price of our common stock has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period. |
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(2) | If we redeem prior to the applicable date, we will pay a make-whole premium in cash equal to the present value of the remaining scheduled interest payments from the redemption date to May 4, 2019 for the 2032C Notes and to May 4, 2021 for the 2032D Notes. |
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(3) | If we redeem prior to the applicable date, we will be required to pay a make-whole premium only if, as a result of our redemption notice, holders convert their notes. The make-whole premium will be based on the price of our common stock and the conversion date, as set forth in the indenture, and is payable at our election in cash and/or shares. |
Cash Repurchase at the Option of the HolderHolders: We may be required by the holders of the 2033 Notesour convertible notes to repurchase for cash all or a portion of the 2033E Notesnotes on February 15, 2018 and on February 15, 2023 and allthe "Holder Put Date" listed in the table above. The repurchase price would equal the principal amount, or a portionthe accreted principal amount in the case of the 2033F2043G Notes, on February 15, 2020 and on February 15, 2023 at a price 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 2033 Notes may require us to repurchase for cash all or a portion of their 2033 Notes at a price equal to the principal amount plus accrued and unpaid interest.
2043G 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: Holders may convert 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 price of the 2043G 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 volume weighted average price of our common stock has been at least 130% of the conversion price 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 redeem the 2043G Notes prior to November 20, 2018, we are required to pay in cash 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 accreted principal amount of $917 million plus accrued and unpaid interest. Holders of the 2043G Notes may also require us to repurchase for cash all or a portion of their 2043G Notes at a price equal to the accreted principal amount plus accrued and unpaid interestAlso, upon a change in control or a termination of trading, as defined in the indenture.respective indentures, holders of our convertible notes may require us to repurchase for cash all or a portion of their notes.
Other Facilities
Other: Interest expense for our convertible notes consisted of contractual interest of $51 million, $51 million, and $59 million for 2017, 2016, and 2015, respectively and amortization of discount and issuance costs of $37 million, $36 million, and $42 million for 2017, 2016, and 2015, respectively. As of August 31, 2017 and September 1, 2016, the carrying amounts of the equity components of our convertible notes, which are included in additional capital in the accompanying consolidated balance sheets, were $287 million and $308 million, respectively.
Available Revolving Credit Facilities: On February 12, 2015, we terminated our unused $255 millionFacility
We have a senior three-yearsecured revolving credit facility and entered into a senior five-year revolving credit facility. Under this credit facility,that expires in 2020, under which we can draw up to the lesser of $750 million or 80% of the net outstanding balance of certain trade receivables, as defined in the facility agreement. Any amounts drawn are collateralized by a security interest in such trade 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 create 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")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 wasAugust 31, 2017, there were no outstanding amounts drawn 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 new 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. Generally, interest is payable 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 1.65% per annum. As of September 3, 2015, $50 million of principal was outstanding under this facility and $270$750 million was available for us to draw.
Other Facilities: On April 14, 2015, our IMFT joint venture entered into a commitment letter
Debt Repurchases 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.Conversions
On May 28, 2015,October 12, 2017, subsequent to the end of 2017, we entered intoissued a term loan agreementnotice to obtain financing collateralized by certain property, plant,redeem $438 million of principal amount of our 2023 Secured Notes on November 13, 2017 for $470 million in cash, excluding accrued and equipment. Subject to customary conditions, we can draw up to 6.90 billion New Taiwan dollars or an equivalentunpaid interest. The amount in U.S. dollars (approximately $213 million asredeemed represents 35% of September 3, 2015). On June 18, 2015, we drew $40 million under this arrangement. Subsequent draws must occur by December 18, 2015. Amounts drawnthe original principal amount of the 2023 Secured Notes issued and will be made subjectsettled with proceeds from our common stock issuance in October 2017. On October 17, 2017, we issued a notice to redeem the remaining $812 million of principal amount of our 2023 Secured Notes on November 16, 2017 for approximately $885 million, excluding accrued and unpaid interest. Additionally, on October 17, 2017, we issued a three-year loan,notice to redeem all of our 2023 Notes on November 16, 2017 for approximately $1.05 billion in cash, excluding accrued and unpaid interest. In connection with equal quarterlythese redemptions, we expect to recognize non-operating losses of approximately $170 million in the first quarter of 2018.
In 2017, we repurchased $631 million of principal payments beginning six months afteramount of our 2025 Notes (carrying value of $625 million), repurchased $321 million of principal amount of our 2026 Notes (carrying value of $318 million), and redeemed $600 million principal amount of our 2022 Notes (carrying value of $592 million) for an aggregate of $1.63 billion in cash. In connection with the initial draw. Amounts drawntransactions, we recognized aggregate non-operating losses of $94 million in New Taiwan dollars will accrue interest at2017.
In 2016, we repurchased $57 million of principal amount of our 2033E Notes (carrying value of $54 million) for $94 million in cash. The liability and equity components of the repurchased notes had previously been stated separately within debt and equity in our consolidated balance sheet. As a variable rate equal toresult, the three-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 torepurchase decreased the three-month LIBOR plus a margin not to exceed 2.2%. Ascarrying value of September 3, 2015, the outstanding balance was $40debt by $54 million and equity by $38 million.
On March 13,In 2015, we borrowed $47consummated a number of transactions to restructure our debt, including repurchases, conversions and settlements of convertible notes, and the early repayment of a note. As a result, $489 million underof aggregate principal amount of our convertible notes was settled for $1.43 billion in cash. The liability and equity components of the repurchased convertible notes had previously been stated separately within debt and equity in our consolidated balance sheet. As a two-year note, collateralizedresult, the repurchases, conversions and settlements decreased the carrying value of debt by certain property, plant,$686 million (including $275 million for the fair value of our derivative debt liability to settle the conversions entirely in cash) and equipment. The note is payable in equal quarterly installments, plus interest at a variable rate equal to the 90-day TAIBOR plus 1.65% per annum. Asequity by $691 million. In connection with these transactions, we recognized aggregate non-operating losses of September 3, 2015, the outstanding balance was $40$49 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 September 3, 2015,August 31, 2017, maturities of notes payable (including the MMJ Creditor Installment Payments) and future minimum lease payments under capital lease obligations were as follows:
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| | | | | | | | |
| | | 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:
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| | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | |
| | | Notes Payable | | Capital Lease Obligations |
| 2018 | | $ | 641 |
| | $ | 402 |
|
| 2019 | | 1,166 |
| | 334 |
|
| 2020 | | 1,727 |
| | 229 |
|
| 2021 | | 1,269 |
| | 97 |
|
| 2022 | | 1,204 |
| | 62 |
|
| 2023 and thereafter | | 4,365 |
| | 227 |
|
| Unamortized discounts and interest, respectively | | (428 | ) | | (161 | ) |
| | | $ | 9,944 |
| | $ | 1,190 |
|
Commitments
As of September 3, 2015August 31, 2017, we had commitments of approximately $1.621.10 billion for the acquisition of property, plant, and equipment. We lease certain facilities and equipment under operating leases. Total rentalleases, for which expense was $4852 million, $5746 million, and $4148 million for 20152017, 20142016, and 20132015, respectively. Minimum future operating lease commitments as of September 3, 2015August 31, 2017 were as follows:
| | | 2016 | | $ | 218 |
| |
| 2017 | | 296 |
| |
| 2018 | | 106 |
| | $ | 29 |
|
| 2019 | | 15 |
| | 28 |
|
| 2020 | | 12 |
| | 23 |
|
| 2021 and thereafter | | 35 |
| |
| 2021 | | | 19 |
|
| 2022 | | | 17 |
|
| 2023 and thereafter | | | 38 |
|
| | | $ | 682 |
| | $ | 154 |
|
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 dates,date, 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 technologyhigh-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.
On November 21, 2014, Elm 3DS Innovations, LLC ("Elm") filed a patent infringement action against Micron, Micron Semiconductor Products, Inc.,MSP, and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe thirteen U.S. patents and seeks damages, attorneys’attorneys' fees, and costs.
On December 15, 2014, Innovative Memory Solutions, Inc. filed a patent infringement action against usMicron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND Flash products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs.
On June 24, 2016, the President and Fellows of Harvard University filed a patent infringement action against Micron in the U.S. District Court for the District of Massachusetts. The complaint alleges that a variety of our DRAM products infringe two U.S. patents and seeks damages, injunctive relief, and other unspecified relief.
Among other things, the above lawsuits pertain to certain of our DDR DRAM, DDR2 DRAM, DDR3 DRAM, DDR4 DRAM, SDR SDRAM, PSRAM, RLDRAM, LPDRAM, NAND, Flash, and certain 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. 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 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.
Qimonda
On January 20, 2011, Dr. Michael Jaffé, administrator for QimondaQimonda's insolvency proceedings, filed suit against Micron 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 Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera
"Inotera Shares"), representing approximately 55%18% of our totalInotera's outstanding shares in Inotera as of September 3, 2015,August 31, 2017, and seeks an order requiring us to re-transfer those shares 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-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the Courtcourt issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera sharesShares 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 sharesthe Inotera Shares and all other benefits; (4) denying Qimonda’sQimonda'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 Courtcourt issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by itMicron B.V. 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 itMicron B.V. 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 on the matter has not yet been scheduled.
We are unable to predict the outcome of the 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 monetary damages, unspecified 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, which could have a material adverse effect on our business, results of operation, or financial condition. As of September 3, 2015, the Inotera Shares had a carrying value in equity method investments for purposes of our 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 closing price of our common stock met the thresholds for conversion for the calendar quarter ended June 30, 2017; therefore, the 2033 Notes were convertible at the option ofby the holders as of September 3, 2015 and August 28, 2014. Therefore,31, 2017. As a result, the 2033 Notes were classified as current debt and the aggregate difference between the principal amount and the carrying value of $49$21 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.)sheet as of August 31, 2017. The closing price of our common stock did not meet the thresholds for the calendar quarter ended June 30, 2016; therefore, the 2033 Notes were not convertible by the holders as of September 1, 2016. Therefore, as of September 1, 2016, the 2033 Notes had been classified as noncurrent debt and the aggregate difference between the principal amount and the carrying value had been classified as additional capital.
Equity
Micron Shareholders' Equity
Common Stock Repurchases:Issuance: SinceIn October 2017, subsequent to the first quarterend of 2015,2017, we issued 34 million shares of our Boardcommon stock for $41.00 per share in a public offering, for net proceeds of Directors$1.36 billion, net of underwriting fees and other offering costs.
Common Stock Repurchases: Our Board 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 marketopen-market purchases, block trades, privately-negotiated transactions, and/or derivative transactions. Through 2017, we had repurchased a total of 49 million shares for $956 million through open-market transactions pursuant to such authorization. The shares received in all periods were recorded as treasury stock. 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 CallsTreasury Stock: In connection with the Inotera Acquisition, we sold 58 million shares of our common stock to Nanya for $986 million in cash, of which 54 million shares were issued from treasury stock. As a result, in 2017, treasury stock decreased by $1.03 billion while retained earnings decreased by $104 million for the difference between the carrying value of the treasury stock and its $925 million fair value.
Issued and Outstanding Capped Calls: We have entered into capped calls,call transactions in connection with certain of our convertible notes which are intended to reduce the effect of potential dilution from our convertible notes.dilution. 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 atprices on the expiration dates. The amounts receivable varies based onAs of August 31, 2017, the trading price of our stock, up to specified cap prices. The dollar value of the cash or shares that we would receive from theour outstanding capped calls upon their expiration date rangesdates range from $0, if the trading price of our stock is below the initial strike priceprices for all of the capped calls at expiration, to $814$527 million, if the trading price of our stock is at or above the cap priceprices for all capped calls. Settlement of the capped calls. We paid $57 million in 2011calls prior to purchase the 2031 Capped Calls, $103 million in 2012 to purchaseexpiration dates may be for an amount less than 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.maximum value at expiration.
The following table presents information related to the issued and outstanding capped calls as of September 3, 2015:
August 31, 2017:
| | | Capped Calls | |
| | Strike Price | | Cap Price Range | | Underlying Common Shares | | Value at Expiration(1) | |
| | Strike Price | | Weighted-Average Cap Price | | Underlying Common Shares | | Value at Expiration |
| | Expiration Dates | | Low | | High | | Minimum | | Maximum | | Expiration Dates | | 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 |
| | Nov 2016 | – | Nov 2017 | | $ | 9.80 |
| | $ | 15.69 |
| | 25 |
| | $ | — |
| | $ | 147 |
|
| 2032D | | Nov 2016 | – | May 2018 | | 10.16 |
| | 14.62 |
| | 16.04 |
| | 44 |
| | — |
| | 244 |
| | Nov 2016 | – | May 2018 | | 10.16 |
| | 15.91 |
| | 32 |
| | — |
| | 184 |
|
| 2033E | | Jan 2018 | – | Feb 2018 | | 10.93 |
| | 14.51 |
| | 14.51 |
| | 27 |
| | — |
| | 98 |
| | Jan 2018 | – | Feb 2018 | | 10.93 |
| | 14.51 |
| | 27 |
| | — |
| | 98 |
|
| 2033F | | Jan 2020 | – | Feb 2020 | | 10.93 |
| | 14.51 |
| | 14.51 |
| | 27 |
| | — |
| | 98 |
| | Jan 2020 | – | Feb 2020 | | 10.93 |
| | 14.51 |
| | 27 |
| | — |
| | 98 |
|
| | | | | | | | | 172 |
| | $ | — |
| | $ | 814 |
| | | | | | 111 |
| | $ | — |
| | $ | 527 |
|
| |
(1)
| Settlement in cash on the 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 the low strike price, to the maximum amount if the market price per share of 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. |
Expiration and Unwind of Capped Calls: A portionIn 2017, we cash-settled and share-settled separate expirations of portions of our 2031 Capped Calls expiredcapped calls, and received $125 million in cash and 4 million shares (equal to a value of $67 million) based on the fourth quartervolume-weighted trading stock prices at the expiration dates. In 2016 and 2015, we share-settled expirations of 2015. We elected share settlementportions of our capped calls and received 2 million shares of our stock (equal to a value of $23 million) and 3 million shares of our stock equivalent(equal to approximatelya value of $50 million based on the trading stock price at the time of expiration, whichmillion), respectively. The shares received in all periods were recorded as treasury stock. In May 2014, we and
Shareholder Rights Plan: On January 18, 2017, our shareholders approved a Section 382 Rights Agreement (the "Rights Agreement"), under which our shareholders of record as of the counterparties agreedclose of business on August 1, 2016 received one right for each share of common stock outstanding, which entitles certain shareholders to terminate and unwind a portion of our 2031 Capped Calls. We elected share settlement and received 3 millionpurchase additional shares of our common stock equivalent to approximately $86 million based onat a significant discount in the trading stock price at the timeevent of certain transactions that may result in an ownership change, as defined by Section 382 of the unwind.Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur when the percentage of our ownership by one or more 5% shareholders has increased by more than 50% at any time during the prior three years. Rights will attach to all shares of the Company’s common stock issued prior to the earlier of the rights’ distribution date or expiration date as set forth in the Rights Agreement. Pursuant to the Rights Agreement, if a shareholder (or group) acquires beneficial ownership of 4.99% or more of the outstanding shares of our common stock without prior approval of our Board or without meeting certain customary exceptions, the rights (other than rights held by the acquiring shareholder (or group) and certain related persons) would become exercisable. The shares receivedRights Agreement is intended to avoid an adverse ownership change, thereby preserving our current ability to utilize certain net operating loss and credit carryforwards; however, there is no assurance that the Rights Agreement will prevent all transfers that could result in May 2014 were retired from treasury stock in 2014.such an ownership change.
Accumulated Other Comprehensive Income (Loss):Changes in accumulated other comprehensive income (loss) by component for the year ended September 3, 2015,August 31, 2017 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 |
|
|
| | | | | | | | | | | | | | | | |
| | | Cumulative Foreign Currency Translation Adjustments | | Gains (Losses) on Derivative Instruments, Net | | Pension Liability Adjustments | | Total |
| As of September 1, 2016 | | $ | (49 | ) | | $ | 2 |
| | $ | 12 |
| | $ | (35 | ) |
| Other comprehensive income | | 27 |
| | 15 |
| | 4 |
| | 46 |
|
| Amount reclassified out of accumulated other comprehensive income | | 21 |
| | 1 |
| | (1 | ) | | 21 |
|
| Tax effects | | — |
| | (1 | ) | | (2 | ) | | (3 | ) |
| Other comprehensive income | | 48 |
| | 15 |
| | 1 |
| | 64 |
|
| As of August 31, 2017 | | $ | (1 | ) | | $ | 17 |
| | $ | 13 |
| | $ | 29 |
|
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. |
| | | | | | | | | | | | | | |
| As of | | 2017 | | 2016 |
| | | Noncontrolling Interest Balance | | Noncontrolling Interest Percentage | | Noncontrolling Interest Balance | | Noncontrolling Interest Percentage |
| IMFT | | $ | 832 |
| | 49 | % | | $ | 832 |
| | 49 | % |
| Other | | 17 |
| | Various |
| | 16 |
| | Various |
|
| | | $ | 849 |
| | | | $ | 848 |
| | |
IMFT: IMFT:Since inception in 2006, we have owned 51% of IMFT, a joint venture between us and Intel to manufacture memory products exclusively for its members, who share the output of IMFT in proportion to their investment under a long-term supply agreement at prices approximating cost. In 2017, IMFT began to transition its manufacturing from NAND Flash andto 3D XPoint memory products for the exclusive use of the members.products. 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,Through December 2018, Intel can put to us, and commencing infrom January 2018,2019 through December 2021, 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.such time either member exercises its right. If Intel elects to sell to us,exercises its put right, 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. Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets.
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.memory at IMFT and our other facilities. Our R&D expenses were reduced by reimbursements from Intel of $213 million, $205 million, and $224 million for $224 million2017, $137 million2016, and $127 million for 2015, 2014, and 2013, respectively.
We sell a portionNon-Trade sales primarily consists of ourNAND and 3D XPoint memory products manufactured and sold to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. Sales of products to Intel under this arrangementand were $553 million, $501 million, and $463 million for $420 million2017, $423 million2016, and $387 million for 2015, respectively.2014, and 2013, respectively. Receivables from Intel as of September 3, 2015 and August 28, 2014, were $67 million and $66 million, respectively, for these sales.
The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| Assets | | | | | | | | |
| Cash and equivalents | | $ | 134 |
| | $ | 84 |
| | $ | 87 |
| | $ | 98 |
|
| Receivables | | 79 |
| | 73 |
| | 81 |
| | 89 |
|
| Inventories | | 65 |
| | 48 |
| | 128 |
| | 68 |
|
| Other current assets | | 7 |
| | 5 |
| | 7 |
| | 6 |
|
| Total current assets | | 285 |
| | 210 |
| | 303 |
| | 261 |
|
| Property, plant and equipment, net | | 1,768 |
| | 1,545 |
| |
| Property, plant, and equipment, net | | | 1,852 |
| | 1,792 |
|
| Other noncurrent assets | | 49 |
| | 47 |
| | 49 |
| | 50 |
|
| Total assets | | $ | 2,102 |
| | $ | 1,802 |
| | $ | 2,204 |
| | $ | 2,103 |
|
| | | | | | | | | |
| Liabilities | | |
| | |
| | |
| | |
|
| Accounts payable and accrued expenses | | $ | 182 |
| | $ | 106 |
| | $ | 299 |
| | $ | 175 |
|
| Deferred income | | 9 |
| | 8 |
| | 6 |
| | 7 |
|
| Current debt | | 22 |
| | 21 |
| | 19 |
| | 16 |
|
| Total current liabilities | | 213 |
| | 135 |
| | 324 |
| | 198 |
|
| Long-term debt | | 49 |
| | 71 |
| | 75 |
| | 66 |
|
| Other noncurrent liabilities | | 100 |
| | 110 |
| | 88 |
| | 94 |
|
| Total liabilities | | $ | 362 |
| | $ | 316 |
| | $ | 487 |
| | $ | 358 |
|
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 of our assets.
The following table below presents IMFT's distributions to and contributions from its shareholders:
members for 2016 and 2015. There were no distributions or contributions for 2017.
|
| | | | | | | | | | | | |
| 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 |
|
MP Mask: In 2006, we formed a joint venture with Photronics 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 |
|
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
Creditors of MP Mask have recourse only to MP Mask's assets and do not have recourse to any other of our assets.
MMT: As 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 as of August 28, 2014, noncontrolling interests in MMT were less than 1%. Substantially all of the MMT shares purchased in 2014 were financed with a short-term loan from a seller. As a result of the purchases of MMT shares in 2014, in aggregate, noncontrolling interests decreased by $180 million and additional capital increased by $34 million. |
| | | | | | | | |
| For the year ended | | 2016 | | 2015 |
| IMFT distributions to Micron | | $ | 36 |
| | $ | 6 |
|
| IMFT distributions to Intel | | 34 |
| | 6 |
|
| Micron contributions to IMFT | | 38 |
| | 148 |
|
| Intel contributions to IMFT | | 37 |
| | 142 |
|
Restrictions on Net Assets
As a result of the corporate reorganization proceedings of the MMJ Companies initiated on March 23,in 2012, and for so long as such proceedings continue, the MMJ Group is subject to certain restrictions on dividends, loans, and advances. In addition, the 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and/or MTTW to distribute cash dividends. Also, our ability to access IMFT'sthe cash and other assets of IMFT 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(excluding intercompany balances and noncontrolling interests) as of September 3, 2015August 31, 2017 were $3.35$3.65 billion for the MMJ Group, $2.22 billion for MSTW and $911MTTW, and $885 million for IMFT, which includedIMFT. As of August 31, 2017, the MMJ Group held cash and equivalents of $748$580 million, for the MMJ GroupMSTW and $134MTTW held an aggregate of $56 million, for IMFT. (See "Micron Memory Japan, Inc." note and "IMFT" above.)
As of September 3, 2015, our retained earnings included undistributed earnings from our equity method investees of $232IMFT held $87 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 debtour convertible notes in 2015, 2014,2016 and 2013,2015, 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).
Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair value and carrying value of our outstanding debt instruments (carrying(excluding the carrying value excludes theof equity and mezzanine equity components of our convertible notes) were as follows:
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Notes and MMJ creditor installment payments | $ | 5,020 |
| | $ | 5,077 |
| | $ | 3,634 |
| | $ | 3,483 |
| |
| Notes and MMJ Creditor Payments | | Notes and MMJ Creditor Payments | $ | 8,793 |
| | $ | 8,423 |
| | $ | 7,257 |
| | $ | 7,050 |
|
| Convertible notes | | 2,508 |
| | 1,472 |
| | 5,886 |
| | 2,117 |
| | 3,901 |
| | 1,521 |
| | 2,408 |
| | 1,454 |
|
The fair values of our convertible notes were determined based on inputs that were 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 valuevalues of our other debt instruments waswere estimated based on discounted cash flows using inputs that were 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:Derivatives: We use derivative instruments to manage a portionTo hedge our exposures of our exposuremonetary assets and liabilities 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.nine months. In addition, to mitigate the risk of the yen strengthening against the U.S. dollar with respect to our MMJ Creditor Payments due in December 2017 and 2018, we have forward contracts to purchase 18 billion yen in December 2017 and 28 billion yen in December 2018. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured ininto U.S. dollars and the associated outstanding forward contracts are marked-to-market.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)2). 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: ObligationsDuring 2015,:
In August 2017, holders elected to convert a portionof our certain of our 2033E Notes. In 2014, holdersNotes converted their notes. For converted notes with an aggregate principal amount of $16 million, we elected to convert substantially allsettle the conversion obligation in excess of our remaining 2014 Notes, 2027 Notes, 2031A Notes, and 2031B Notes.the principal amount in cash. As a result, of our elections to settle the amounts due upon conversion in cash, each of thethose settlement obligations became derivative debt liabilities subject to mark-to-market accounting treatment forbased on the volume-weighted-average price of our common stock over 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.20 consecutive trading days. 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 model2), which requires the inputinputs 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 notenotes settlement obligations were based on the volume-weighted averagevolume-weighted-average stock price (Level 2 fair value measurements)1). 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 | ) |
|
| | | | | | | | | | | | | | | | |
| | | Notional Amount(1) | | Fair Value of |
Current Assets(2) | | Current Liabilities(3) | | Noncurrent Assets(4) |
| As of August 31, 2017 | | | | | | | | |
| Currency forward contracts | | | | | | | | |
| New Taiwan dollar | | $ | 2,921 |
| | $ | 22 |
| | $ | (2 | ) | | $ | — |
|
| Yen | | 1,209 |
| | 5 |
| | — |
| | 1 |
|
| Euro | | 368 |
| | 5 |
| | (2 | ) | | — |
|
| Singapore dollar | | 324 |
| | 1 |
| | — |
| | — |
|
| Other | | 25 |
| | 1 |
| | (1 | ) | | — |
|
| | | $ | 4,847 |
| |
| |
| | |
| | | | | | | | | |
| Convertible notes settlement obligation | | 2 |
| | — |
| | (47 | ) | | — |
|
| | | | | $ | 34 |
| | $ | (52 | ) | | $ | 1 |
|
| | | | | | | | | |
| As of September 1, 2016 | | | | | | | | |
| Currency forward contracts | | | | | | | | |
| Yen | | $ | 1,668 |
| | $ | — |
| | $ | (10 | ) | | $ | — |
|
| Euro | | 93 |
| | — |
| | — |
| | — |
|
| Singapore dollar | | 206 |
| | — |
| | — |
| | — |
|
| Other | | 85 |
| | — |
| | (1 | ) | | — |
|
| | | $ | 2,052 |
| | $ | — |
| | $ | (11 | ) | | $ | — |
|
| |
(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.assets. |
NetRealized and unrealized gains (losses) forand losses on derivative instruments without hedge accounting designation wereas 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. For derivative instruments without hedge accounting designation, recognized gains (losses) were as follows:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Foreign exchange contracts | | $ | (64 | ) | | $ | (27 | ) | | $ | (222 | ) | | $ | (45 | ) | | $ | 185 |
| | $ | (64 | ) |
| Convertible notes settlement obligations | | 7 |
| | (59 | ) | | — |
| | (2 | ) | | — |
| | 7 |
|
Derivative Instruments with Cash Flow Hedge Accounting Designation
Currency Derivatives:Derivatives: We may 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,rates, and credit risk spreadcredit-risk spreads (Level 2 fair value measurements)2).
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 orand 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 | | Notional Amount (in U.S. Dollars) | | Fair Value |
| | | Current Assets(1) | | Current Liabilities(2) | | | Current Assets(1) | | Current Liabilities(2) |
| As of September 3, 2015 | | | | | | | |
| As of August 31, 2017 | | | | | | | |
| Yen | | $ | 81 |
| | $ | 3 |
| | $ | — |
| | $ | 258 |
| | $ | 4 |
| | $ | — |
|
| Euro | | 12 |
| | — |
| | — |
| | 198 |
| | 13 |
| | — |
|
| | | $ | 93 |
| | $ | 3 |
|
| $ | — |
| | $ | 456 |
| | $ | 17 |
|
| $ | — |
|
| As of August 28, 2014 | | |
| | | | |
| |
| As of September 1, 2016 | | | |
| | | | |
|
| Yen | | $ | 94 |
| | $ | — |
| | $ | (2 | ) | | $ | 107 |
| | $ | 2 |
| | $ | (1 | ) |
| Euro | | 24 |
| | — |
| | — |
| | 65 |
| | — |
| | (1 | ) |
| | | $ | 118 |
| | $ | — |
|
| $ | (2 | ) | | $ | 172 |
| | $ | 2 |
|
| $ | (2 | ) |
| |
(1) | Included in receivables – other. |
| |
(2) | Included in accounts payable and accrued expenses – other. |
ForWe recognized gains of $15 million and $10 million, and losses of $10 million, for 20152017, 2014, and 2013, we recognized losses of $10 million, $4 million2016, and $8 million2015, respectively, in accumulated other comprehensive income (loss) from the effective portion of cash flow hedges. TheNeither 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,nor the reclassifications from accumulated other comprehensive income (loss) to earnings. As of September 3, 2015,earnings were material in $3 million2017 of net gains, 2016, or 2015. The amounts from cash flow hedges included in accumulated other comprehensive income (loss) isthat are expected to be reclassified into earnings in the next 12 months.months were not material.
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 As of August 31, 2017 and September 1, 2016, amounts netted under our 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.material.
Equity Plans
As of September 3, 2015August 31, 2017, our equity plans permit us to issue an aggregate of up to 170101 million shares of our common stock of which 112 million shares were available for future awards. Awards are subject to terms and conditions as determined byawards under our Board of Directors.equity plans.
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 February 2014 generally expire eight years from the date of grant. Options issued prior to February 2014 generally expire six years from the date of grant.
Option activity for 20152017 is summarized as follows:
|
| | | | | | | | | | | | | |
| | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Life (In Years) | | Aggregate Intrinsic Value |
| Outstanding at August 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 |
|
|
| | | | | | | | | | | | | |
| | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Remaining Contractual Life (In Years) | | Aggregate Intrinsic Value |
| Outstanding as of September 1, 2016 | | 42 |
| | $ | 16.37 |
| | | | |
| Granted | | 8 |
| | 19.61 |
| | | | |
| Exercised | | (14 | ) | | 10.17 |
| | | | |
| Canceled or expired | | (3 | ) | | 22.55 |
| | | | |
| Outstanding as of August 31, 2017 | | 33 |
| | 19.32 |
| | 4.4 | | $ | 438 |
|
| | | | | | | | | |
| Exercisable as of August 31, 2017 | | 17 |
| | $ | 17.44 |
| | 2.7 | | $ | 255 |
|
| Unvested as of August 31, 2017 | | 16 |
| | 21.25 |
| | 6.2 | | 183 |
|
The total intrinsic value was $229198 million, $42152 million, and $103229 million for options exercised duringin 20152017, 20142016, and 20132015, respectively.
Stock options granted and assumptions used in the Black-Scholes option valuation model were as follows:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Stock options granted | | 8 |
| | 12 |
| | 18 |
| | 8 |
| | 8 |
| | 8 |
|
| Weighted-average grant-date fair value per share | | $ | 14.79 |
| | $ | 9.64 |
| | $ | 3.34 |
| | $ | 8.68 |
| | $ | 6.94 |
| | $ | 14.79 |
|
| Average expected life in years | | 5.6 |
| | 4.9 |
| | 5.1 |
| | 5.5 |
| | 5.5 |
| | 5.6 |
|
| Weighted-average expected volatility | | 45 | % | | 48 | % | | 59 | % | | 46 | % | | 47 | % | | 45 | % |
| Weighted-average risk-free interest rate | | 1.7 | % | | 1.6 | % | | 0.7 | % | | 1.8 | % | | 1.7 | % | | 1.7 | % |
The expected volatilities utilized wereStock price volatility was based on an average of historical volatility and the implied volatilitiesvolatility derived from traded options on our stock and on our historical volatility.stock. The expected lives of options granted were based, in part, on historical experience and on the terms and conditions of the options. 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.
Restricted Stock and Restricted Stock Units ("Restricted Stock Awards")
As of September 3, 2015August 31, 2017, there were 1419 million shares of Restricted Stock Awards outstanding, of which 13 million were performance-based or market-based Restricted Stock Awards.market-based. For service-based Restricted Stock Awards, restrictions generally lapse in one-fourth increments during each year of employment after the grant date. Vesting for performance-based awards is contingent upon the Company meeting a specified return on assets ("ROA"), as defined, over a three-year performance period and vesting for market-based Restricted Stock Awards is contingent upon the Company 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 varieswill vary between 0% and 200% of target amounts, depending upon the achievement level of the specified ROA or TSR. Restricted Stock Awards activity for 20152017 is summarized as follows:
| | | | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
| Outstanding at August 28, 2014 | | 13 |
| | $ | 15.08 |
| |
| Outstanding as of September 1, 2016 | | | 18 |
| | $ | 20.24 |
|
| Granted | | 7 |
| | 32.60 |
| | 8 |
| | 18.77 |
|
| Restrictions lapsed | | (5 | ) | | 13.48 |
| | (6 | ) | | 19.53 |
|
| Canceled | | (1 | ) | | 19.81 |
| | (1 | ) | | 20.59 |
|
| Outstanding at September 3, 2015 | | 14 |
| | 23.88 |
| |
| | | | | | |
| Expected to vest after September 3, 2015 | | 13 |
| | $ | 23.78 |
| |
| Outstanding as of August 31, 2017 | | | 19 |
| | 19.78 |
|
|
| | | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| Restricted stock award shares granted | | 8 |
| | 10 |
| | 7 |
|
| Weighted-average grant-date fair value per share | | $ | 18.77 |
| | $ | 15.40 |
| | $ | 32.60 |
|
| Aggregate vesting-date fair value of shares vested | | $ | 115 |
| | $ | 71 |
| | $ | 155 |
|
Stock-based Compensation Expense
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Stock-based compensation expense by caption: | | | | | | | |
| Stock-based compensation expense by caption | | | | | | | |
| Cost of goods sold | | $ | 65 |
| | $ | 39 |
| | $ | 27 |
| | $ | 88 |
| | $ | 76 |
| | $ | 64 |
|
| Selling, general and administrative | | 60 |
| | 50 |
| | 45 |
| |
| Selling, general, and administrative | | | 75 |
| | 66 |
| | 61 |
|
| Research and development | | 42 |
| | 25 |
| | 18 |
| | 52 |
| | 49 |
| | 42 |
|
| Other | | 1 |
| | 1 |
| | 1 |
| | — |
| | — |
| | 1 |
|
| | | $ | 168 |
| | $ | 115 |
| | $ | 91 |
| | $ | 215 |
| | $ | 191 |
| | $ | 168 |
|
| | | | | | | | | | | | | |
| Stock-based compensation expense by type of award: | | | | | | | |
| Stock-based compensation expense by type of award | | | | | | | |
| Stock options | | $ | 81 |
| | $ | 61 |
| | $ | 57 |
| | $ | 71 |
| | $ | 79 |
| | $ | 81 |
|
| Restricted stock awards | | 87 |
| | 54 |
| | 34 |
| | 144 |
| | 112 |
| | 87 |
|
| | | $ | 168 |
| | $ | 115 |
| | $ | 91 |
| | $ | 215 |
| | $ | 191 |
| | $ | 168 |
|
Stock-based compensation expense of $920 million and $918 million was capitalized and remained in inventory as of September 3, 2015August 31, 2017 and August 28, 2014September 1, 2016, respectively. As of September 3, 2015August 31, 2017, $384341 million of total unrecognized compensation costs for unvested awards, netbefore the effect of estimatedany future forfeitures, was expected to be recognized through the fourth quarter of 2019,2021, resulting in a weighted-average period of 1.31.2 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.
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 a 401(k) retirement plansplan 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 stock. We match in cash eligible contributions from employees up to 5% of the employee's annual eligible earnings. Contribution expense for the 401(k) plans was $5552 million, $4454 million, and $4155 million in 20152017, 20142016, and 20132015, respectively.
Retirement Plans
We have pension plans in various countries. The pension plans are onlycountries available to local employees andwhich are generally government mandated. As of September 3, 2015,August 31, 2017, the projected benefit obligations of our plans was $132were $175 million and plan assets were $105$150 million. As of August 28, 2014,September 1, 2016, the projected benefit obligations of our plans was $164were $167 million and plan assets were $90$131 million. Pension expense was not significantmaterial for 2015, 2014,2017, 2016, or 2013.2015.
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 order2016, we initiated a restructure plan in response to optimize operations, improve efficiency,business conditions and increase ourthe need to accelerate focus on our core memory operations, we have entered into various restructure activities. For 2014, our MBUkey priorities. The plan included the elimination of certain projects 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 meetprograms, the thresholdspermanent closure of a reportable segment.number of open headcount requisitions, workforce reductions in certain areas of our business, and other non-headcount related spending reductions. As of September 3, 2015,a result, 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 recognizedincurred 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,2017 and $26$58 million in connection with the restructure2016 and do not expect to incur additional material charges. As 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,September 1, 2016, we also recognized a gainhad accrued liabilities of $25$24 million related to the termination of a lease with Transform Solar Pty Ltd. ("Transform"), an equity method investee, to a portion of our manufacturing facilitiesplan, which was paid in Boise, Idaho.2017.
Other Operating (Income) Expense, Net
|
| | | | | | | | | | | | |
| 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 December 2013, we settled all pending litigation between us and Rambus, Inc., including all antitrust and patent matters. We also entered into a seven-year term patent cross-license agreement with Rambus, Inc. that allows us to avoid costs of patent-related litigation during the term. The primary benefits we received from these 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 this arrangement. |
| | | | | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| (Gain) loss on disposition of property, plant, and equipment | | $ | (22 | ) | | $ | (4 | ) | | $ | (17 | ) |
| Other | | 5 |
| | (2 | ) | | (28 | ) |
| | | $ | (17 | ) | | $ | (6 | ) | | $ | (45 | ) |
Other Non-Operating Income (Expense), Net
|
| | | | | | | | | | | | |
| 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 | ) |
|
| | | | | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| Loss on debt repurchases and conversions | | $ | (100 | ) | | $ | (4 | ) | | $ | (49 | ) |
| Loss from changes in currency exchange rates | | (74 | ) | | (24 | ) | | (27 | ) |
| Gain on remeasurement of previously-held equity interest in Inotera | | 71 |
| | — |
| | — |
|
| Other | | (9 | ) | | (26 | ) | | 23 |
|
| | | $ | (112 | ) | | $ | (54 | ) | | $ | (53 | ) |
In 2016, we recognized other non-operating expense of $30 million to write off indemnification receivables upon the resolution of uncertain tax positions.
Income Taxes
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Income before income taxes, net income attributable to noncontrolling interests and equity in net income (loss) of equity method investees: | | | | | | | |
| Income (loss) before income taxes, net income (loss) attributable to noncontrolling interests, and equity in net income (loss) of equity method investees | | | | | | | |
| Foreign | | $ | 2,431 |
| | $ | 2,619 |
| | $ | 839 |
| | $ | 5,252 |
| | $ | (353 | ) | | $ | 2,431 |
|
| U.S. | | 178 |
| | 114 |
| | 446 |
| | (56 | ) | | 72 |
| | 178 |
|
| | | $ | 2,609 |
| | $ | 2,733 |
| | $ | 1,285 |
| | $ | 5,196 |
| | $ | (281 | ) | | $ | 2,609 |
|
| | | | | | | | | | | | | |
| Income tax (provision) benefit: | | | | | | | |
| Current: | | | | | | | |
| Income tax (provision) benefit | | | | | | | |
| Current | | | | | | | |
| Foreign | | $ | (93 | ) | | $ | (46 | ) | | $ | (17 | ) | | $ | (152 | ) | | $ | (27 | ) | | $ | (93 | ) |
| State | | (1 | ) | | (2 | ) | | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
| U.S. federal | | 6 |
| | (3 | ) | | — |
| | — |
| | — |
| | 6 |
|
| | | (88 | ) | | (51 | ) | | (17 | ) | | (153 | ) | | (28 | ) | | (88 | ) |
| Deferred: | | | | | | | |
| Deferred | | | | | | | |
| Foreign | | (85 | ) | | (81 | ) | | 9 |
| | 39 |
| | (32 | ) | | (85 | ) |
| State | | | — |
| | 2 |
| | 1 |
|
| U.S. federal | | 15 |
| | 4 |
| | — |
| | — |
| | 39 |
| | 15 |
|
| State | | 1 |
| | — |
| | — |
| |
| | | (69 | ) | | (77 | ) | | 9 |
| |
| Income tax (provision) benefit | | $ | (157 | ) | | $ | (128 | ) | | $ | (8 | ) | | $ | (114 | ) | | $ | (19 | ) | | $ | (157 | ) |
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 | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| U.S. federal income tax (provision) benefit at statutory rate | | $ | (913 | ) | | $ | (956 | ) | | $ | (450 | ) | | $ | (1,819 | ) | | $ | 98 |
| | $ | (913 | ) |
| Change in unrecognized tax benefits | | (118 | ) | | (152 | ) | | 2 |
| |
| Foreign tax rate differential | | 515 |
| | 474 |
| | 339 |
| | 1,571 |
| | (300 | ) | | 515 |
|
| Change in valuation allowance | | 260 |
| | 544 |
| | (418 | ) | | 64 |
| | 63 |
| | 260 |
|
| Change in unrecognized tax benefits | | | 12 |
| | 52 |
| | (118 | ) |
| Tax credits | | | 66 |
| | 48 |
| | 53 |
|
| Noncontrolling investment transactions | | 57 |
| | — |
| | — |
| | — |
| | — |
| | 57 |
|
| Tax credits | | 53 |
| | 11 |
| | 36 |
| |
| State taxes, net of federal benefit | | 19 |
| | (39 | ) | | 6 |
| |
| Gain on MMJ Acquisition | | — |
| | (11 | ) | | 520 |
| |
| Transaction costs related to the MMJ Acquisition | | — |
| | — |
| | (38 | ) | |
| Other | | (30 | ) | | 1 |
| | (5 | ) | | (8 | ) | | 20 |
| | (11 | ) |
| Income tax (provision) benefit | | $ | (157 | ) | | $ | (128 | ) | | $ | (8 | ) | | $ | (114 | ) | | $ | (19 | ) | | $ | (157 | ) |
We operate in a number of 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 operaterate and in a number of locations outside the U.S.,United States, including Singapore, and, to a lesser extent, Taiwan, where we have tax incentive agreementsarrangements that are conditional, 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$742 million (benefitting(benefiting our diluted earnings per share by $0.29), $286$0.64) for 2017, were not material in 2016, and by $338 million ($0.240.29 per diluted share), and $141 million ($0.13 per diluted share), respectively. for 2015.
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 as well as carryforwards. Deferred tax assets and liabilities consist of the following:
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| Deferred tax assets: | | | | | |
| Deferred tax assets | | | | | |
| Net operating loss and tax credit carryforwards | | $ | 2,869 |
| | $ | 3,162 |
| | $ | 3,426 |
| | $ | 3,014 |
|
| Accrued salaries, wages and benefits | | 143 |
| | 152 |
| |
| Accrued salaries, wages, and benefits | | | 211 |
| | 142 |
|
| Other accrued liabilities | | 97 |
| | 113 |
| | 59 |
| | 76 |
|
| Property, plant and equipment | | — |
| | 284 |
| |
| Other | | 86 |
| | 104 |
| | 86 |
| | 65 |
|
| Gross deferred tax assets | | 3,195 |
| | 3,815 |
| | 3,782 |
| | 3,297 |
|
| Less valuation allowance | | (2,051 | ) | | (2,443 | ) | | (2,321 | ) | | (2,107 | ) |
| Deferred tax assets, net of valuation allowance | | 1,144 |
| | 1,372 |
| | 1,461 |
| | 1,190 |
|
| | | | | | | | | |
| Deferred tax liabilities: | | | | | |
| Deferred tax liabilities | | | | | |
| Debt discount | | (207 | ) | | (291 | ) | | (145 | ) | | (170 | ) |
| Property, plant, and equipment | | | (300 | ) | | (135 | ) |
| Unremitted earnings on certain subsidiaries | | (162 | ) | | (115 | ) | | (123 | ) | | (121 | ) |
| Product and process technology | | (43 | ) | | (29 | ) | | (85 | ) | | (81 | ) |
| Other | | (57 | ) | | (67 | ) | | (59 | ) | | (28 | ) |
| Deferred tax liabilities | | (469 | ) | | (502 | ) | | (712 | ) | | (535 | ) |
| | | | | | | | | |
| Net deferred tax assets | | $ | 675 |
| | $ | 870 |
| | $ | 749 |
| | $ | 655 |
|
| | | | | | | | | |
| Reported as: | | | | | |
| Current deferred tax assets (included in other current assets) | | $ | 104 |
| | $ | 228 |
| |
| 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) | | (22 | ) | | (170 | ) | |
| Reported as | | | | | |
| Deferred tax assets | | | $ | 766 |
| | $ | 657 |
|
| Deferred tax liabilities (included in other noncurrent liabilities) | | | (17 | ) | | (2 | ) |
| Net deferred tax assets | | $ | 675 |
| | $ | 870 |
| | $ | 749 |
| | $ | 655 |
|
We continually assess positive and negative evidence for each jurisdiction to determine whether it is more likely than not that existing deferred tax assets will be realized. As of August 31, 2017 and September 3, 2015,1, 2016, we had a valuation allowance of $1.52 billion and $1.16 billion, respectively, against substantially all U.S. net deferred tax assets, primarily related to net operating loss and tax credit carryforwards. TheIncome taxes on U.S. operations for 2017, 2016, and 2015 were substantially offset by changes in the valuation allowance is based on our assessment of the deferred tax assets that are more likely than not to be realized. As of September 3, 2015, weallowance. 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. Ascarryforwards, for our subsidiaries in Japan and for our other foreign subsidiaries, of $627 million and $172 million, respectively, as of August 31, 2017, and $765 million and $177 million, respectively, as of September 3, 2015, we had $3.81 billion of net operating loss carryforwards1, 2016. Changes in Japan of which $2.19 billion is subject to a valuation allowance. Ourthe valuation allowance decreased $392 million in 2015 primarilywere due to the utilizationeffect of U.S. andincome or loss in the United States, changes in foreign net operating losses as well ascurrency, adjustments based on management's assessment of the amount of foreign net operating losses that are more likely than not to be realized. Due to the adoption of ASU 2016-09, we recognized deferred tax assets of $325 million offset by an equal increase in valuation allowance. See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards."
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,August 31, 2017, our federal, state, and foreign net operating loss carryforward amounts and expiration periods, as reported to tax authorities, were 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 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Year of Expiration | | U.S. Federal | | State | | Japan | | Taiwan | | Other Foreign | | Total |
| 2018 - 2022 | | $ | — |
| | $ | 27 |
| | $ | 3,485 |
| | $ | 473 |
| | $ | 680 |
| | $ | 4,665 |
|
| 2023 - 2027 | | — |
| | 330 |
| | 587 |
| | 685 |
| | 6 |
| | 1,608 |
|
| 2028 - 2032 | | 3,027 |
| | 1,277 |
| | — |
| | — |
| | — |
| | 4,304 |
|
| 2033 - 2037 | | 852 |
| | 320 |
| | — |
| | — |
| | — |
| | 1,172 |
|
| Indefinite | | — |
| | — |
| | — |
| | 342 |
| | 45 |
| | 387 |
|
| | | $ | 3,879 |
| | $ | 1,954 |
| | $ | 4,072 |
| | $ | 1,500 |
| | $ | 731 |
| | $ | 12,136 |
|
As of September 3, 2015,August 31, 2017, our federal and state tax credit carryforward amounts and expiration periods, as reported to tax authorities, were as 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 for excess tax benefits that arose directly from tax deductions related to equity compensation greater than amounts recognized for financial 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 determining when excess tax benefits have been realized. |
| | | | | | | | | | | | |
| Year of Tax Credit Expiration | | U.S. Federal | | State | | Total |
| 2018 - 2022 | | $ | 48 |
| | $ | 62 |
| | $ | 110 |
|
| 2023 - 2027 | | 99 |
| | 37 |
| | 136 |
|
| 2028 - 2032 | | 64 |
| | 76 |
| | 140 |
|
| 2033 - 2037 | | 205 |
| | 1 |
| | 206 |
|
| Indefinite | | — |
| | 57 |
| | 57 |
|
| | | $ | 416 |
| | $ | 233 |
| | $ | 649 |
|
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 liabilities. Remaining undistributed earnings of $6.96 billion as of September 3, 2015 have been indefinitely reinvested; therefore, noNo provision has been made for taxes due on approximately $8.52$12.91 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 a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Below is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Beginning unrecognized tax benefits | | $ | 228 |
| | $ | 78 |
| | $ | 77 |
| | $ | 304 |
| | $ | 351 |
| | $ | 228 |
|
| Increases related to tax positions taken during current year | | 119 |
| | 152 |
| | 4 |
| |
| Increases due to the Inotera Acquisition | | | 54 |
| | — |
| | — |
|
| Increases related to tax positions taken in current year | | | 15 |
| | 5 |
| | 119 |
|
| Foreign currency translation increases (decreases) to tax positions | | | 2 |
| | — |
| | (6 | ) |
| Settlements with tax authorities | | | (47 | ) | | (47 | ) | | (1 | ) |
| Expiration of statute of limitations | | | (1 | ) | | (5 | ) | | (6 | ) |
| Increases related to tax positions from prior years | | 17 |
| | — |
| | — |
| | — |
| | — |
| | 17 |
|
| Foreign currency translation increases (decreases) to tax positions | | (6 | ) | | 1 |
| | 4 |
| |
| Lapse of statute of limitations | | (6 | ) | | (1 | ) | | — |
| |
| Settlements with tax authorities | | (1 | ) | | (1 | ) | | (8 | ) | |
| Decreases related to tax positions from prior years | | — |
| | (1 | ) | | — |
| |
| Unrecognized tax benefits acquired in current year | | — |
| | — |
| | 1 |
| |
| Ending unrecognized tax benefits | | $ | 351 |
| | $ | 228 |
| | $ | 78 |
| | $ | 327 |
| | $ | 304 |
| | $ | 351 |
|
84As of the date of the Inotera Acquisition, Inotera's net operating loss carryforwards were $654 million, which expire on various dates through 2023. In connection with the Inotera Acquisition, we assumed $54 million of uncertain tax positions. The decrease in unrecognized tax benefits in 2017 and 2016 is primarily related to favorable resolution of certain tax matters.
Included in the unrecognized tax benefits balance in the table above as of September 3, 2015, August 28, 2014, and August 29, 201331, 2017 were $53$8 million $66 million, and $63 million, respectively, of unrecognized income tax benefits, which if recognized, would affect our effective tax rate. The increase in unrecognized tax benefits in 2015 primarily related to transfer pricing and other matters which were substantially offset by changes in our deferred tax asset valuation allowance. We recognize interest and penalties related to income tax matters within income tax expense. As of September 3, 2015, August 28, 2014, and August 29, 2013, the amount accrued for interest and penalties related to uncertain tax positions was $16 million, $19 million, and $16 million, respectively.not material for any period presented. The resolution of tax audits or lapsesexpiration of statute of limitations could also reduce our unrecognized tax benefits. Although the timing of final resolution is uncertain, the estimated potential reduction in our unrecognized tax benefits in the next 12 months ranges from $0 to $67 million, including interest and penalties.would not be material.
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 20112013 through 2015.2017. In addition, tax returns that remain open to examination in multiple foreign taxing jurisdictionsJapan range from the years 20072011 to 2015.2017 and in Singapore and Taiwan from 2012 to 2017. We believe that adequate amounts of taxes and related interest and penalties have been provided for, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations, or financial condition.
Earnings Per Share
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net income available to Micron shareholders – Basic | | $ | 2,899 |
| | $ | 3,045 |
| | $ | 1,190 |
| |
| Net income (loss) attributable to Micron – Basic | | | $ | 5,089 |
| | $ | (276 | ) | | $ | 2,899 |
|
| Dilutive effect related to equity method investment | | (3 | ) | | (2 | ) | | — |
| | — |
| | — |
| | (3 | ) |
| Net income available to Micron shareholders – Diluted | | $ | 2,896 |
| | $ | 3,043 |
| | $ | 1,190 |
| |
| Net income (loss) attributable to Micron – Diluted | | | $ | 5,089 |
| | $ | (276 | ) | | $ | 2,896 |
|
| | | | | | | | | | | | | |
| Weighted-average common shares outstanding – Basic | | 1,070 |
| | 1,060 |
| | 1,022 |
| | 1,089 |
| | 1,036 |
| | 1,070 |
|
| Dilutive effect of equity plans and convertible notes | | 100 |
| | 138 |
| | 35 |
| | 65 |
| | — |
| | 100 |
|
| Weighted-average common shares outstanding – Diluted | | 1,170 |
| | 1,198 |
| | 1,057 |
| | 1,154 |
| | 1,036 |
| | 1,170 |
|
| | | | | | | | | | | | | |
| Earnings per share: | | | | | | | |
| Earnings (loss) per share | | | | | | | |
| Basic | | $ | 2.71 |
| | $ | 2.87 |
| | $ | 1.16 |
| | $ | 4.67 |
| | $ | (0.27 | ) | | $ | 2.71 |
|
| Diluted | | 2.47 |
| | 2.54 |
| | 1.13 |
| | 4.41 |
| | (0.27 | ) | | 2.47 |
|
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 | | 2015 | | 2014 | | 2013 |
| Equity plans | | 18 |
| | 7 |
| | 40 |
|
| Convertible notes | | 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 were 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 our 2032 Notes and 2043 Notes in cash upon conversion. As a result of these conversion terms and stated intent, the shares underlying the 2014 Notes, 2027 Notes, 2031 Notes, 2032 Notes, 2033 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.) |
| | | | | | | | | |
| For the year ended | | 2017 | | 2016 | | 2015 |
| Equity plans | | 21 |
| | 60 |
| | 18 |
|
| Convertible notes | | 26 |
| | 119 |
| | 18 |
|
Segment Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:
Compute 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 and storage products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Mobile Business Unit ("MBU"):Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Embedded Business Unit ("EBU"):Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.
Certain operating expenses directly associated with the activities of a specific segment are 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 amountIn 2017, we revised the measure of segment profitability reviewed by our chief operating expense for 2014 relateddecision maker and, as a result, certain items are no longer allocated to our business units. Comparative periods have been revised to reflect these changes. Items not allocated are identified in the Rambus settlement.table below.
We do not identify or report internally our assets (other than goodwill) 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 segments. There are no differences in the accounting policies for segment reportingAs of August 31, 2017, CNBU, MBU, SBU, and our consolidated resultsEBU had goodwill of operations.$832 million, $198 million, $101 million, and $97 million, respectively and as of September 1, 2016, SBU and CNBU had goodwill of $101 million and $3 million, respectively.
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Net sales: | | | | | | | |
| Net sales | | | | | | | |
| CNBU | | $ | 6,725 |
| | $ | 7,333 |
| | $ | 3,462 |
| | $ | 8,624 |
| | $ | 4,529 |
| | $ | 6,725 |
|
| SBU | | | 4,514 |
| | 3,262 |
| | 3,687 |
|
| MBU | | 3,692 |
| | 3,627 |
| | 1,214 |
| | 4,424 |
| | 2,569 |
| | 3,692 |
|
| SBU | | 3,687 |
| | 3,480 |
| | 2,824 |
| |
| EBU | | 1,999 |
| | 1,774 |
| | 1,275 |
| | 2,695 |
| | 1,939 |
| | 1,999 |
|
| All Other | | 89 |
| | 144 |
| | 298 |
| | 65 |
| | 100 |
| | 89 |
|
| | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 20,322 |
| | $ | 12,399 |
| | $ | 16,192 |
|
| | | | | | | | | | | | | |
| Operating income (loss): | | | | | | | |
| Operating income (loss) | | | | | | | |
| CNBU | | $ | 1,481 |
| | $ | 1,957 |
| | $ | 160 |
| | $ | 3,755 |
| | $ | (25 | ) | | $ | 1,549 |
|
| SBU | | | 552 |
| | (123 | ) | | (39 | ) |
| MBU | | 1,126 |
| | 683 |
| | (265 | ) | | 927 |
| | 97 |
| | 1,166 |
|
| SBU | | (89 | ) | | 255 |
| | 173 |
| |
| EBU | | 435 |
| | 331 |
| | 227 |
| | 975 |
| | 473 |
| | 459 |
|
| All Other | | 45 |
| | 94 |
| | (59 | ) | | 23 |
| | 28 |
| | 44 |
|
| | | | $ | 6,232 |
| | $ | 450 |
| | $ | 3,179 |
|
| | | | | | | | |
| Unallocated | | — |
| | (233 | ) | | — |
| | | | | | |
| Stock-based compensation | | | $ | (215 | ) | | $ | (191 | ) | | $ | (167 | ) |
| Restructure and asset impairments | | | (18 | ) | | (67 | ) | | (3 | ) |
| Flow-through of Inotera inventory step up | | | (107 | ) | | — |
| | — |
|
| Other | | | (24 | ) | | (24 | ) | | (11 | ) |
| | | $ | 2,998 |
| | $ | 3,087 |
| | $ | 236 |
| | $ | (364 | ) | | $ | (282 | ) | | $ | (181 | ) |
| | | | | | | | |
| Operating income | | | $ | 5,868 |
|
| $ | 168 |
| | $ | 2,998 |
|
Depreciation and amortization expense included in operating income was as follows:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| CNBU | | $ | 1,058 |
| | $ | 878 |
| | $ | 687 |
| | $ | 1,344 |
| | $ | 1,141 |
| | $ | 1,053 |
|
| SBU | | | 1,083 |
| | 844 |
| | 761 |
|
| MBU | | 514 |
| | 475 |
| | 293 |
| | 926 |
| | 580 |
| | 512 |
|
| SBU | | 765 |
| | 512 |
| | 551 |
| |
| EBU | | 322 |
| | 226 |
| | 215 |
| | 484 |
| | 379 |
| | 321 |
|
| All Other | | 10 |
| | 11 |
| | 67 |
| | 13 |
| | 20 |
| | 9 |
|
| Depreciation and amortization expense included in operating income (loss) | | 2,669 |
| | 2,102 |
| | 1,813 |
| |
| Other amortization | | 136 |
| | 168 |
| | 113 |
| |
| Total depreciation and amortization expense | | $ | 2,805 |
| | $ | 2,270 |
| | $ | 1,926 |
| |
| Unallocated | | | 11 |
| | 16 |
| | 11 |
|
| | | | $ | 3,861 |
| | $ | 2,980 |
| | $ | 2,667 |
|
Product Sales
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| DRAM | | $ | 10,339 |
| | $ | 11,164 |
| | $ | 4,361 |
| | $ | 12,963 |
| | $ | 7,207 |
| | $ | 10,339 |
|
| Non-Volatile Memory | | 5,274 |
| | 4,468 |
| | 3,589 |
| |
| Trade NAND | | | 6,228 |
| | 4,138 |
| | 4,811 |
|
| Non-Trade | | | 553 |
| | 501 |
| | 463 |
|
| Other | | 579 |
| | 726 |
| | 1,123 |
| | 578 |
| | 553 |
| | 579 |
|
| | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 20,322 |
| | $ | 12,399 |
| | $ | 16,192 |
|
Non-Volatile Memory includesNon-Trade primarily consists of 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.manufactured and sold to Intel through IMFT under a long-term supply agreement at prices approximating cost. Information regarding our MCP products whichthat combine both NAND Flash and DRAM components is reported within Non-Volatile Memory.Trade NAND. Other includes sales of NOR and trade 3D XPoint products.
Certain Concentrations
Markets with concentrations of net sales were approximately as follows:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| Compute and graphics | | 25 | % | | 30 | % | | 20 | % | | 20 | % | | 20 | % | | 25 | % |
| Mobile | | 25 | % | | 20 | % | | 15 | % | | 20 | % | | 20 | % | | 25 | % |
| SSDs and other storage | | 20 | % | | 20 | % | | 25 | % | | 20 | % | | 20 | % | | 20 | % |
| Automotive, industrial, medical, and other embedded | | | 15 | % | | 15 | % | | 10 | % |
| Server | | 15 | % | | 10 | % | | 10 | % | | 15 | % | | 10 | % | | 15 | % |
| Automotive, industrial, medical, and other embedded | | 10 | % | | 10 | % | | 15 | % | |
Customer concentrations includedSales to Kingston, as a percentage of total net sales, to Kingston ofwere 10% and 11% for 2017 and 2015, and 10% for 2014,respectively. Sales to Intel, including Non-Trade sales through IMFT, as a percentage of total net sales, to Intelwere 14% for 2016 and no other customer exceeded 10% of 10% for 2013, andour total net sales to HP of 10% for 2013.sales. Substantially all of our sales to Kingston were included in our CNBU and SBU segments and substantially all of our sales to Intel were included in our SBU segment, and substantially all of our sales to HP were included in our CNBU and SBU segments.
CertainWe generally have multiple sources of thesupply for our raw materials and production equipment we use in manufacturing semiconductor products are available from multiple sources and in sufficient supply;equipment; however, only a limited number of suppliers are capable of delivering certain raw materials and production equipment that meet our standards. Instandards and, in some cases, materials or production equipment 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.obligor and monitoring credit risk of bank counterparties on an ongoing basis. A concentration of credit risk may exist with respect to receivables as a substantial portion of our customers are affiliated with the computing industry.certain customers. We perform ongoing credit evaluations of customers worldwide and generally do not require collateral from our customers. Historically, we have not experienced significantmaterial 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 amounts are relatively large. We seek to mitigate such risk by limiting our counterparties to major financial institutions and through entering into master netting arrangements. Capped calls expose us to credit risk to the extent 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.
Geographic Information
Geographic net sales based on customer ship-to location were as follows:
| | | For the year ended | | 2015 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 |
| China | | $ | 6,658 |
| | $ | 6,715 |
| | $ | 3,783 |
| | $ | 10,388 |
| | $ | 5,301 |
| | $ | 6,658 |
|
| United States | | 2,565 |
| | 2,551 |
| | 1,512 |
| | 2,763 |
| | 1,925 |
| | 2,565 |
|
| Taiwan | | 2,241 |
| | 2,313 |
| | 980 |
| | 2,544 |
| | 1,521 |
| | 2,241 |
|
| Asia Pacific (excluding China, Taiwan, and Japan) | | 2,037 |
| | 1,791 |
| | 946 |
| |
| Asia Pacific (excluding China and Japan) | | | 1,808 |
| | 1,610 |
| | 2,037 |
|
| Europe | | 1,248 |
| | 1,252 |
| | 820 |
| | 1,360 |
| | 937 |
| | 1,248 |
|
| Japan | | 1,026 |
| | 1,253 |
| | 589 |
| | 1,025 |
| | 831 |
| | 1,026 |
|
| Other | | 417 |
| | 483 |
| | 443 |
| | 434 |
| | 274 |
| | 417 |
|
| | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 20,322 |
| | $ | 12,399 |
| | $ | 16,192 |
|
Net property, plant, and equipment by geographic area was as follows:
| | | As of | | 2015 | | 2014 | | 2017 | | 2016 |
| Taiwan | | | $ | 6,519 |
| | $ | 2,081 |
|
| Singapore | | | 5,261 |
| | 5,442 |
|
| United States | | $ | 3,643 |
| | $ | 3,282 |
| | 4,253 |
| | 3,890 |
|
| Singapore | | 3,238 |
| | 3,101 |
| |
| Japan | | 2,173 |
| | 1,221 |
| | 2,827 |
| | 2,685 |
|
| Taiwan | | 1,073 |
| | 761 |
| |
| China | | 331 |
| | 242 |
| | 453 |
| | 491 |
|
| Other | | 96 |
| | 75 |
| | 118 |
| | 97 |
|
| | | $ | 10,554 |
| | $ | 8,682 |
| | $ | 19,431 |
| | $ | 14,686 |
|
Quarterly Financial Information (Unaudited)
(in millions except per share amounts)
| | | 2015 | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter | |
| 2017 | | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| Net sales | | $ | 3,600 |
| | $ | 3,853 |
| | $ | 4,166 |
| | $ | 4,573 |
| | $ | 6,138 |
| | $ | 5,566 |
| | $ | 4,648 |
| | $ | 3,970 |
|
| Gross margin | | 970 |
| | 1,202 |
| | 1,405 |
| | 1,638 |
| | 3,112 |
| | 2,609 |
| | 1,704 |
| | 1,011 |
|
| Operating income | | 427 |
| | 631 |
| | 855 |
| | 1,085 |
| | 2,502 |
| | 1,963 |
| | 1,044 |
| | 359 |
|
| Net income | | 471 |
| | 491 |
| | 935 |
| | 1,002 |
| | 2,369 |
| | 1,647 |
| | 894 |
| | 180 |
|
| Net income attributable to Micron | | 471 |
| | 491 |
| | 934 |
| | 1,003 |
| | 2,368 |
| | 1,647 |
| | 894 |
| | 180 |
|
| | | | | | | | | | | | | | | | | |
| Earnings per share: | | |
| | |
| | |
| | |
| |
| Earnings per share | | | | | | | | | |
| Basic | | $ | 0.44 |
| | $ | 0.46 |
| | $ | 0.87 |
| | $ | 0.94 |
| | $ | 2.13 |
| | $ | 1.49 |
| | $ | 0.81 |
| | $ | 0.17 |
|
| Diluted | | 0.42 |
| | 0.42 |
| | 0.78 |
| | 0.84 |
| | 1.99 |
| | 1.40 |
| | 0.77 |
| | 0.16 |
|
The second quarter of 2017 includes Inotera's results of operations from the December 6, 2016 acquisition date as well as a non-operating gain of $71 million for the revaluation of our previously-held 33% equity interest in Inotera to its fair value. (See "Acquisition of Inotera" note.) Results of operations in the fourth and third quarters of 2017 included losses of $37 million and $61 million, respectively, related to the repurchases and conversions of debt.
|
| | | | | | | | | | | | | | | | |
| 2016 | | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
| Net sales | | $ | 3,217 |
| | $ | 2,898 |
| | $ | 2,934 |
| | $ | 3,350 |
|
| Gross margin | | 579 |
| | 498 |
| | 579 |
| | 849 |
|
| Operating income (loss) | | (32 | ) | | (27 | ) | | (5 | ) | | 232 |
|
| Net income (loss) | | (170 | ) | | (215 | ) | | (96 | ) | | 206 |
|
| Net income (loss) attributable to Micron | | (170 | ) | | (215 | ) | | (97 | ) | | 206 |
|
| | | | | | | | | |
| Earnings (loss) per share | | |
| | |
| | |
| | |
|
| Basic | | $ | (0.16 | ) | | $ | (0.21 | ) | | $ | (0.09 | ) | | $ | 0.20 |
|
| Diluted | | (0.16 | ) | | (0.21 | ) | | (0.09 | ) | | 0.19 |
|
Results of operations in the fourth third, and first quarters of 2015 included losses of $1 million, $18 million, and $30 million, respectively, for losses on restructure of debt.
|
| | | | | | | | | | | | | | | | |
| 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 |
|
Results of operations for the first quarter of 20142016 included a $233charges of $58 million chargerelated to accrue a liability for the settlement of all pending litigation between us and Rambus, including all antitrust and patent matters, which reflects the discounted value of amounts due under the arrangement.
Results of operationsrestructure activities initiated 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.2016.
Results of operations for the fourth quarter of 2014 included a gain of $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 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 index appearing under Item 8 present fairly, in all material respects, the financial position of Micron Technology, Inc. and its subsidiaries atas of August 31, 2017 and September 3, 2015 and August 28, 2014,1, 2016, and the results of their operations and their cash flows for each of the three years in the period ended September 3, 2015August 31, 2017 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 815(a)(2) 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 September 3, 2015,August 31, 2017, 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 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 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.
As described in Management's Report on Internal Control over Financial Reporting, management has excluded Inotera Memories, Inc. ("Inotera") from its assessment of internal control over financial reporting as of August 31, 2017, because it was acquired by the Company in a purchase business combination during the fiscal year ended August 31, 2017. We have also excluded Inotera from our audit of internal control over financial reporting. Inotera is a wholly-owned subsidiary whose total assets and total revenues excluded from management's assessment and our audit of internal control over financial reporting represent 11% and 0%, respectively, of the related consolidated financial statement amounts as of and for the year ended August 31, 2017.
/s/ PricewaterhouseCoopers LLP
San Jose, CA California
October 27, 201526, 2017
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.
On December 6, 2016, we acquired the remaining 67% interest in Inotera and began consolidating Inotera. As a result, we are currently integrating Inotera's operations into our overall internal control over financial reporting. Under the guidelines established by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company, and accordingly, we expect to exclude Inotera from the assessment of internal control over financial reporting during that time.
During the fourth quarter of 2015,2017, 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'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.
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.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "InternalInternal Control – Integrated Framework"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 September 3, 2015.August 31, 2017. The effectiveness of our internal control over financial reporting as of September 3, 2015August 31, 2017 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.
Management's evaluation of the effectiveness of its internal control over financial reporting as of August 31, 2017 has excluded Inotera from its assessment of internal control over financial reporting as of August 31, 2017 because it was acquired by us in a business combination on December 6, 2016. Inotera is a wholly-owned subsidiary whose total assets and total revenues represent 11% and 0%, respectively, of the related consolidated financial statement amounts as of and for the year ended August 31, 2017.
ITEM 9B. OTHER INFORMATION
None.
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 ACCOUNTANT 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 September 3, 2015August 31, 2017 and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
|
| | |
| 1. | | Financial Statements: See Index to Consolidated Financial Statements under Item 8. |
| 2. | | Financial Statement Schedules: Schedule I – Condensed Financial Information of the Registrant Schedule II – Valuation and Qualifying Accounts
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 |
2.1* | | English Translation of Agreement on Support for Reorganization Companies with Nobuaki Kobayashi and Yukio Sakamoto, the trustees of Elpida Memory, Inc. and its wholly-owned subsidiary, Akita Elpida Memory, Inc. dated July 2, 2012 (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 (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 (7) |
3.2 | | Bylaws of the Registrant, Amended and Restated (31) |
4.1 | | Indenture dated November 3, 2010, by and between Micron Technology, Inc. and Wells Fargo Bank, National Association (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 (1) |
4.4 | | 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 (1) |
4.5 | | Form of 2032C Note (included in Exhibit 4.3) (1) |
4.6 | | Form of 2032D Note (included in Exhibit 4.4) (1) |
4.7 | | Indenture dated as of May 23, 2007, by and between Micron Technology, Inc. and Wells Fargo Bank, National Association, as trustee (10) |
4.8 | | 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 (11) |
4.9 | | 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 (11) |
4.10 | | Form of 2031A Note (included in Exhibit 4.8) (11) |
4.11 | | Form of 2031B Note (included in Exhibit 4.9) (11) |
4.12 | | Indenture, dated as of February 12, 2013, by and between Micron Technology, Inc. and U.S. Bank National Association, as trustee (2) |
4.13 | | Indenture, dated as of February 12, 2013, by and between Micron Technology, Inc. and U.S. Bank National Association, as trustee (2) |
4.14 | | Form of 2033E Note (included in Exhibit 4.12) (2) |
4.15 | | Form of 2033F Note (included in Exhibit 4.13) (2) |
4.16 | | Indenture, dated as of 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) |
|
| | |
4.18 | | 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) |
10.5 | | 2001 Stock Option Plan Form of Agreement (17) |
10.6 | | 2004 Equity Incentive Plan, as Amended and Restated |
10.7 | | 2004 Equity Incentive Plan Forms of Agreement and Terms and Conditions |
10.8 | | Amended and Restated 2007 Equity Incentive Plan |
10.9 | | 2007 Equity Incentive Plan Forms of Agreement |
10.10 | | Nonstatutory Stock Option Plan, as Amended |
10.11 | | Nonstatutory Stock Option Plan Form of Agreement and Terms and Conditions |
10.12 | | Numonyx Holdings B.V. Equity Incentive Plan (18) |
10.13 | | Numonyx Holdings B.V. Equity Incentive Plan Forms of Agreement (18) |
10.14* | | Patent License Agreement dated September 15, 2006, by and among Toshiba Corporation, Acclaim Innovations, LLC and Micron Technology, Inc. (19) |
10.15 | | Form of Indemnification Agreement between the Registrant and its officers and directors (13) |
10.16* | | Master Agreement dated as of November 18, 2005, between Micron Technology, Inc. and Intel Corporation (20) |
10.17* | | Supply Agreement dated as of January 6, 2006, between Intel Corporation and IM Flash Technologies, LLC (20) |
10.18 | | Form of Severance Agreement (21) |
10.19 | | 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 (16) |
10.20 | | Form of Capped Call Confirmation dated as of July 20, 2011, between Micron Technology, Inc. and Société Genérale (22) |
10.21 | | Form of Capped Call Confirmation dated as of July 22, 2011 (22) |
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 (23) |
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 (24) |
10.24* | | Amendment to the Master Agreement dated April 6, 2012, between Intel Corporation and Micron Technology, Inc. (24) |
10.25* | | Amended and Restated Supply Agreement dated April 6, 2012, between Intel Corporation and IM Flash Technologies, LLC (24) |
10.26* | | Amended and Restated Supply Agreement dated April 6, 2012, between Micron Technology, Inc. and IM Flash Technologies, LLC (24) |
|
| | |
10.27* | | Product Supply Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and Micron Semiconductor Asia PTE LTD (24) |
10.28* | | Wafer Supply Agreement dated April 6, 2012, among Micron Technology, Inc., Intel Corporation and Micron Singapore (24) |
10.29 | | Form of Capped Call Confirmation dated April 2012 (1) |
10.30* | | Supply Agreement, dated 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 Nanya Technology Corporation (26) |
10.35* | | Omnibus IP Agreement, dated 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. 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 Corporation and Micron Semiconductor Asia Pte. Ltd. |
|
| | |
10.52* | | Supplemental Supply Agreement, dated September 1, 2015, by and among Micron Technology, Inc., Intel Corporation and Micron Semiconductor Asia Pte. Ltd. |
10.53* | | Wafer Supply Agreement No. 3, dated September 1, 2015, by and among 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 Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, as representatives of the initial purchasers. (8) |
21.1 | | Subsidiaries of the Registrant |
23.1 | | 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 |
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 April 12, 2012 |
(2) | | Incorporated by reference to Current Report on Form 8-K dated February 6, 2013 |
(3) | | 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 Current Report on Form 8-K dated October 29, 2012 |
(6) | | Incorporated by reference to Current Report on Form 8-K dated July 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 |
(10) | | Incorporated by reference to Current Report on Form 8-K dated May 17, 2007 |
(11) | | Incorporated by reference to Current Report on Form 8-K dated July 26, 2011 |
(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 |
(17) | | Incorporated by reference to Current Report on Form 8-K dated April 3, 2005 |
(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 |
(20) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended December 1, 2005 |
(21) | | Incorporated by reference to Current Report on Form 8-K dated October 26, 2007 |
(22) | | Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended September 1, 2011 |
(23) | | Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended March 1, 2012 |
(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 27th day of October 2015.
|
| | |
| Micron Technology, Inc. |
| By: | /s/ Ernest E. Maddock |
| | Ernest E. Maddock
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 27, 2015 |
(D. Mark Durcan) | (Principal Executive Officer) | |
| | |
/s/ 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 27, 2015 |
(Robert L. Bailey) | | |
| | |
| | |
/s/ Richard M. Beyer | Director | October 27, 2015 |
(Richard M. Beyer) | | |
| | |
| | |
/s/ Patrick J. Byrne | Director | October 27, 2015 |
(Patrick J. Byrne) | | |
| | |
| | |
/s/ Warren East | Director | October 27, 2015 |
(Warren East) | | |
| | |
| | |
/s/ Mercedes Johnson | Director | October 27, 2015 |
(Mercedes Johnson) | | |
| | |
| | |
/s/ Lawrence N. Mondry | Director | October 27, 2015 |
(Lawrence N. Mondry) | | |
| | |
| | |
/s/ Robert E. Switz | Chairman of the Board | October 27, 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 (LOSS)
(in millions)
| | | For the year ended | | September 3,
2015 | | August 28,
2014 | | August 29,
2013 | | August 31,
2017 | | September 1,
2016 | | September 3,
2015 |
| Net sales | | $ | 5,547 |
| | $ | 5,819 |
| | $ | 4,404 |
| | $ | 5,652 |
| | $ | 5,529 |
| | $ | 5,547 |
|
| | | | | | | | |
| Costs and expenses | | | | | | | |
| Cost of goods sold | | 3,329 |
| | 3,514 |
| | 3,721 |
| | 3,478 |
| | 3,625 |
| | 3,329 |
|
| Gross margin | | 2,218 |
| | 2,305 |
| | 683 |
| |
| | | | | | | | |
| Selling, general and administrative | | 299 |
| | 264 |
| | 238 |
| |
| Selling, general, and administrative | | | 331 |
| | 266 |
| | 299 |
|
| Research and development | | 1,483 |
| | 1,389 |
| | 921 |
| | 1,551 |
| | 1,500 |
| | 1,483 |
|
| Other operating (income) expense, net | | (12 | ) | | 251 |
| | 77 |
| | — |
| | 26 |
| | (12 | ) |
| Operating income (loss) | | 448 |
| | 401 |
| | (553 | ) | |
| Total costs and expenses | | | 5,360 |
| | 5,417 |
| | 5,099 |
|
| | | | | | | | | | | | | |
| Gain on MMJ Acquisition | | — |
| | (33 | ) | | 1,484 |
| |
| Operating income | | | 292 |
| | 112 |
| | 448 |
|
| | | | | | | | |
| Interest income (expense), net | | (273 | ) | | (209 | ) | | (189 | ) | | (366 | ) | | (348 | ) | | (273 | ) |
| Other non-operating income (expense), net | | (85 | ) | | (86 | ) | | (248 | ) | | (69 | ) | | 182 |
| | (85 | ) |
| | | 90 |
| | 73 |
| | 494 |
| | (143 | ) | | (54 | ) | | 90 |
|
| | | | | | | | | | | | | |
| Income tax (provision) benefit | | 38 |
| | 18 |
| | (1 | ) | | 22 |
| | 10 |
| | 38 |
|
| Equity in earnings (loss) of subsidiaries | | 2,773 |
| | 2,956 |
| | 703 |
| | 5,210 |
| | (224 | ) | | 2,773 |
|
| Equity in net loss of equity method investees | | (2 | ) | | (2 | ) | | (6 | ) | | — |
| | (8 | ) | | (2 | ) |
| Net income attributable to Micron | | 2,899 |
| | 3,045 |
| | 1,190 |
| |
| Net income (loss) attributable to Micron | | | 5,089 |
| | (276 | ) | | 2,899 |
|
| Other comprehensive income (loss) | | (43 | ) | | (7 | ) | | (17 | ) | | 64 |
| | (48 | ) | | (43 | ) |
| Comprehensive income attributable to Micron | | $ | 2,856 |
| | $ | 3,038 |
| | $ | 1,173 |
| |
| Comprehensive income (loss) attributable to Micron | | | $ | 5,153 |
| | $ | (324 | ) | | $ | 2,856 |
|
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 | | August 31,
2017 | | September 1,
2016 |
| Assets | | | | | | | | |
| Cash and equivalents | | $ | 721 |
| | $ | 1,249 |
| | $ | 2,197 |
| | $ | 2,716 |
|
| Short-term investments | | 479 |
| | 384 |
| | 319 |
| | 258 |
|
| Receivables | | 133 |
| | 114 |
| | 112 |
| | 102 |
|
| Notes and accounts receivable from subsidiaries | | 1,091 |
| | 1,767 |
| | 1,470 |
| | 1,159 |
|
| Finished goods | | 77 |
| | 84 |
| | 47 |
| | 49 |
|
| Work in process | | 321 |
| | 228 |
| | 215 |
| | 244 |
|
| Raw materials and supplies | | 86 |
| | 68 |
| | 89 |
| | 91 |
|
| Other current assets | | 82 |
| | 215 |
| | 42 |
| | 54 |
|
| Total current assets | | 2,990 |
| | 4,109 |
| | 4,491 |
| | 4,673 |
|
| Investment in subsidiaries | | 13,051 |
| | 10,149 |
| | 18,169 |
| | 12,897 |
|
| Long-term marketable investments | | 932 |
| | 819 |
| | 617 |
| | 414 |
|
| Noncurrent notes receivable from and prepaid expenses to subsidiaries | | 163 |
| | 111 |
| | 616 |
| | 709 |
|
| Property, plant and equipment, net | | 1,679 |
| | 1,519 |
| |
| Equity method investments | | — |
| | 9 |
| |
| Property, plant, and equipment, net | | | 2,330 |
| | 2,026 |
|
| Other noncurrent assets | | 488 |
| | 543 |
| | 335 |
| | 412 |
|
| Total assets | | $ | 19,303 |
| | $ | 17,259 |
| | $ | 26,558 |
| | $ | 21,131 |
|
| | | | | | | | | |
| Liabilities and equity | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 677 |
| | $ | 766 |
| | $ | 929 |
| | $ | 916 |
|
| Short-term debt and accounts payable to subsidiaries | | 384 |
| | 619 |
| | 700 |
| | 314 |
|
| Current debt | | 655 |
| | 1,065 |
| | 530 |
| | 75 |
|
| Other current liabilities | | 8 |
| | 30 |
| | 9 |
| | 16 |
|
| Total current liabilities | | 1,724 |
| | 2,480 |
| | 2,168 |
| | 1,321 |
|
| Long-term debt | | 4,797 |
| | 3,191 |
| | 5,320 |
| | 7,313 |
|
| Other noncurrent liabilities | | 431 |
| | 760 |
| | 428 |
| | 417 |
|
| Total liabilities | | 6,952 |
| | 6,431 |
| | 7,916 |
| | 9,051 |
|
| | | | | | | | | |
| Commitments and contingencies | |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | |
| Redeemable convertible notes | | 49 |
| | 68 |
| | 21 |
| | — |
|
| | | | | | | | | |
| 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 |
| |
| Micron shareholders' equity | | | | | |
| Common stock, $0.10 par value, 3,000 shares authorized, 1,116 shares issued and 1,112 outstanding (1,094 issued and 1,040 outstanding as of September 1, 2016) | | | 112 |
| | 109 |
|
| Other equity | | 12,194 |
| | 10,653 |
| | 18,509 |
| | 11,971 |
|
| Total Micron shareholders' equity | | 12,302 |
| | 10,760 |
| | 18,621 |
| | 12,080 |
|
| Total liabilities and equity | | $ | 19,303 |
| | $ | 17,259 |
| | $ | 26,558 |
| | $ | 21,131 |
|
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 |
|
|
| | | | | | | | | | | | |
| For the year ended | | August 31,
2017 | | September 1,
2016 | | September 3,
2015 |
| Net cash provided by operating activities | | $ | 1,073 |
| | $ | 836 |
| | $ | 995 |
|
| | | | | | | |
| Cash flows from investing activities | | | | | | |
| Purchases of available-for-sale securities | | (1,239 | ) | | (859 | ) | | (1,799 | ) |
| Expenditures for property, plant, and equipment | | (694 | ) | | (651 | ) | | (609 | ) |
| Payments to settle hedging activities | | (279 | ) | | (155 | ) | | (135 | ) |
| Cash contributions to subsidiaries | | (2 | ) | | (111 | ) | | (151 | ) |
| Cash paid for acquisitions | | — |
| | (216 | ) | | (57 | ) |
| Proceeds from sales of available-for-sale securities | | 776 |
| | 1,015 |
| | 1,045 |
|
| Proceeds from settlement of hedging activities | | 195 |
| | 337 |
| | 78 |
|
| Proceeds from maturities of available-for-sale securities | | 194 |
| | 582 |
| | 536 |
|
| (Payments) proceeds on loans to subsidiaries, net | | 54 |
| | (550 | ) | | 65 |
|
| Cash distributions from subsidiaries | | 33 |
| | 47 |
| | 33 |
|
| Other | | 7 |
| | 72 |
| | (7 | ) |
| Net cash provided by (used for) investing activities | | (955 | ) | | (489 | ) | | (1,001 | ) |
| | | | | | | |
| Cash flows from financing activities | | | | | | |
| Repayments of debt | | (1,711 | ) | | (332 | ) | | (1,645 | ) |
| Payments of licensing obligations | | (83 | ) | | (83 | ) | | (82 | ) |
| Cash paid to acquire treasury stock | | (35 | ) | | (148 | ) | | (884 | ) |
| Proceeds from issuance of stock to Nanya | | 986 |
| | — |
| | — |
|
| Proceeds from issuance of stock under equity plans | | 142 |
| | 48 |
| | 74 |
|
| Proceeds from settlement of capped calls | | 125 |
| | — |
| | — |
|
| Proceeds from issuance of debt | | — |
| | 1,993 |
| | 2,050 |
|
| Proceeds from equipment sale-leaseback transactions | | — |
| | 216 |
| | — |
|
| Other | | (69 | ) | | (46 | ) | | (36 | ) |
| Net cash provided by (used for) financing activities | | (645 | ) | | 1,648 |
| | (523 | ) |
| | | | | | | |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | | 8 |
| | — |
| | — |
|
| | | | | | | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | (519 | ) | | 1,995 |
| | (529 | ) |
| Cash, cash equivalents, and restricted cash at beginning of period | | 2,716 |
| | 721 |
| | 1,250 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 2,197 |
| | $ | 2,716 |
| | $ | 721 |
|
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.basis, and as such, reflect transactions in a manner that may be different than the consolidated financial statements. 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.United States for annual financial statements, these parent-only financial statements and other information includedthey should be read in conjunction with Micron's audited Consolidated Financial Statements contained within Part II, Item 8 of this Annual Report on 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.August 31, 2017.
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 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 |
| Instrument | | Stated Rate | | Effective Rate | | Current | | Long-Term | | Total | | Current | | Long-Term | | Total |
| Capital lease obligations | | N/A |
| | 3.34 | % | | $ | 45 |
| | $ | 126 |
| | $ | 171 |
| | $ | 70 |
| | $ | 171 |
| | $ | 241 |
|
| 2022 Notes | | 5.88 | % | | 6.14 | % | | — |
| | — |
| | — |
| | — |
| | 590 |
| | 590 |
|
| 2022 Term Loan B | | 3.80 | % | | 4.22 | % | | 5 |
| | 725 |
| | 730 |
| | 5 |
| | 730 |
| | 735 |
|
| 2023 Notes | | 5.25 | % | | 5.43 | % | | — |
| | 991 |
| | 991 |
| | — |
| | 990 |
| | 990 |
|
| 2023 Secured Notes | | 7.50 | % | | 7.69 | % | | — |
| | 1,238 |
| | 1,238 |
| | — |
| | 1,237 |
| | 1,237 |
|
| 2024 Notes | | 5.25 | % | | 5.38 | % | | — |
| | 546 |
| | 546 |
| | — |
| | 546 |
| | 546 |
|
| 2025 Notes | | 5.50 | % | | 5.56 | % | | — |
| | 515 |
| | 515 |
| | — |
| | 1,139 |
| | 1,139 |
|
| 2026 Notes | | 5.63 | % | | 5.73 | % | | — |
| | 128 |
| | 128 |
| | — |
| | 446 |
| | 446 |
|
2032C Notes(1) | | 2.38 | % | | 5.95 | % | | — |
| | 211 |
| | 211 |
| | — |
| | 204 |
| | 204 |
|
2032D Notes(1) | | 3.13 | % | | 6.33 | % | | — |
| | 159 |
| | 159 |
| | — |
| | 154 |
| | 154 |
|
2033E Notes(1)(2) | | 1.63 | % | | 4.50 | % | | 202 |
| | — |
| | 202 |
| | — |
| | 168 |
| | 168 |
|
2033F Notes(1) | | 2.13 | % | | 4.93 | % | | 278 |
| | — |
| | 278 |
| | — |
| | 271 |
| | 271 |
|
2043G Notes(3) | | 3.00 | % | | 6.76 | % | | — |
| | 671 |
| | 671 |
| | — |
| | 657 |
| | 657 |
|
| Other notes | | 1.65 | % | | 1.65 | % | | — |
| | 10 |
| | 10 |
| | — |
| | 10 |
| | 10 |
|
| | | | | | | $ | 530 |
| | $ | 5,320 |
| | $ | 5,850 |
| | $ | 75 |
| | $ | 7,313 |
| | $ | 7,388 |
|
| |
(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 exceeded 130% of the conversion price per share for at least 20 trading days in the 30 trading daytrading-day period endingended on June 30, 2015 exceeded 130% of2017, these notes are convertible by the initial conversion price per share, holders have the right to convert their notes at any time duringthrough the calendar quarter ended September 30, 2015.2017. The closing price of Micron's common stock also exceeded the thresholds for the calendar quarter ended September 30, 2015;2017; therefore, these notes are convertible by the holders through December 31, 2015.2017. The 2033 Notes arewere classified as current as of August 31, 2017 because the terms of these notes require us to pay cash for the principal amount of any converted notes.notes and holders of these notes had the right to convert their notes as of that date. |
| |
(2) | The net carrying amount for 2017 included $31 million of derivative debt liabilities recognized as a result of our election to settle entirely in cash converted notes with an aggregate principal amount of $16 million. See "Convertible Senior Notes" below. |
| |
(3) | The 2043G Notes have an original principal amount of $820 million that accretes up to $917 million through the expected term in November 2028 and $1.03 billion at maturity in 2043. |
Micron's convertible and other 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'sits other existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. TheAs of August 31, 2017, Micron had $3.70 billion of unsecured debt (net of unamortized discount and debt issuance costs), including all of its convertible notes and the 2022 Notes, 2023 Notes, 2024 Notes, 2025 Notes, and 2026 Notes, of Micron arethat was structurally subordinated to all liabilities of its subsidiaries, including trade payables. The terms of all of Micron's indebtedness generally contain cross payment and cross acceleration provisions. As of August 31, 2017, Micron guaranteeshad guaranteed $4.16 billion of certain debt obligations of its subsidiaries. Micronsubsidiaries, but does not guarantee the MMJ creditor installment payments. As of September 3, 2015, Micron had guaranteed $655 million of debt obligations of its subsidiaries.Creditor Payments (see "Commitments" below.) Micron's guarantees of its subsidiary debt obligations are unsecured obligations ranking equally in right of payment with all of itsMicron's other existing and future unsecured indebtedness.
The 2022 Term Loan B and 2023 Secured Notes are collateralized by substantially all of the assets of Micron and MSP, a subsidiary of Micron, subject to certain permitted liens on such assets. Included in Micron's balance sheet as of August 31, 2017 were $8.36 billion of assets which collateralize these notes, which includes $2.14 billion investment in subsidiaries. The 2022 Term Loan B Notes and 2023 Secured Notes are structurally subordinated to the indebtedness and other liabilities of all of Micron's subsidiaries that do not guarantee these debt obligations. MSP guarantees both of these notes.
Capital Lease Obligations
Micron has various capital lease obligations due in periodic installments with a weighted-average remaining term of 1 year. As of August 31, 2017 and September 3, 2015 and August 28, 2014,1, 2016, Micron had production equipment with carrying values of $140155 million and $305226 million, respectively, under capital leases.
Convertible Senior Notes, Senior Secured Notes, and OtherUnsecured 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.Debt."
Maturities of Notes Payable and Future Minimum Lease Payments
As of September 3, 2015,August 31, 2017, maturities of notes payable and future minimum lease payments under capital lease obligations were as follows:
| | | | | Notes Payable | | Capital Lease Obligations | | Notes Payable | | Capital Lease Obligations |
| 2016 | | $ | — |
| | $ | 179 |
| |
| 2017 | | — |
| | 30 |
| |
| 2018 | | 233 |
| | 3 |
| | $ | 211 |
| | $ | 51 |
|
| 2019 | | 224 |
| | 3 |
| | 231 |
| | 44 |
|
| 2020 | | 347 |
| | 3 |
| | 305 |
| | 56 |
|
| 2021 and thereafter | | 4,854 |
| | 3 |
| |
| 2021 | | | 195 |
| | 32 |
|
| 2022 | | | 713 |
| | — |
|
| 2023 and thereafter | | | 4,365 |
| | — |
|
| Unamortized discounts and interest, respectively | | (420 | ) | | (7 | ) | | (341 | ) | | (12 | ) |
| | | $ | 5,238 |
| | $ | 214 |
| | $ | 5,679 |
| | $ | 171 |
|
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 onof 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,August 31, 2017, the maximum potential amount of future payments Micron could have been required to make under its debt guarantees was approximately $655 million.$4.16 billion. 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)company(ies) 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 2016January 2019 and February 2020.April 2022. Micron guarantees a subsidiary credit facility of a subsidiary that provides for up to $750$750 million of financing. As of September 3, 2015, $75August 31, 2017, there were no outstanding amounts drawn under this facility.
Micron has guaranteed the obligations of Micron Semiconductor Asia Pte. Ltd. ("MSA") and Micron Semiconductor (Xi'an) Co. Ltd. ("MXA"), each wholly-owned subsidiaries of Micron, in connection with a service agreement with Powertech Technology Inc. Xi'an ("PTI Xi'an") to provide assembly services to us at our manufacturing site in Xi'an, China. Micron would be required to pay the financial obligations of MSA and/or MXA in the event MSA and/or MXA fail to pay PTI Xi'an for services performed under the assembly services agreement. Micron's guarantee of MSA and of MXA extends through March 2022, the term of the assembly service agreement, but may be further extended through March 2024 if any party extends the assembly services agreement. The maximum potential amount of future payments Micron may be required to pay under this guarantee is indeterminable because the pricing and volume under the assembly services agreement are variable.
Micron has guaranteed the obligations of MSA under the 2021 MSAC Term Loan and the obligations of MSTW under the 2021 MSTW Term Loan. For further information, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – 2021 MSAC Senior Secured Term Loan and 2021 MSTW Senior Secured Term Loan."
Micron has guaranteed the obligations of certain of its subsidiaries to a supplier of capital equipment through June 2019. As of August 31, 2017, Micron had guaranteed $65 million of principal amount was outstanding under this facility.such payments.
Micron guarantees certain banking facilities for its wholly-owned consolidated entities. Substantially all of these guarantees relate to bank overdraft protections.protections or issuance of commercial letters of credit/bank guarantees. The maximum potential amount of future payments Micron could be required to make under these guarantees of banking facilities varies based on the extent of potential overdrafts.credit exposure. Micron's business processes substantially mitigate the risk of wholly-owned subsidiaries overdraftingoverdrawing their bank accounts.accounts and the exposure under commercial letters of credit/bank guarantees is $35 million. The majority of these banking facility 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.Contingencies."
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.Notes."
Related Party Transactions
Substantially all of Micron's activities relate to manufacturing and R&D services performed for a subsidiaryits subsidiaries and to royalties received from its subsidiaries for use of product and process technology. Micron's net sales to consolidated subsidiaries were $5.42$5.58 billion, $5.64$5.38 billion, and $4.195.42 billion for 2015, 2014,2017, 2016, and 2013,2015, 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 eliminateseliminate 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.Investments."
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
MICRON TECHNOLOGY, INC.
| | | | 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 | 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 August 31, 2017 | | $ | 2,107 |
| | $ | — |
| | $ | (64 | ) | | $ | 278 |
| | $ | 2,321 |
|
| Year ended September 1, 2016 | | 2,051 |
| | 10 |
| | (63 | ) | | 109 |
| | 2,107 |
|
| Year ended September 3, 2015 | $ | 2,443 |
| | $ | — |
| | $ | (260 | ) | | $ | (132 | ) | | $ | 2,051 |
| 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 |
| |
Amounts charged to other accounts for the year ended August 31, 2017 includes $325 million as a result of the adoption of ASU 2016-09. See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards."
3. Exhibits.
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 2.1* | | | 8-K/A | | 2.1 | 10/31/12 |
| 2.2* | | | 8-K | | 2.3 | 10/29/12 |
| 2.3* | | | 8-K | | 2.4 | 8/6/13 |
| 2.4 | | | 8-K | | 2.5 | 8/6/13 |
| 2.5 | | | 10-Q | 3/3/16 | 2.6 | 4/8/16 |
| 3.1 | | | 8-K | | 99.2 | 1/26/15 |
| 3.2 | | | 8-K | | 99.1 | 4/15/14 |
| 4.1 | | | 8-K | | 4.1 | 4/18/12 |
| 4.2 | | | 8-K | | 4.3 | 4/18/12 |
| 4.3 | | | 8-K | | 4.3 | 4/18/12 |
| 4.4 | | | 8-K | | 4.3 | 4/18/12 |
| 4.5 | | | 8-K | | 4.3 | 7/26/11 |
| 4.6 | | | 8-K | | 4.1 | 2/12/13 |
| 4.7 | | | 8-K | | 4.3 | 2/12/13 |
| 4.8 | | | 8-K | | 4.1 | 2/12/13 |
| 4.9 | | | 8-K | | 4.3 | 2/12/13 |
| 4.10 | | | 8-K | | 4.1 | 11/18/13 |
| 4.11 | | | 8-K | | 4.1 | 11/18/13 |
| 4.12 | | | 10-Q | 2/27/14 | 4.3 | 4/7/14 |
| 4.13 | | | 8-K | | 4.1 | 2/12/14 |
| 4.14 | | | 8-K | | 4.1 | 2/12/14 |
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 4.15 | | | 8-K | | 4.1 | 7/29/14 |
| 4.16 | | | 8-K | | 4.1 | 7/29/14 |
| 4.17 | | | 8-K | | 4.1 | 4/30/15 |
| 4.18 | | | 8-K | | 4.2 | 4/30/15 |
| 4.19 | | | 8-K | | 4.1 | 4/30/15 |
| 4.20 | | | 8-K | | 4.2 | 4/30/15 |
| 4.21 | | | 8-K | | 4.1 | 2/3/15 |
| 4.22 | | | 8-K | | 4.1 | 2/3/15 |
| 4.23 | | | 8-K | | 4.1 | 4/26/16 |
| 4.24 | | | 8-K | | 4.1 | 4/26/16 |
| 4.25 | | | 8-K | | 4.1 | 7/20/16 |
| 10.1 | | | DEF 14A | | C | 12/12/14 |
| 10.2 | | | 10-K | 8/30/12 | 10.5 | 10/29/12 |
| 10.3 | | | 10-K | 8/30/12 | 10.7 | 10/29/12 |
| 10.4 | | | 10-K | 8/30/12 | 10.8 | 10/29/12 |
| 10.5 | | | 8-K | | 99.2 | 4/6/05 |
| 10.6 | | | 10-K | 9/1/16 | 10.6 | 10/28/16 |
| 10.7 | | | 10-K | 9/1/16 | 10.7 | 10/28/16 |
| 10.8 | | | 10-K | 9/1/16 | 10.8 | 10/28/16 |
| 10.9 | | | 10-K | 9/1/16 | 10.9 | 10/28/16 |
| 10.10 | | | 10-K | 9/1/16 | 10.10 | 10/28/16 |
| 10.11 | | | 10-K | 9/1/16 | 10.11 | 10/28/16 |
| 10.12 | | | S-8 | | 4.1 | 6/16/10 |
| 10.13 | | | S-8 | | 4.2 | 6/16/10 |
| 10.14* | | | 10-Q | 11/30/06 | 10.66 | 1/16/07 |
| 10.15 | | | 10-Q | 2/27/14 | 10.3 | 4/7/14 |
| 10.16* | | | 10-Q | 12/1/05 | 10.155 | 1/10/06 |
| 10.17* | | | 10-Q | 12/1/05 | 10.163 | 1/10/06 |
| 10.18 | | | 8-K | | 99.2 | 11/1/07 |
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 10.19 | | | 10-Q | 12/4/08 | 10.70 | 1/13/09 |
| 10.20* | | | 10-Q | 3/1/12 | 10.104 | 4/9/12 |
| 10.21* | | | 10-Q | 5/31/12 | 10.108 | 7/9/12 |
| 10.22* | | | 10-Q | 5/31/12 | 10.109 | 7/9/12 |
| 10.23* | | | 10-Q | 5/31/12 | 10.110 | 7/9/12 |
| 10.24* | | | 10-Q | 5/31/12 | 10.111 | 7/9/12 |
| 10.25* | | | 10-Q | 5/31/12 | 10.112 | 7/9/12 |
| 10.26* | | | 10-Q | 5/31/12 | 10.113 | 7/9/12 |
| 10.27 | | | 8-K | | 10.1 | 4/18/12 |
| 10.28* | | | 10-Q | 2/28/13 | 10.122 | 4/8/13 |
| 10.29* | | | 10-Q | 2/28/13 | 10.123 | 4/8/13 |
| 10.30* | | | 10-Q | 2/28/13 | 10.124 | 4/8/13 |
| 10.31 | | | 10-Q | 2/28/13 | 10.125 | 4/8/13 |
| 10.32* | | | 10-Q/A | 2/28/13 | 10.126 | 8/7/13 |
| 10.33* | | | 10-Q | 2/28/13 | 10.127 | 4/8/13 |
| 10.34* | | | 10-Q/A | 2/28/13 | 10.128 | 8/7/13 |
| 10.35* | | | 10-Q | 2/28/13 | 10.129 | 4/8/13 |
| 10.36* | | | 10-Q | 2/28/13 | 10.130 | 4/8/13 |
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 10.37* | | | 8-K/A | | 10.139 | 10/2/13 |
| 10.38* | | | 8-K | | 10.140 | 8/6/13 |
| 10.39* | | | 8-K/A | | 10.141 | 10/2/13 |
| 10.40 | | | 8-K | | 10.1 | 2/12/13 |
| 10.41 | | | 8-K | | 10.1 | 2/7/14 |
| 10.42 | | | 8-K | | 10.1 | 2/12/14 |
| 10.43 | | | 8-K | | 10.1 | 7/24/14 |
| 10.44 | | | 8-K | | 10.1 | 7/29/14 |
| 10.45 | 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, and certain other financial institutions party thereto as additional agents and/or lenders | | 8-K | | 99.1 | 12/8/14 |
| 10.46 | | | 10-Q | 3/5/15 | 10.88 | 4/10/15 |
| 10.47* | | | 10-Q | 3/5/15 | 10.90 | 4/10/15 |
| 10.48* | | | 10-Q | 3/5/15 | 10.91 | 4/10/15 |
| 10.49* |
| | 10-Q | 3/2/17 | 10.49 | 3/28/17 |
| 10.50* | | | 10-Q | 3/2/17 | 10.50 | 3/28/17 |
| 10.51* | | | 10-Q | 3/2/17 | 10.51 | 3/28/17 |
| 10.52* | | | 10-K | 9/3/15 | 10.54 | 10/27/15 |
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 10.53 | | | 8-K | | 10.1 | 4/30/15 |
| 10.54* | | | 10-Q/A | 3/3/16 | 10.56 | 9/8/16 |
| 10.55* | | | 10-Q/A | 3/3/16 | 10.57 | 9/8/16 |
| 10.56 | | | 10-Q | 3/3/16 | 10.58 | 4/8/16 |
| 10.57 | | | 10-Q | 3/3/16 | 10.59 | 4/8/16 |
| 10.58* | | | 10-Q | 6/2/16 | 10.60 | 7/6/16 |
| 10.59* | | | 10-Q | 6/2/16 | 10.61 | 7/6/16 |
| 10.60 | | | 8-K | | 10.1 | 4/26/16 |
| 10.61 | | | 8-K | | 10.2 | 4/26/16 |
| 10.62 | | | 8-K | | 10.3 | 4/26/16 |
| 10.63 | English translation of Syndicated Loan Agreement dated October 11, 2016, as Amended on November 23, 2016 by and among Inotera Memories, Inc., Micron Semiconductor Taiwan Co., Ltd., certain financial institutions party thereto and Bank of Taiwan, as Facility Agent and Mega International Commercial Bank Co., Ltd., as Collateral Agent | | 10-Q | 12/1/16 | 10.63 | 1/9/17 |
| 10.64 | | | 10-Q | 3/2/17 | 10.64 | 3/28/17 |
| 10.65 | | | 10-Q | 12/16/16 | 10.65 | 1/9/17 |
| 10.66 | | | 10-Q | 12/16/16 | 10.66 | 1/9/17 |
| 10.67 | | | 10-Q | 6/1/17 | 10.67 | 6/30/17 |
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 10.68 | | | 10-Q | 6/1/17 | 10.68 | 6/30/17 |
| 10.69 | English translation of the Second Amendment to the Syndicated Loan Agreement, dated as of July 14, 2017 by and among Micron Technology Taiwan, Inc., Micron Semiconductor Taiwan, Co., Ltd., certain financial institutions party thereto and Bank of Taiwan, as Facility Agent and Mega International Commercial Bank Co., Ltd., as Collateral Agent | X | | | | |
| 10.70 | | X | | | | |
| 10.71 | | X | | | | |
| 21.1 | | X | | | | |
| 23.1 | | X | | | | |
| 31.1 | | X | | | | |
| 31.2 | | X | | | | |
| 32.1 | | X | | | | |
| 32.2 | | X | | | | |
| 101.INS | XBRL Instance Document | X | | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | X | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | | | | |
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission.
ITEM 16. 10-K SUMMARY
None.
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 26th day of October 2017.
|
| | |
| Micron Technology, Inc. |
| By: | /s/ Ernest E. Maddock |
| | Ernest E. Maddock Senior Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | |
| Signature | Title | Date |
| | |
| /s/ Sanjay Mehrotra | President and | October 26, 2017 |
| (Sanjay Mehrotra) | Chief Executive Officer and | |
| Director | |
| (Principal Executive Officer) | |
| | |
| /s/ Ernest E. Maddock | Senior Vice President and | October 26, 2017 |
| (Ernest E. Maddock) | Chief Financial Officer
| |
| (Principal Financial and | |
| Accounting Officer) | |
| | |
| /s/ Robert L. Bailey | Director | October 26, 2017 |
| (Robert L. Bailey) | | |
| | |
| | |
| /s/ Richard M. Beyer | Director | October 26, 2017 |
| (Richard M. Beyer) | | |
| | |
| | |
| /s/ Patrick J. Byrne | Director | October 26, 2017 |
| (Patrick J. Byrne) | | |
| | |
| | |
| /s/ Mercedes Johnson | Director | October 26, 2017 |
| (Mercedes Johnson) | | |
| | |
| | |
| /s/ Lawrence N. Mondry | Director | October 26, 2017 |
| (Lawrence N. Mondry) | | |
| | |
| | |
| /s/ Robert E. Switz | Chairman of the Board | October 26, 2017 |
| (Robert E. Switz) | Director | |
