PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
The accompanying consolidated financial statements include the accounts of Micron and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended August 31, 2017. September 3, 2020, except for changes in accounting and presentation of inventories. See “Inventories” below for changes to our significant accounting policies, and the “Inventories” note for additional information.
In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.
Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal years 20182021 contains 52 weeks and 2017our fiscal 2020 contained 53 weeks. The first and second quarters of fiscal 2021 and 2020 each contain 52contained 13 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended AugustSeptember 3, 2020.
Consolidated VIE
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. 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. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)
Recently IssuedAdopted Accounting Standards
In October 2016,November 2018, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU") 2016-16ASU 2018-18 – Intra-Entity Transfers Other Than InventoryCollaborative Arrangements, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventoryclarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the transfer occurs. Thiscollaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. We adopted ASU will be effective for us2018-18 in the first quarter of 2019 and requires modified2021 under the retrospective adoption. We are evaluatingadoption method to the effects of ourdate we adopted ASC 606, which was August 31, 2018. The adoption of this ASU did not have a significant impact 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 below amortized cost. We adopted ASU 2016-13 in the first quarter of 2021 under the modified retrospective adoption method. The adoption of this ASU did not have a significant impact on our financial statements.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06 – Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity, which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for us in the first quarter of 20212023, with early adoption permitted as early asbeginning in the first quarter of 2020. This ASU requires2022, and permits the use of either the modified retrospective adoption, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date.or fully retrospective method of transition. 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 in 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. Our assets and liabilities subject to this standard are not material.
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 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. This ASU will be effective for us in the first quarter of 2019 and we expect to elect the modified retrospective adoption method.
As a result of the adoption of this ASU, we expect to recognize revenue from sales of products to our distributors (which generally have agreements allowing rights of return or price protection) at the time control transfers to our distributors, which is generally earlier than recognizing revenue only upon resale by our distributors under existing revenue recognition guidance. Revenue recognized upon resale by our distributors under these arrangements was 17% and 19% of our consolidated revenue for the second quarter and first six months of 2018, respectively, and 20% and 22% of our consolidated revenue for the second quarter and first six months of 2017, respectively. On the date of initial application of this ASU, we will derecognize the deferred income on sales made to our distributors through a cumulative adjustment to retained earnings. We expect the revenue deferral, historically recognized in the following period, to be offset by the earlier recognition of revenue as described above as control of product transfers to our distributors. As a result of the adoption of this ASU, we expect to recognize interest expense from the financing component for contracts with advanced payments under which we transfer control of our products to our customers for periods extending beyond one year, although historically such arrangements would not have resulted in significant amounts of interest expense. As a result of the adoption of this ASU, we expect that revenue recognized under our current license agreements will not change materially.
Acquisition of Inotera
Through December 6, 2016, we held a 33% ownership interest in Inotera, now known as Micron Technology Taiwan, Inc. ("MTTW") and accounted for our ownership interest under the equity method. On December 6, 2016, we acquired the remaining 67% ownership interest in Inotera not owned by us (the "Inotera Acquisition") 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, under which we purchased $504 million of DRAM products in the first quarter of 2017, based on a pricing formula that equally shared margin between Inotera and us.
Pro Forma Financial Information
The following pro forma financial information presents the combined results of operations as if the Inotera Acquisition had occurred on September 4, 2015. The pro forma financial information includes the accounting effects of the business combination, including adjustments for depreciation of property, plant, and equipment, interest expense, elimination of intercompany activities, and revaluation of inventories. The pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the Inotera Acquisition occurred on September 4, 2015.
|
| | | | | | | |
| | Quarter ended | | Six months ended |
| | March 2,
2017 | | March 2,
2017 |
| Net sales | $ | 4,648 |
| | $ | 8,613 |
|
| Net income | 890 |
| | 1,080 |
|
| Net income attributable to Micron | 890 |
| | 1,080 |
|
| Earnings per share | | | |
| Basic | 0.81 |
| | 0.98 |
|
| Diluted | 0.77 |
| | 0.93 |
|
The pro forma financial information includes our results for the quarter and six months ended March 2, 2017 (which includes the results of Inotera since our acquisition of Inotera on December 6, 2016), the results of Inotera for the three months ended November 30, 2016, and the adjustments described above.
Cash and Investments
Substantially all of our marketable debt and equity investments were classified as available-for-sale as of the dates noted below. Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 4, 2021 | | September 3, 2020 |
| As of | 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 | $ | 3,747 | | $ | 0 | | $ | 0 | | $ | 3,747 | | | $ | 3,996 | | $ | 0 | | $ | 0 | | $ | 3,996 | |
Level 1(2) | | | | | | | | | |
| Money market funds | 1,332 | | 0 | | 0 | | 1,332 | | | 1,828 | | 0 | | 0 | | 1,828 | |
Level 2(3) | | | | | | | | | |
| Certificates of deposit | 1,409 | | 50 | | 0 | | 1,459 | | | 1,740 | | 10 | | 2 | | 1,752 | |
| Corporate bonds | 0 | | 268 | | 797 | | 1,065 | | | 3 | | 266 | | 592 | | 861 | |
| Government securities | 0 | | 204 | | 137 | | 341 | | | 6 | | 115 | | 243 | | 364 | |
| Asset-backed securities | 0 | | 43 | | 382 | | 425 | | | 1 | | 31 | | 211 | | 243 | |
| Commercial paper | 19 | | 112 | | 0 | | 131 | | | 50 | | 96 | | 0 | | 146 | |
| 6,507 | | $ | 677 | | $ | 1,316 | | $ | 8,500 | | | 7,624 | | $ | 518 | | $ | 1,048 | | $ | 9,190 | |
Restricted cash(4) | 67 | | | | | | 66 | | | | |
| Cash, cash equivalents, and restricted cash | $ | 6,574 | | | | | | $ | 7,690 | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | March 1, 2018 | | August 31, 2017 |
| | | 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 | | $ | 2,496 |
| | $ | — |
| | $ | — |
| | $ | 2,496 |
| | $ | 2,237 |
| | $ | — |
| | $ | — |
| | $ | 2,237 |
|
Level 1(2) | | | | | | | | | | | | | | | | |
| Money market funds | | 5,099 |
| | — |
| | — |
| | 5,099 |
| | 2,332 |
| | — |
| | — |
| | 2,332 |
|
Level 2(3) | | | | | | | | | | | | | | | | |
| Corporate bonds | | — |
| | 122 |
| | 299 |
| | 421 |
| | — |
| | 193 |
| | 315 |
| | 508 |
|
| Government securities | | 39 |
| | 55 |
| | 95 |
| | 189 |
| | 1 |
| | 90 |
| | 126 |
| | 217 |
|
| Certificates of deposit | | 172 |
| | 7 |
| | 1 |
| | 180 |
| | 483 |
| | 24 |
| | 3 |
| | 510 |
|
| Asset-backed securities | | — |
| | 14 |
| | 125 |
| | 139 |
| | — |
| | 2 |
| | 173 |
| | 175 |
|
| Commercial paper | | 22 |
| | 16 |
| | — |
| | 38 |
| | 56 |
| | 10 |
| | — |
| | 66 |
|
| | | 7,828 |
| | $ | 214 |
| | $ | 520 |
| | $ | 8,562 |
| | 5,109 |
| | $ | 319 |
| | $ | 617 |
| | $ | 6,045 |
|
Restricted cash(4) | | 113 |
| | | | | | | | 107 |
| | | | | | |
| Cash, cash equivalents, and restricted cash | | $ | 7,941 |
| | | | | | | | $ | 5,216 |
| | | | | | |
| |
(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. |
| |
(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 analyses to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of March 1, 2018 or August 31, 2017. |
| |
(4)
| Restricted cash is included in other noncurrent assets and primarily represents balances related to the MMJ Creditor Payments and interest reserve balances related to the 2021 MSTW Term Loan. |
(2)The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.
(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. No adjustments were made to the fair values indicated by such pricing information as of March 4, 2021 or September 3, 2020.
(4)Restricted cash is included in other noncurrent assets and primarily relates to certain government incentives received prior to being earned and for which restrictions lapse upon achieving certain performance conditions.
Gross realized gains and losses from sales of available-for-sale securities were not materialsignificant for any period presented.
Receivables
| | | | | | | | |
| As of | March 4,
2021 | September 3,
2020 |
| | |
| Trade receivables | $ | 3,007 | | $ | 3,494 | |
| Income and other taxes | 176 | | 232 | |
| Other | 170 | | 186 | |
| $ | 3,353 | | $ | 3,912 | |
11
Inventories
| | | | | | | | |
| As of | March 4,
2021 | September 3,
2020 |
| | |
| Finished goods | $ | 736 | | $ | 1,001 | |
| Work in process | 3,527 | | 3,854 | |
| Raw materials and supplies | 480 | | 518 | |
| $ | 4,743 | | $ | 5,373 | |
Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to FIFO. This change in accounting principle is preferable because in an environment with continuously changing production costs FIFO more closely matches the actual cost of goods sold with the revenues from sales of those specific units, better represents the actual cost of inventories remaining on hand at any period-end, and improves comparability with our semiconductor industry peers. The change to FIFO was not material to any prior periods, nor is the cumulative effect of $133 million material to the second quarter of 2021. As such, prior periods were not retrospectively adjusted, and the cumulative effect was reported as an increase to cost of goods sold for the second quarter of 2021 of $133 million, with an offsetting reduction to beginning inventories. This charge resulted in a corresponding reduction to operating income, a $128 million reduction to net income, and an $0.11 reduction to diluted earnings per share for the second quarter of 2021.
Beginning in the second quarter of 2021, we changed the classification of spare parts for equipment to better align with the manner in which they are used in operations. As a result, we now present spare parts as other current assets and no longer as a component of raw materials inventories. This reclassification was applied on a retrospective basis. As a result, $270 million of spare parts were presented in other current assets as of March 4, 2021, and we reclassified $234 million of spare parts from inventories to other current assets in the accompanying balance sheet as of September 3, 2020.
Assets Held for Sale
In the second quarter of 2021, we updated our portfolio strategy to further strengthen our focus on memory and storage innovations for the data center market. In connection therewith, we determined that there was insufficient market validation to justify the ongoing investments required to commercialize 3D XPointTM at scale. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers for the sale of our facility located in Lehi, Utah, that was dedicated to 3D XPoint production. As a result, we classified the property, plant, and equipment as held-for-sale and ceased depreciating the assets. As of March 1, 2018, there were no available-for-sale securities that had been4, 2021, the significant balances of assets and liabilities classified as held-for-sale in connection with our Lehi facility included $1.44 billion of property, plant, and equipment included in assets held for sale and $51 million of a loss positionfinance lease obligation included in current portion of long-term debt. We also recognized a charge of $49 million to cost of goods sold in the second quarter of 2021 to write down 3D XPoint inventory due to our decision to cease further development of this technology. We expect to reach an agreement for longer than 12 months.the sale of our Lehi facility within calendar year 2021.
Receivables
|
| | | | | | | | |
| As of | | March 1,
2018 | | August 31,
2017 |
| Trade receivables | | $ | 4,050 |
| | $ | 3,490 |
|
| Income and other taxes | | 134 |
| | 100 |
|
| Other | | 253 |
| | 169 |
|
| | | $ | 4,437 |
| | $ | 3,759 |
|
Inventories
|
| | | | | | | | |
| As of | | March 1,
2018 | | August 31,
2017 |
| Finished goods | | $ | 876 |
| | $ | 856 |
|
| Work in process | | 1,974 |
| | 1,968 |
|
| Raw materials and supplies | | 334 |
| | 299 |
|
| | | $ | 3,184 |
| | $ | 3,123 |
|
Property, Plant, and Equipment
| | | | | | | | |
| As of | March 4,
2021 | September 3,
2020 |
| | |
| Land | $ | 279 | | $ | 352 | |
| Buildings | 12,819 | | 13,981 | |
Equipment(1) | 48,649 | | 48,525 | |
Construction in progress(2) | 2,058 | | 1,600 | |
| Software | 920 | | 873 | |
| | 64,725 | | 65,331 | |
| Accumulated depreciation | (32,877) | | (34,300) | |
| | $ | 31,848 | | $ | 31,031 | |
|
| | | | | | | | |
| As of | | March 1,
2018 | | August 31,
2017 |
| Land | | $ | 345 |
| | $ | 345 |
|
| Buildings | | 8,367 |
| | 7,958 |
|
Equipment(1) | | 35,600 |
| | 32,187 |
|
Construction in progress(2) | | 599 |
| | 499 |
|
| Software | | 611 |
| | 544 |
|
| | | 45,522 |
| | 41,533 |
|
| Accumulated depreciation | | (23,658 | ) | | (22,102 | ) |
| | | $ | 21,864 |
| | $ | 19,431 |
|
| |
(1)
| Included costs related to equipment not placed into service of $1.92 billion and $994 million, as of March 1, 2018 and August 31, 2017, respectively. |
| |
(2)
| Includes building-related construction and tool installation costs for assets not placed into service. |
(1)Included costs related to equipment not placed into service of $2.27 billion as of March 4, 2021 and $1.63 billion as of September 3, 2020.
(2)Included building-related construction, tool installation, and software costs for assets not placed into service.
Intangible Assets and Goodwill
| | | | | | | | | | | | | | | | | |
| March 4, 2021 | | September 3, 2020 |
| As of | Gross
Amount | Accumulated
Amortization | | Gross
Amount | Accumulated
Amortization |
| | | | | |
| Product and process technology | $ | 646 | | $ | (304) | | | $ | 616 | | $ | (282) | |
| Goodwill | 1,228 | | | | 1,228 | | |
|
| | | | | | | | | | | | | | | | |
| As of | | March 1, 2018 | | August 31, 2017 |
| | | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| Amortizing assets | | | | | | | | |
| Product and process technology | | $ | 731 |
| | $ | (491 | ) | | $ | 756 |
| | $ | (477 | ) |
| Non-amortizing assets | | | | | | | | |
| In-process R&D | | 108 |
| | — |
| | 108 |
| | — |
|
| | | | | | | | | |
| Total intangible assets | | $ | 839 |
| | $ | (491 | ) | | $ | 864 |
| | $ | (477 | ) |
| | | | | | | | | |
| Goodwill | | $ | 1,228 |
| | | | $ | 1,228 |
| | |
DuringIn the first six months of 20182021 and 2017,2020, we capitalized $15$49 million and $14$30 million, respectively, for product and process technology with weighted-average useful lives of 129 years and 1011 years, respectively. Expected amortization expense is $45$40 million for the remainder of 2018,2021, $64 million for 2022, $56 million for 2023, $50 million for 2019, $35 million for 2020,2024, and $29 million for 2025.
Leases
Short-term and variable lease expenses were not significant and are presented within operating lease costs in the table below. Sublease income was not significant for any period presented. The components of lease expense are presented below:
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| Finance lease cost | | | | | |
| Amortization of right-of-use assets | $ | 17 | | $ | 39 | | | $ | 33 | | $ | 79 | |
| Interest on lease liabilities | 5 | | 5 | | | 10 | 11 |
| Operating lease cost | 27 | | 24 | | | 54 | 48 |
| $ | 49 | | $ | 68 | | | $ | 97 | | $ | 138 | |
13
Other information related to our leases was as follows:
| | | | | | | | |
| Six months ended | March 4,
2021 | February 27,
2020 |
| | |
| Cash flows used for operating activities | | |
| Finance leases | $ | 11 | | $ | 12 | |
Operating leases(1) | 53 | | (10) | |
| Cash flows used for financing activities from financing leases | 41 | | 129 | |
| Noncash acquisitions of right-of-use assets | | |
| Finance leases | 68 | | 5 | |
| Operating leases | 21 | | 24 | |
(1) Included $48 million of reimbursements received for tenant improvements for the six months ended February 27, 2020.
| | | | | | | | | | | | | | | | | | | | |
| As of | March 4,
2021 | September 3,
2020 |
| | | | | | |
| Finance lease right-of-use assets (included in property, plant, and equipment and assets held for sale) | $ | 461 | | $ | 426 | |
| Weighted-average remaining lease term (in years) | | | | | | |
| Finance leases | 5 | | | 5 | | |
| Operating leases | 7 | | | 7 | | |
| Weighted-average discount rate | | | | | | |
| Finance leases | 4.09 | % | 4.51 | % |
| Operating leases | 2.63 | % | 2.67 | % |
Maturities of lease liabilities existing as of March 4, 2021 and $20were as follows:
| | | | | | | | |
| For the year ending | Finance Leases | Operating Leases |
| | |
| Remainder of 2021 | $ | 48 | | $ | 33 | |
| 2022 | 98 | | 73 | |
| 2023 | 86 | | 68 | |
| 2024 | 61 | | 60 | |
| 2025 | 45 | | 49 | |
| 2026 and thereafter | 286 | | 415 | |
| Less imputed interest | (102) | | (114) | |
| $ | 522 | | $ | 584 | |
The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of March 4, 2021, we had such lease liabilities relating to 1) operating lease payment obligations of $147 million for 2022.the initial 10-year lease term for a building, which may, at our election, be terminated after 3 years or extended for an additional 10 years, and 2) finance lease obligations of $807 million over a weighted-average period of 15 years for leases embedded in gas supply arrangements. We will recognize right-of-use assets and associated lease liabilities at the time such assets become available for our use.
Accounts Payable and Accrued Expenses
| | | | | | | | |
| As of | March 4,
2021 | September 3,
2020 |
| | |
| Accounts payable | $ | 1,628 | | $ | 2,191 | |
| Property, plant, and equipment | 1,884 | | 2,374 | |
| Salaries, wages, and benefits | 645 | | 849 | |
| Income and other taxes | 145 | | 237 | |
| Other | 248 | | 166 | |
| $ | 4,550 | | $ | 5,817 | |
|
| | | | | | | | |
| As of | | March 1,
2018 | | August 31,
2017 |
| Accounts payable | | $ | 1,557 |
| | $ | 1,333 |
|
| Property, plant, and equipment payables | | 1,351 |
| | 1,018 |
|
| Salaries, wages, and benefits | | 517 |
| | 603 |
|
| Income and other taxes | | 288 |
| | 163 |
|
| Customer advances | | 176 |
| | 197 |
|
| Other | | 305 |
| | 350 |
|
| | | $ | 4,194 |
| | $ | 3,664 |
|
Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 4, 2021 | | September 3, 2020 |
| | | Net Carrying Amount | | Net Carrying Amount |
| As of | Stated Rate | Effective Rate | Current | Long-Term | Total | | Current | Long-Term | Total |
| | | | | | | | | |
| Finance lease obligations | N/A | 4.09 | % | $ | 127 | | $ | 395 | | $ | 522 | | | $ | 76 | | $ | 410 | | $ | 486 | |
| 2023 Notes | 2.497 | % | 2.64 | % | 0 | | 1,246 | | 1,246 | | | 0 | | 1,245 | | 1,245 | |
| 2024 Notes | 4.640 | % | 4.76 | % | 0 | | 598 | | 598 | | | 0 | | 598 | | 598 | |
| 2024 Term Loan A | 1.370 | % | 1.42 | % | 62 | | 1,124 | | 1,186 | | | 62 | | 1,186 | | 1,248 | |
| 2026 Notes | 4.975 | % | 5.07 | % | 0 | | 498 | | 498 | | | 0 | | 498 | | 498 | |
| 2027 Notes | 4.185 | % | 4.27 | % | 0 | | 896 | | 896 | | | 0 | | 895 | | 895 | |
| 2029 Notes | 5.327 | % | 5.40 | % | 0 | | 696 | | 696 | | | 0 | | 696 | | 696 | |
| 2030 Notes | 4.663 | % | 4.73 | % | 0 | | 845 | | 845 | | | 0 | | 845 | | 845 | |
| 2032D Notes | 3.125 | % | 6.33 | % | 133 | | 0 | | 133 | | | 131 | | 0 | | 131 | |
| MMJ Creditor Payments | N/A | N/A | 1 | | 0 | | 1 | | | 1 | | 0 | | 1 | |
| | | | $ | 323 | | $ | 6,298 | | $ | 6,621 | | | $ | 270 | | $ | 6,373 | | $ | 6,643 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | March 1, 2018 | | August 31, 2017 |
| Instrument | | Stated Rate | | Effective Rate | | Current | | Long-Term | | Total | | Current | | Long-Term | | Total |
| MMJ Creditor Payments | | N/A |
| | 6.52 | % | | $ | 238 |
| | $ | 261 |
| | $ | 499 |
| | $ | 157 |
| | $ | 474 |
| | $ | 631 |
|
| Capital lease obligations | | N/A |
| | 3.75 | % | | 371 |
| | 679 |
| | 1,050 |
| | 357 |
| | 833 |
| | 1,190 |
|
| 2021 MSAC Term Loan | | 3.89 | % | | 4.13 | % | | 199 |
| | 578 |
| | 777 |
| | 99 |
| | 697 |
| | 796 |
|
| 2021 MSTW Term Loan | | 2.85 | % | | 3.01 | % | | — |
| | 2,716 |
| | 2,716 |
| | — |
| | 2,640 |
| | 2,640 |
|
| 2022 Term Loan B | | 3.65 | % | | 4.06 | % | | 5 |
| | 723 |
| | 728 |
| | 5 |
| | 725 |
| | 730 |
|
| 2023 Notes | | 5.25 | % | | 5.43 | % | | — |
| | — |
| | — |
| | — |
| | 991 |
| | 991 |
|
| 2023 Secured Notes | | 7.50 | % | | 7.69 | % | | — |
| | — |
| | — |
| | — |
| | 1,238 |
| | 1,238 |
|
| 2024 Notes | | 5.25 | % | | 5.38 | % | | — |
| | 546 |
| | 546 |
| | — |
| | 546 |
| | 546 |
|
| 2025 Notes | | 5.50 | % | | 5.56 | % | | — |
| | 515 |
| | 515 |
| | — |
| | 515 |
| | 515 |
|
| 2026 Notes | | 5.63 | % | | 5.73 | % | | — |
| | 129 |
| | 129 |
| | — |
| | 128 |
| | 128 |
|
2032C Notes(1) | | 2.38 | % | | 5.95 | % | | — |
| | 165 |
| | 165 |
| | — |
| | 211 |
| | 211 |
|
2032D Notes(1) | | 3.13 | % | | 6.33 | % | | — |
| | 161 |
| | 161 |
| | — |
| | 159 |
| | 159 |
|
2033E Notes(1)(2) | | 1.63 | % | | 1.63 | % | | 197 |
| | — |
| | 197 |
| | 202 |
| | — |
| | 202 |
|
2033F Notes(1)(2) | | 2.13 | % | | 4.93 | % | | 378 |
| | — |
| | 378 |
| | 278 |
| | — |
| | 278 |
|
2043G Notes(1) | | 3.00 | % | | 6.76 | % | | — |
| | 679 |
| | 679 |
| | — |
| | 671 |
| | 671 |
|
| IMFT Member Debt | | 0.00 | % | | 0.00 | % | | — |
| | 650 |
| | 650 |
| | — |
| | — |
| | — |
|
| Other notes | | 2.09 | % | | 2.65 | % | | 126 |
| | — |
| | 126 |
| | 164 |
| | 44 |
| | 208 |
|
| | | | | | | $ | 1,514 |
| | $ | 7,802 |
| | $ | 9,316 |
| | $ | 1,262 |
| | $ | 9,872 |
| | $ | 11,134 |
|
| |
(1)
| 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 ended on December 31, 2017, these notes are convertible by the holders through the calendar quarter ended March 31, 2018. The 2033 Notes were classified as current because the terms of these notes require us to pay cash for the principal amount of any converted notes and holders of these notes had the right to convert their notes as of the dates presented. |
| |
(2)
| Amounts as of March 1, 2018 include $178 million and $129 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes and 2033F Notes, respectively, that had been converted but not settled. Amounts as of August 31, 2017 include $88 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes that had been converted but not settled. |
Debt Repurchases and ConversionsRevolving Credit Facility
During the first six months of 2018, we repurchased or settled as a result of conversion an aggregate of $2.42 billion principal amount of our debt. When we receive a notice of conversion for any of our convertible notes and elect to settle in cash any amount of the conversion obligation in excess of the principal amount, the cash settlement obligations become 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 date of our election to settle a conversion in cash, we reclassify the fair value of the equity component of the converted notes from additional capital to derivative debt liability within current debt in our consolidated balance sheet.
The following table presents the effects of repurchases and conversions of our debt in the first six months of 2018:
|
| | | | | | | | | | | | | | | | | | | | |
| Six months ended March 1, 2018 | | Decrease in Principal | | Increase (Decrease) in Carrying Value | | Decrease in Cash | | Decrease in Equity | | Gain (Loss) |
| Repurchases | | | | | | | | | | |
| 2023 Notes | | $ | (1,000 | ) | | $ | (991 | ) | | $ | (1,046 | ) | | $ | — |
| | $ | (55 | ) |
| 2023 Secured Notes | | (1,250 | ) | | (1,238 | ) | | (1,373 | ) | | — |
| | (135 | ) |
| Settled Conversions | | | | | | | | | | |
| 2032C Notes | | (52 | ) | | (49 | ) | | (240 | ) | | (195 | ) | | 4 |
|
2033E Notes(1) | | (113 | ) | | (143 | ) | | (249 | ) | | (97 | ) | | (9 | ) |
| 2033F Notes | | (5 | ) | | (5 | ) | | (22 | ) | | (17 | ) | | — |
|
| Conversions not settled | | | | | | | | | | |
2033E Notes(2) | | — |
| | 137 |
| | — |
| | (124 | ) | | (13 | ) |
2033F Notes(2) | | — |
| | 101 |
| | — |
| | (91 | ) | | (10 | ) |
| | | $ | (2,420 | ) | | $ | (2,188 | ) | | $ | (2,930 | ) | | $ | (524 | ) | | $ | (218 | ) |
| |
(1)
| Settlement included 4 million shares of our treasury stock in addition to cash. |
| |
(2)
| As of March 1, 2018, $41 million in principal amount of the 2033E Notes and $30 million in principal amount of the 2033F Notes had converted but not settled. These notes will settle in cash in the third quarter of 2018. |
IMFT Member Debt
In November 2017 and December 2017, Intel provided debt financing ("IMFT Member Debt") of $150 million and $500 million, respectively, to IMFT pursuant to the terms of the IMFT joint venture agreement. IMFT Member Debt bears no interest, matures upon the completion of the auction and the sale of assets of IMFT prior to the dissolution, liquidation, or other wind-up of IMFT, and is convertible, at the election of Intel, in whole or in part, into a capital contribution to IMFT. Additionally, to the extent IMFT distributes cash to its members under the terms of the IMFT joint venture agreement, Intel may, at its option, designate any portion of the distribution to be a repayment of the IMFT Member Debt. In the event Intel exercises its right to put its interest in IMFT to us, or if we exercise our right to call from Intel its interest in IMFT, Intel will transfer to Micron any IMFT Member Debt outstanding at the time of the closing of the put or call transaction. (See "Equity – Noncontrolling Interest in Subsidiaries – IMFT" note.)
2022 Senior Secured Term Loan B Repricing Amendment
On October 26, 2017, we amended our 2022 Term Loan B, substantially all of which was treated as a debt modification, to reduce the interest rate margins. As of March 1, 2018, the 2022 Term Loan B bears interest at LIBOR plus 2.00%.
Convertible Senior Notes
As of March 1, 2018,4, 2021, 0 amounts were outstanding under the Revolving Credit Facility and $2.50 billion was available to us. Any amounts outstanding under the Revolving Credit Facility would mature in July 2023 and we may repay amounts borrowed any time without penalty. The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 1.25% based on our current corporate credit rating and leverage ratio.
2032D Convertible Senior Notes
The closing price of our common stock exceeded 130% of the conversion price for the 2032D Notes for at least 20 trading days in the 30 consecutive trading days ended on March 31, 2021. As a result, the 2032D Notes are convertible by the holders through June 30, 2021. As of March 4, 2021, based on the $84.33 trading price of our common stock was higher thanand the initial$9.98 conversion pricesprice, the aggregate conversion value of our convertibles notes. As a result, the conversion values for these notes$1.13 billion exceeded the aggregate principal amountsamount of $134 million by $3.18 billion as of March 1, 2018.$995 million.
15
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 balance sheet date, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which are 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-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 August 12, 2014, MLC Intellectual Property, LLC filed a patent infringement action against Micron in the U.S. District Court for the Northern District of California. The complaint alleges that Micron infringes a single U.S. patent and seeks damages, attorneys’ fees, and costs.
On November 21, 2014, Elm 3DS Innovations, LLC ("Elm"(“Elm”) filed a patent infringement action against Micron; Micron MSP,Semiconductor Products, Inc.; 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 13 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 Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight8 U.S. patents and seeks damages, attorneys'attorneys’ fees, and costs.
On June 24, 2016, the President and Fellows of Harvard University filed a patent infringement action against Micron Subsequently, 6 patents were invalidated or withdrawn, leaving 2 asserted patents in the U.S. District Court for the District of Massachusetts. The complaint alleged that a variety of our DRAM products infringed two U.S. patents and sought damages, injunctive relief, and other unspecified relief. On March 1, 2018, we executed a settlement agreement resolving this litigation. The settlement amount did not have a material effect on our business, results of operations, or financial condition.Court.
On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. ("MXA"(“MXA”) was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua"(“Jinhua”) in the Fuzhou Intermediate People’s Court in Fujian Province, China.China (the “Fuzhou Court”). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. (“MSS”) was served with the same complaint. The complaint alleges that MXA and Micron Semiconductor (Shanghai) Co., Ltd.MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring the defendantsMXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred.
On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation ("UMC"(“UMC”) in the Fuzhou Intermediate People's Court in Fujian Province, China.Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and Micron Semiconductor (Shanghai) Co., Ltd.MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring the defendantsMXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 90 million Chinese yuan plus court fees incurred.
On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages for each complaint of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips.
On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and Ballistix-branded DRAM modules and solid-state drives in China. The affected products made up slightly more than 1% of our annualized revenue in 2018. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision.
On May 4, 2020, Flash-Control, LLC filed a patent infringement action against Micron in the U.S. District Court for the Western District of Texas. The complaint alleges that 4 U.S. patents are infringed by unspecified DDR4 SDRAM, NVRDIMM, NVDIMM, 3D XPoint, and/or SSD products that incorporate memory controllers and flash memory. The complaint seeks damages, attorneys’ fees, and costs.
Among other things, the above lawsuits pertain to certainsubstantially all of our DDR DRAM, DDR2 DRAM, DDR3 DRAM, DDR4 DRAM, SDR SDRAM, PSRAM, RLDRAM, LPDRAM, NAND, and certain other memory and storage products we manufacture, which account for a significant portionsubstantially all of our net sales.revenue.
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 Qimonda'sQimonda’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'sQimonda’s shares of Inotera (the "Inotera Shares"“Inotera Shares”), representing approximately 18% of Inotera'sInotera’s outstanding shares as of March 1, 2018,at that time, 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 the 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'sQimonda’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 Micron 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 Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments havehad no immediate, enforceable effect on us, and Micron, accordingly, we expect to behas been able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We haveOn April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court’s decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed an independent expert to perform an evaluation of Dr. Jaffé’s claims that the amount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed expert issued a report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the expert for supplemental expert opinion. On March 31, 2020, the expert presented a revised opinion to the Appeals Court which reaffirmed the earlier view that the amount paid by Micron was still within an acceptable range of fair value. On March 4, 2021, the Appeals Court issued an order setting forth a new legal view that whether the 2008 sale of Inotera Shares is voidable depends on the question whether, in October 2008, Qimonda had a restructuring plan in place, and whether Micron was aware of and reasonably relied on that restructuring plan sufficient to form a belief that Qimonda was not imminently illiquid. The Appeals Court has scheduled a procedural hearing for June 29, 2021 to discuss next steps.
17
Antitrust Matters
On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, 2 substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed the plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint that purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court dismissed the plaintiffs’ claims and entered judgment against them. On January 19, 2021, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit.
On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, 4 substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint. The consolidated complaint purported to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 through at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court granted Micron’s motion to dismiss and granted the plaintiffs permission to file a further amended complaint. On January 11, 2021, the plaintiffs filed a further amended complaint asserting substantially the same claims and seeking the same relief.
Additionally, 6 cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the parties have submitted briefsSupreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the appeals court.cases filed in the United States.
On May 15, 2018, the Chinese State Administration for Market Regulation (“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are unable to predictcooperating with SAMR in its investigation.
Securities Matters
On March 5, 2019, a derivative complaint was filed by a shareholder against certain current and former officers and directors of Micron, allegedly on behalf of and for the outcomebenefit of the matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could resultMicron, in the lossU.S. District Court for the District of Delaware alleging securities fraud, breaches of fiduciary duties, and other violations of law involving misrepresentations about purported anticompetitive behavior in the Inotera Shares or monetaryDRAM industry. The complaint seeks damages, unspecifiedfees, interest, costs, and other appropriate relief.
On February 9, 2021, a derivative complaint was filed by a shareholder against Sanjay Mehrotra and other current and former directors of Micron, allegedly on behalf of and for the benefit of Micron, in the U.S. District Court for the District of Delaware alleging violations of securities laws, breaches of fiduciary duties, and other violations of law involving allegedly false and misleading statements about Micron’s commitment to diversity and progress in diversifying its workforce, executive leadership, and Board of Directors. The complaint seeks damages, based on the benefits derived byfees, interest, costs, and an order requiring 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.to take various actions to allegedly improve its corporate governance and internal procedures.
Other
On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California'sCalifornia’s Uniform Trade Secrets Act by misappropriating Micron'sMicron’s trade secrets and other misconduct. Micron'sMicron’s complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief.
On June 13, 2019, current Micron employee, Chris Manning, filed a putative class action lawsuit on behalf of Micron employees subject to the Idaho Wage Claim Act who earned a performance-based bonus after the conclusion of 2018 whose performance rating was calculated based upon a mandatory percentage distribution range of performance ratings. On July 12, 2019, Manning and three other Company employees filed an amended complaint as putative class action representatives. On behalf of themselves and the putative class, Manning and the three other plaintiffs assert claims for violation of the Idaho Wage Claim Act, breach of contract, breach of the covenant of good faith and fair dealing, and fraud. On June 24, 2020, the court entered judgment in favor of Micron based on the statute of limitations, and the plaintiffs filed a notice of appeal on July 23, 2020.
On July 31, 2020, Micron and Intel entered into a binding arbitration agreement under which the parties agreed to present to an arbitral panel various financial disputes related to the IMFT joint venture between Micron and Intel, which ended October 31, 2019, and to other agreements relating to the joint development, production, and sale of non-volatile memory products. Each party alleges that the other owes damages relating to allegations of breach of 1 or more agreements.
On July 13, 2015, Allied Telesis, Inc. and Allied Telesis International (Asia) Pte Ltd. filed a complaint against Micron in the Superior Court of California in Santa Clara alleging breach of implied and express warranties and fraudulent inducement to contract arising from plaintiffs’ purchase of certain allegedly defective DDR1 products between 2008 and 2010. Through subsequent amendments to the complaint, the plaintiffs substituted Allied Telesis K.K. as plaintiff, withdrew the warranty claims, and added claims of fraudulent concealment, negligent misrepresentation, negligence, and strict products liability. The plaintiff’s amended complaint seeks an unspecified award of damages, including punitive damages and lost profits. On September 3, 2020, the Superior Court granted summary judgment dismissing the claims for negligence and strict products liability and denied summary judgment as to the claims for negligent misrepresentation, fraudulent concealment, and fraudulent inducement to contract. No trial date has been set; however, trial is expected to occur in the second half of calendar 2021.
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 otheranother 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.
We are unable to predict the outcome of the patent matters, Qimonda matter, antitrust matters, securities matters, binding arbitration with Intel, or any other matters noted above, and cannot make a reasonable estimate of the potential loss or range of possible losses. 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, as well as the resolution of any other legal matter noted above, could have a material adverse effect on our business, results of operations, or financial condition.
We are currently a party to legal actions other than those described in this note arising from the normal course of business, none of which are expected to have a material adverse effect on our business, results of operations, or financial condition.
Equity
Micron Shareholders'Shareholders’ Equity
Common Stock IssuanceAccumulated Other Comprehensive Income: In October 2017, we issued 34 million shares of our common stockChanges in accumulated other comprehensive income by component for $41.00 per share in a public offering for proceeds of $1.36 billion, net of underwriting fees and other offering costs.
Outstanding Capped Calls: In connection with certain of our convertible notes, we entered into capped call transactions, which are intended to reduce the effect of potential 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 the strike prices on the expiration dates. As of March 1, 2018, the dollar value of cash or shares that we would receive from our outstanding capped calls upon their expiration dates range from $0, if the trading price of our stock is below the strike prices for all capped calls at expiration, to $214 million, if the trading price of our stock is at or above the cap prices for all capped calls. Settlement of the capped calls prior to the expiration dates may be for an amount less than the maximum value at expiration.
Settlement of Capped Calls: During the first six months of 2018, we share-settled portions of our capped calls upon expiration, and received 7 million shares (equal to a value of $313 million) based on the volume-weighted trading stock prices at the expiration dates. Shares receivedended March 4, 2021 were recorded as treasury stock.
Noncontrolling Interests in Subsidiaries
follows:
19
|
| | | | | | | | | | | | | | |
| As of | | March 1, 2018 | | August 31, 2017 |
| | | Noncontrolling Interest Balance | | Noncontrolling Interest Percentage | | Noncontrolling Interest Balance | | Noncontrolling Interest Percentage |
| IMFT | | $ | 852 |
| | 49 | % | | $ | 832 |
| | 49 | % |
| Other | | 17 |
| | Various |
| | 17 |
| | Various |
|
| | | $ | 869 |
| | | | $ | 849 |
| | |
| | | | | | | | | | | | | | | | | |
| Gains (Losses) on Derivative Instruments | Pension Liability Adjustments | Unrealized Gains (Losses) on Investments | Cumulative Foreign Currency Translation Adjustment | Total |
| | | | | |
| As of September 3, 2020 | $ | 45 | | $ | 19 | | $ | 8 | | $ | (1) | | $ | 71 | |
| Other comprehensive income before reclassifications | 17 | | 2 | | (4) | | 1 | | 16 | |
| Amount reclassified out of accumulated other comprehensive income | (10) | | (1) | | (1) | | 0 | | (12) | |
| Tax effects | 5 | | 0 | | 1 | | 0 | | 6 | |
| Other comprehensive income (loss) | 12 | | 1 | | (4) | | 1 | | 10 | |
| As of March 4，2021 | $ | 57 | | $ | 20 | | $ | 4 | | $ | 0 | | $ | 81 | |
IMFT:Since 2006, we have owned 51% of IMFT, a joint venture between us and Intel. 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. IMFT manufactures semiconductor products exclusively for its members under a long-term supply agreement at prices approximating cost.
IMFT's capital requirements are generally determined based on an annual plan approved by the members, and capital contributions to IMFT are requested as needed. Capital requests are made to the members in proportion to their then-current ownership interest. Members may elect to not contribute their proportional share, and in such event, the contributing member may elect to contribute any amount of the remaining capital request, either in the form of an equity contribution or member debt financing. Under the supply agreement, the members have rights and obligations to the capacity of IMFT in proportion to their investment, including member debt financing. Any capital contribution or member debt financing results in a proportionate adjustment to the sharing of output on an eight-month lag. Members pay their proportionate share of fixed costs associated with IMFT's capacity.
IMFT sales to Intel were $115 million and $227 million for the second quarter and first six months of 2018, respectively, and $142 million and $252 million for the second quarter and first six months of 2017, respectively. In the first quarter of 2018, IMFT discontinued production of NAND and subsequent to that time is entirely focused on 3D XPoint memory production.
The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. At any time 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 a price that approximates Intel's interest in the net book value of IMFT plus member debt at the time of the closing. If Intel exercises its put right, we can elect to set the closing date of the transaction any time between six months and two years following such election by Intel and we can elect to receive financing of the purchase price from Intel for one to two years from the closing date. If we exercise our call right, Intel can elect to set the closing date of the transaction to be any time between six months and one year following such election. Following the closing date resulting from exercise of either the put or the call, we will continue to supply to Intel for a period of one year, at Intel's choice, between 50% and 100% of Intel's immediately preceding six-month period pre-closing volumes of IMFT products for the first six-month period following the closing and, at Intel's choice, between 0% and 100% of Intel's first six-month period following the closing volumes of IMFT products for the second six-month period following the closing, at a margin that varies depending on whether the put or call was exercised.
Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets. The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:
|
| | | | | | | | |
| As of | | March 1,
2018 | | August 31,
2017 |
| Assets | | | | |
| Cash and equivalents | | $ | 317 |
| | $ | 87 |
|
| Receivables | | 87 |
| | 81 |
|
| Inventories | | 99 |
| | 128 |
|
| Other current assets | | 5 |
| | 7 |
|
| Total current assets | | 508 |
| | 303 |
|
| Property, plant, and equipment, net | | 2,496 |
| | 1,852 |
|
| Other noncurrent assets | | 43 |
| | 49 |
|
| Total assets | | $ | 3,047 |
| | $ | 2,204 |
|
| | | | | |
| Liabilities | | |
| | |
|
| Accounts payable and accrued expenses | | $ | 472 |
| | $ | 299 |
|
| Deferred income | | 10 |
| | 6 |
|
| Current debt | | 19 |
| | 19 |
|
| Total current liabilities | | 501 |
| | 324 |
|
| Long-term debt | | 715 |
| | 75 |
|
| Other noncurrent liabilities | | 79 |
| | 88 |
|
| Total liabilities | | $ | 1,295 |
| | $ | 487 |
|
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
Restrictions on Net Assets
As a result of the corporate reorganization proceedings of MMJ, the 2021 MSTW Term Loan covenants, and the IMFT joint venture agreement, our total restricted net assets (excluding intercompany balances and noncontrolling interests) as of March 1, 2018 were $3.86 billion for the MMJ Group, $2.54 billion for MSTW and MTTW, and $900 million for IMFT.
Fair Value Measurements
All of our marketable debt and equity investments were classified as available-for-sale and carried at fair value. Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair valuevalues and carrying valuevalues of our outstanding debt instruments (excluding the carrying value of equity and mezzanine equity components of our convertible notes) were as follows:
| | | | | | | | | | | | | | | | | |
| March 4, 2021 | | September 3, 2020 |
| As of | Fair
Value | Carrying
Value | | Fair
Value | Carrying
Value |
| | | | | |
| Notes | $ | 6,565 | | $ | 5,966 | | | $ | 6,710 | | $ | 6,026 | |
| Convertible notes | 1,125 | | 133 | | | 634 | | 131 | |
|
| | | | | | | | | | | | | | | | |
| As of | | March 1, 2018 | | August 31, 2017 |
| | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Notes and MMJ Creditor Payments | $ | 6,792 |
| | $ | 6,686 |
| | $ | 8,793 |
| | $ | 8,423 |
|
| Convertible notes | | 4,922 |
| | 1,580 |
| | 3,901 |
| | 1,521 |
|
The fair values of our convertible notes were determined based on Level 2 inputs, 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. The fair values of our other debt instruments were estimated based on Level 2 inputs, including discounted cash flows, 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.
Assets classified as held for sale are carried at the lower of fair value less cost to sell or carrying value. Significant judgments and assumptions are required to estimate their fair values. Actual selling prices could vary significantly from our estimated fair value and we could recognize losses in the event that the sales prices of assets classified as held for sale are lower than their carrying values.
Derivative Instruments
| | | | | | | | | | | |
| Gross Notional Amount | Fair Value of |
Assets(1) | Liabilities(2) |
| | | |
| As of March 4, 2021 | | | |
| Derivative instruments with hedge accounting designation | | | |
| Cash flow currency hedges | $ | 3,086 | | $ | 28 | | $ | (36) | |
| | | |
| Derivative instruments without hedge accounting designation | | | |
| Non-designated currency hedges | 1,121 | | 2 | | (8) | |
| | $ | 30 | | $ | (44) | |
| | | |
| As of September 3, 2020 | | | |
| Derivative instruments with hedge accounting designation | | | |
| Cash flow currency hedges | $ | 1,845 | | $ | 41 | | $ | (2) | |
| | | |
| Derivative instruments without hedge accounting designation | | | |
| Non-designated currency hedges | 1,587 | | 4 | | (1) | |
| | $ | 45 | | $ | (3) | |
|
| | | | | | | | | | | | | | | | |
| | | Gross Notional Amount(1) | | Fair Value of |
Current Assets(2) | | Current Liabilities(3) | | Noncurrent Assets(4) |
| As of March 1, 2018 | | | | | | | | |
| Derivative instruments with hedge accounting designation | | | | | | | | |
| Cash flow currency hedges | | $ | 565 |
| | $ | 20 |
| | $ | (1 | ) | | $ | — |
|
| Fair value currency hedges | | 2,567 |
| | 44 |
| | (2 | ) | | — |
|
| | | $ | 3,132 |
| | 64 |
| | (3 | ) | | — |
|
| | | | | | | | | |
| Derivative instruments without hedge accounting designation | | | | | | | | |
| Non-designated currency hedges | | $ | 1,763 |
| | 11 |
| | (3 | ) | | — |
|
| Convertible notes settlement obligation | | 6 |
| | — |
| | (309 | ) | | — |
|
| | | | | 11 |
| | (312 | ) | | — |
|
| | | | | | | | | |
| | | | | $ | 75 |
| | $ | (315 | ) | | $ | — |
|
| | | | | | | | | |
| As of August 31, 2017 | | | | | | | | |
| Derivative instruments with hedge accounting designation | | | | | | | | |
| Cash flow currency hedges | | $ | 456 |
| | $ | 17 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | |
| Derivative instruments without hedge accounting designation | | | | | | | | |
| Non-designated currency hedges | | $ | 4,847 |
| | 34 |
| | (5 | ) | | 1 |
|
| Convertible notes settlement obligation | | 2 |
| | — |
| | (47 | ) | | — |
|
| | | | | 34 |
| | (52 | ) | | 1 |
|
| | | | | | | | | |
| | | | | $ | 51 |
| | $ | (52 | ) | | $ | 1 |
|
| |
(1)
| Notional amounts of currency forward hedge 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 assets. |
(2)Included in accounts payable and accrued expenses – other and other noncurrent liabilities.
Derivative Instruments with Hedge Accounting Designation
We utilize currency forward contracts that generally mature within twelve monthstwo years to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.
Cash Flow Hedges: We utilize cash flow hedges to hedgefor our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures. For derivative instruments designated as cash flow hedges, the effective portion of the realizedexpenditures and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income. Amounts in accumulated other comprehensive income are reclassified into earnings in the same line items and in the same periods in which the underlying transactions affect earnings. For the periods presented prior to the second quarter of 2018, the ineffective and excluded portion of the realized and unrealized gain or loss was included in other non-operating income (expense). As a result of adopting ASU 2017-12, beginning in the second quarter of 2018, such amounts are included in the same line item in which the underlying transactions affect earnings.
manufacturing costs. We recognized gains in accumulated other comprehensive income from the effective portionlosses of cash flow hedges of $21$30 million and gains of $17 million for the second quarter and first six months of 2018,2021, respectively, and losses of $9$17 million inand $14 million for the second quarter and first six months of 2017.2020, respectively, in accumulated other comprehensive income from cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were material inwas significant for the second quarters or first six months of 2018 and 2017. The amounts
from2021 or 2020. As of March 4, 2021, we expect to reclassify $45 million of pre-tax gains related to cash flow hedges included infrom accumulated other comprehensive income that are expected to be reclassified into earnings in the next 12 months were also not material.months.
Fair Value Hedges:We utilize fair value hedges to hedge our exposure to certain changes in fair values from changes in currency exchange rates for certain monetary assets and liabilities. For derivative forward contracts designated as fair value hedges, hedge effectiveness is determined by the change of the fair value of the undiscounted spot rate of the forward contract. The change in fair value of the hedge instrument attributed to changes in the undiscounted spot rate is recognized in other non-operating income (expense). The time value associated with the hedge instrument is excluded from the assessment of the effectiveness of the hedge and is recognized on a straight-line basis over the life of the hedge to other non-operating income (expense). Amounts recorded to other comprehensive income (loss) for the second quarter of 2018 were not material. The effects of fair value hedges on our consolidated statements of operations were as follows:
|
| | | | |
| Quarter ended March 1, 2018 | | Other Non-Operating Income (Expense) |
| Gain (loss) on remeasurement of hedged assets and liabilities | | $ | (56 | ) |
| Gain (loss) on derivatives designated as hedging instruments | | 56 |
|
| Amortization of amounts excluded from hedge effectiveness | | (19 | ) |
| | | $ | (19 | ) |
Derivative Instruments without Hedge Accounting Designation
Currency Derivatives: Except for certain asset and liabilities hedged using fair value hedges, weWe generally utilize a rolling hedge strategy with currency forward contracts that mature within ninethree months to hedge our exposures of monetary assets and liabilities tofrom changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities due tofrom changes in currency exchange rates are included in other non-operating income (expense). For, net. Gains and losses for derivative instruments without hedge accounting designation we recognized gains of $50 million and $52 millionwere not significant for the second quarter and first six months of 2018, respectively, and gains of $61 million and losses of $117 million for the second quarter and first six months of 2017, respectively.periods presented.
Convertible Notes Settlement Obligations: For settlement obligations associated with our convertible notes that become derivative debt liabilities subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts of our convertible note settlement obligations were based on the volume-weighted-average stock price (Level 2). (See "Debt" note.) We recognized losses of $20 million and $24 million for the second quarter and first six months of 2018, respectively, for the changes in fair value of the derivative settlement obligations in other non-operating income (expense), net.
21
Equity Plans
As of March 1, 2018, 944, 2021, 70 million shares of our common stock were available for future awards under our equity plans.
Stock Options
|
| | | | | | | | | | | | | | | |
| | Quarter ended | | Six months ended |
| | March 1, 2018 | | March 2, 2017 | | March 1, 2018 | | March 2, 2017 |
| Stock options granted | 1 |
| | 4 |
| | 2 |
| | 6 |
|
| Weighted-average grant-date fair value per share | $ | 18.61 |
| | $ | 8.37 |
| | $ | 18.13 |
| | $ | 8.15 |
|
| Average expected life in years | 5.5 |
| | 5.5 |
| | 5.5 |
| | 5.5 |
|
| Weighted-average expected volatility | 44 | % | | 47 | % | | 44 | % | | 47 | % |
| Weighted-average risk-free interest rate | 2.2 | % | | 1.9 | % | | 2.2 | % | | 1.8 | % |
| Expected dividend yield | 0.0 | % | | 0.0 | % | | 0.0 | % | | 0.0 | % |
Restricted Stock and Restricted Stock Units ("(“Restricted Stock Awards"Awards”)
Restricted Stock Awards activity is summarized as follows: | | | | | | | | | | | | Quarter ended | | Six months ended |
| | Quarter ended | | Six months ended | | March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | March 1,
2018 | | March 2,
2017 | | March 1,
2018 | | March 2,
2017 | | | | | |
| Restricted stock award shares granted | 2 |
| | 5 |
| | 4 |
| | 8 |
| Restricted stock award shares granted | 0 | | 0 | | | 10 | | | 8 | | |
| Weighted-average grant-date fair value per share | $ | 43.21 |
| | $ | 18.67 |
| | $ | 41.51 |
| | $ | 18.52 |
| Weighted-average grant-date fair value per share | $ | 82.10 | | $ | 54.71 | | | $ | 52.02 | | | $ | 46.38 | | |
Employee Stock Purchase Plan (“ESPP”)
For each six-month ESPP period ended January 2021 and January 2020, we issued 2 million shares at a per share price of $42.55 and $38.16, respectively. Assumptions used in the Black-Scholes option valuation model for ESPP grants for the periods below were as follows:
| | | | | | | | | | | | | | |
| Quarter ended | March 4,
2021 | | February 27,
2020 | |
| | | | |
| Weighted-average grant-date fair value per share | $ | 22.40 | | $ | 14.43 | |
| Average expected life in years | 0.5 | | 0.5 | |
| Weighted-average expected volatility | 48 | % | 43 | % |
| Weighted-average risk-free interest rate | 0.1 | % | 1.5 | % |
| Expected dividend yield | 0 | % | 0 | % |
Stock-based Compensation Expense
|
| | | | | | | | | | | | | | | |
| | Quarter ended | | Six months ended |
| | March 1,
2018 | | March 2,
2017 | | March 1,
2018 | | March 2,
2017 |
| Stock-based compensation expense by caption | | | | | | | |
| Cost of goods sold | $ | 22 |
| | $ | 23 |
| | $ | 42 |
| | $ | 42 |
|
| Selling, general, and administrative | 16 |
| | 18 |
| | 34 |
| | 33 |
|
| Research and development | 14 |
| | 14 |
| | 27 |
| | 26 |
|
| | $ | 52 |
| | $ | 55 |
| | $ | 103 |
| | $ | 101 |
|
| | | | | | | | |
| Stock-based compensation expense by type of award | |
| | |
| | | | |
| Stock options | $ | 14 |
| | $ | 18 |
| | $ | 31 |
| | $ | 35 |
|
| Restricted stock awards | 38 |
| | 37 |
| | 72 |
| | 66 |
|
| | $ | 52 |
| | $ | 55 |
| | $ | 103 |
| | $ | 101 |
|
The income tax benefit related to share-basedStock based compensation expense was $58recognized in our statements of operations is presented below. Stock-based compensation expense of $33 million and $116 million for the second quarter and first six months of 2018, respectively, and $42 million was capitalized and $63 million for the second quarterremained in inventory as of March 4, 2021 and first six months of 2017,September 3, 2020, respectively. The income tax benefits related to share-based compensation expense for the periods presented prior to the second quarter of 2018 were offset by an increase in the U.S. valuation allowance.
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| Stock-based compensation expense by caption | | | | | |
| Cost of goods sold | $ | 57 | | $ | 37 | | | $ | 98 | | $ | 68 | |
| Research and development | 29 | | 22 | | | 53 | | 41 | |
| Selling, general, and administrative | 26 | | 26 | | | 53 | | 48 | |
| $ | 112 | | $ | 85 | | | $ | 204 | | $ | 157 | |
| | | | | |
| Stock-based compensation expense by type of award | | | | | |
| Restricted stock awards | $ | 94 | | $ | 70 | | | $ | 171 | | $ | 127 | |
| Employee stock purchase plan | 15 | | 11 | | | 27 | | 19 | |
| Stock options | 3 | | 4 | | | 6 | | 11 | |
| $ | 112 | | $ | 85 | | | $ | 204 | | $ | 157 | |
As of March 1, 2018, $4024, 2021, $838 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the second quarter of 2022,2025, resulting in a weighted-average period of 1.4 years.
Revenue and Customer Contract Liabilities
ResearchRevenue by Technology
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| DRAM | $ | 4,444 | | $ | 3,083 | | | $ | 8,500 | | $ | 6,552 | |
| NAND | 1,650 | | 1,514 | | | 3,224 | | 2,936 | |
| Other (primarily 3D XPoint memory and NOR) | 142 | | 200 | | | 285 | | 453 | |
| $ | 6,236 | | $ | 4,797 | | | $ | 12,009 | | $ | 9,941 | |
See “Segment and DevelopmentOther Information” for disclosure of disaggregated revenue by market segments.
We shareContract Liabilities
Our contract liabilities from customer advances are for advance payments received from customers to secure product in future periods. Other contract liabilities consist of amounts received in advance of satisfying performance obligations. These balances are reported within other current liabilities and other noncurrent liabilities. The following table presents contract liabilities:
| | | | | | | | |
| As of | March 4,
2021 | September 3,
2020 |
| | |
| Contract liabilities from customer advances | $ | 43 | | $ | 40 | |
| Other contract liabilities | 22 | | 25 | |
| $ | 65 | | $ | 65 | |
Revenue recognized during the cost of certain product and process development activities with development partners. Our R&D expenses were reduced by reimbursements under these arrangements of $58 million and $114 million for the second quarter and first six months of 2018, respectively,2021 from the ending balance of 2020 included $43 million from meeting performance obligations of other contract liabilities and $59shipments against customer advances.
Revenue is primarily recognized at a point in time when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Substantially all contracts with our customers are short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. From time to time, we have contracts with initial terms that include performance obligations that extend, in some cases, beyond one year. As of March 4, 2021, we expect future revenue related to these longer-term contracts of approximately $291 million, of which approximately 92% relates to performance obligations and product shipments we expect to satisfy within the next 12 months and 8% beyond0 12 months.
As of March 4, 2021 and September 3, 2020, other current liabilities included $485 million and $115$466 million, respectively, for the second quarterestimates of consideration payable to customers, including estimates for pricing adjustments and first six months of 2017, respectively.returns.
23
Other Operating (Income) Expense, Net
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| Patent license charges | $ | 128 | | $ | 0 | | | $ | 128 | | $ | 0 | |
| Other | 3 | | 11 | | | 12 | | 8 | |
| $ | 131 | | $ | 11 | | | $ | 140 | | $ | 8 | |
Other Non-Operating Income (Expense), Net
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| Gain (loss) on debt prepayments, repurchases, and conversions | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 42 | |
| Other | 4 | | (1) | | | 17 | | 3 |
| $ | 4 | | $ | (1) | | | $ | 17 | | $ | 45 | |
|
| | | | | | | | | | | | | | | |
| | Quarter ended | | Six months ended |
| | March 1,
2018 | | March 2,
2017 | | March 1,
2018 | | March 2,
2017 |
| Loss on debt repurchases and conversions | $ | (23 | ) | | $ | — |
| | $ | (218 | ) | | $ | (2 | ) |
| Loss from changes in currency exchange rates | (27 | ) | | (28 | ) | | (36 | ) | | (40 | ) |
| Gain on remeasurement of previously-held equity interest in Inotera | — |
| | 71 |
| | — |
| | 71 |
|
| Other | (3 | ) | | (9 | ) | | (3 | ) | | (9 | ) |
| | $ | (53 | ) | | $ | 34 |
| | $ | (257 | ) | | $ | 20 |
|
In connection with the Inotera Acquisition, 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 acquisition and discounted cash flow projections using inputs including discount rate and terminal growth rate (Level 3). As a result, we recognized a non-operating gain of $71 million in the second quarter of 2017.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") that lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from foreign operations is taxed in the United States. As a result of our fiscal year-end, our U.S. statutory federal rate will be 25.7% for 2018 (based on the 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal year 2018) and 21% for subsequent years. The Tax Act imposes a one-time transition tax in 2018 on the higher of our accumulated foreign income, as determined as of November 2, 2017 or December 31, 2017 (the "Repatriation Tax"); provides a U.S. federal tax exemption on foreign earnings distributed to the United States; and, beginning in 2019, creates a new minimum tax on certain foreign earnings in excess of a deemed return on tangible assets (the "Foreign Minimum Tax"). The Tax Act allows us to elect to pay any Repatriation Tax due in eight annual interest-free payments in increasing amounts beginning in December 2018. In connection with the provisions of the Tax Act, we are continuing to evaluate whether to account for the Foreign Minimum Tax provisions that begin for us in 2019 as a period cost or in our measurement of deferred taxes.
The Securities and Exchange Commission's Staff Accounting Bulletin No. 118 ("SAB 118") allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act has not been completed when our financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts may be adjusted during a one-year measurement period as accounting for the income tax effects of the Tax Act are completed or as estimates are revised.
In accordance with SAB 118, we recorded certain provisional estimates included in the table below. Although the provisional estimates are based on the best available interpretations of the Tax Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatory and legislative guidance related to the Tax Act. Our income tax (provision) benefit consisted of the following:
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| Income before taxes | $ | 635 | | $ | 427 | | | $ | 1,476 | | $ | 988 | |
| Income tax (provision) benefit | (48) | | (21) | | | (99) | | (76) | |
| Effective tax rate | 7.6 | % | 4.9 | % | | 6.7 | % | 7.7 | % |
|
| | | | | | | | | | | | | | | |
| | Quarter ended | | Six months ended |
| | March 1, 2018 | | March 2, 2017 | | March 1, 2018 | | March 2, 2017 |
| Provisional estimate for the Repatriation Tax on substantially all of our accumulated foreign earnings, net of adjustments related to uncertain tax positions | $ | (1,335 | ) | | $ | — |
| | $ | (1,335 | ) | | $ | — |
|
| Remeasurement of deferred tax assets and liabilities reflecting the lower U.S. corporate tax rates | (133 | ) | | — |
| | (133 | ) | | — |
|
| Provisional estimate for the release of the valuation allowance on the net deferred tax assets of our U.S. operations | 1,337 |
| | — |
| | 1,337 |
| | — |
|
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (17 | ) | | (8 | ) | | (43 | ) | | (21 | ) |
| Other income tax (provision) benefit | 5 |
| | (30 | ) | | (83 | ) | | (48 | ) |
| | $ | (143 | ) | | $ | (38 | ) | | $ | (257 | ) | | $ | (69 | ) |
As noted above, provisional estimates were recorded for the Repatriation Tax and the release of the valuation allowance on the net deferred tax assets of our U.S. operations. To determine the amount of the Repatriation Tax, we must determine the accumulated foreign earnings of our foreign subsidiaries and the amount of foreign income tax paid on such earnings. The provisional estimate of the Repatriation Tax is also based, in part, on the amount of cash and other specified assets anticipated to be held by our foreign subsidiaries as of August 30, 2018, the end of our fiscal year 2018, which may determine the portion of the accumulated foreign earnings taxed at an effective rate of 15.5% or 8%. As a result, the Repatriation Tax may change as amounts are finalized. The U.S. Department of Treasury has issued interpretive guidance regarding the Repatriation Tax and we expect that they will issue additional guidance. Based on the information available, we can reasonably estimate the Repatriation Tax and therefore recorded a provisional amount; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release of the Repatriation Tax and the Tax Act.
As of March 1, 2018, we had gross unrecognized income tax benefits of $209 million, of which $196 million would affect our effective tax rate in the future, if recognized. The Tax Act reduced unrecognized tax benefits by $123 million. The amount accrued for interest and penalties related to uncertain tax positions was not material for any period presented.
We operate in a number of tax jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements thatarrangements. These incentives expire, in whole or in part, at various dates through 2034 and 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 by $436$45 million (benefitting(benefiting our diluted earnings per share by $0.35)$0.04) and $827$101 million ($0.670.09 per diluted share) for the second quarter and first six months of 2018,2021, respectively, and $132 million ($0.11 per diluted share) and $172 million ($0.15 per diluted share),were not significant to our tax provision for the second quarter andor first six months of 2017, respectively.2020.
As of March 4, 2021, gross unrecognized tax benefits were $415 million, substantially all of which would affect our effective tax rate in the future, if recognized. Amounts accrued for interest and penalties related to uncertain tax positions were not significant for any period presented. During the second quarter of 2021, we received notice from the Internal Revenue Service that they intend to examine our 2018 and 2019 tax years. We believe that adequate amounts of taxes and related interest and penalties have been provided.
Earnings Per Share
| | | | | | | | | | | | | | | | | |
| Quarter ended | | Six months ended |
| March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | | | | |
| Net income attributable to Micron – Basic | $ | 603 | | $ | 405 | | | $ | 1,406 | | $ | 896 | |
| Assumed conversion of debt | 0 | | 0 | | | 0 | | (4) | |
| Net income attributable to Micron – Diluted | $ | 603 | | $ | 405 | | | $ | 1,406 | | $ | 892 | |
| | | | | |
| Weighted-average common shares outstanding – Basic | 1,120 | | 1,111 | | | 1,118 | | 1,109 | |
| Dilutive effect of equity plans and convertible notes | 24 | | 22 | | | 21 | | 22 | |
| Weighted-average common shares outstanding – Diluted | 1,144 | | 1,133 | | | 1,139 | | 1,131 | |
| | | | | |
| Earnings per share | | | | | |
| Basic | $ | 0.54 | | $ | 0.37 | | | $ | 1.26 | | $ | 0.81 | |
| Diluted | 0.53 | | 0.36 | | | 1.23 | | 0.79 | |
|
| | | | | | | | | | | | | | | |
| | Quarter ended | | Six months ended |
| | March 1,
2018 | | March 2,
2017 | | March 1,
2018 | | March 2,
2017 |
| Net income attributable to Micron – Basic and Diluted | $ | 3,309 |
| | $ | 894 |
| | $ | 5,987 |
| | $ | 1,074 |
|
| | | | | | | | |
| Weighted-average common shares outstanding – Basic | 1,156 |
| | 1,099 |
| | 1,145 |
| | 1,070 |
|
| Dilutive effect of equity plans and convertible notes | 82 |
| | 61 |
| | 87 |
| | 55 |
|
| Weighted-average common shares outstanding – Diluted | 1,238 |
| | 1,160 |
| | 1,232 |
| | 1,125 |
|
| | | | | | | | |
| Earnings per share | | | | | | | |
| Basic | $ | 2.86 |
| | $ | 0.81 |
| | $ | 5.23 |
| | $ | 1.00 |
|
| Diluted | 2.67 |
| | 0.77 |
| | 4.86 |
| | 0.95 |
|
Antidilutive potential common stock shares that could dilute basic earnings per share in the future were 32 million for the second quarter and first six months of 2018,2021 and 60were 1 million and 624 million for the second quarter and first six months of 2017,2020, respectively.
Segment and Other Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four4 business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"(“CNBU”):Includes memory products sold into compute, networking,client, cloud server, enterprise, graphics, and cloud servernetworking markets.
Mobile Business Unit ("MBU"(“MBU”):Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"):Includes memory and storage products sold into smartphone and other mobile-device markets.
Storage Business Unit (“SBU”):Includes SSDs and component-level solutions sold into enterprise and cloud, client, cloud, and removableconsumer storage markets.markets, and other discrete storage products sold in component and wafer form.
Embedded Business Unit ("EBU"(“EBU”):Includes memory and storage 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 income and expenses (income) are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. 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.
25
| | | | | | | | | | | | Quarter ended | | Six months ended |
| | Quarter ended | | Six months ended | | March 4,
2021 | February 27,
2020 | | March 4,
2021 | February 27,
2020 |
| | March 1,
2018 | | March 2,
2017 | | March 1,
2018 | | March 2,
2017 | | | | |
| Net sales | | | | | | | | |
| Revenue | | Revenue | |
| CNBU | $ | 3,691 |
| | $ | 1,917 |
| | $ | 6,903 |
| | $ | 3,387 |
| CNBU | $ | 2,636 | | $ | 1,967 | | | $ | 5,182 | | $ | 3,946 | |
| MBU | 1,566 |
| | 1,082 |
| | 2,931 |
| | 2,114 |
| MBU | 1,811 | | 1,258 | | | 3,312 | | 2,715 | |
| SBU | 1,254 |
| | 1,041 |
| | 2,637 |
| | 1,901 |
| SBU | 850 | | 870 | | | 1,761 | | 1,838 | |
| EBU | 829 |
| | 590 |
| | 1,659 |
| | 1,168 |
| EBU | 935 | | 696 | | | 1,744 | | 1,430 | |
| All Other | 11 |
| | 18 |
| | 24 |
| | 48 |
| All Other | 4 | | 6 | | | 10 | | 12 | |
| | $ | 7,351 |
| | $ | 4,648 |
| | $ | 14,154 |
| | $ | 8,618 |
| | $ | 6,236 | | $ | 4,797 | | | $ | 12,009 | | $ | 9,941 | |
| | | | | | | | | | | | |
| Operating income (loss) | | | | | | | | Operating income (loss) | |
| CNBU | $ | 2,329 |
| | $ | 736 |
| | $ | 4,243 |
| | $ | 940 |
| CNBU | $ | 709 | | $ | 283 | | | $ | 1,192 | | $ | 684 | |
| MBU | 689 |
| | 170 |
| | 1,194 |
| | 259 |
| MBU | 464 | | 183 | | | 834 | | 478 | |
| SBU | 251 |
| | 71 |
| | 651 |
| | 26 |
| SBU | (59) | | (2) | | | (55) | | (219) | |
| EBU | 363 |
| | 193 |
| | 705 |
| | 371 |
| EBU | 141 | | 79 | | | 257 | | 192 | |
| All Other | (2 | ) | | 7 |
| | (6 | ) | | 19 |
| All Other | 2 | | (1) | | | 2 | | 1 | |
| | 3,630 |
| | 1,177 |
| | 6,787 |
| | 1,615 |
| | 1,257 | | 542 | | | 2,230 | | 1,136 | |
| | | | | | | | | | | | |
| Unallocated | | | | | | | | Unallocated | |
| Inventory accounting policy change to FIFO | | Inventory accounting policy change to FIFO | (133) | | 0 | | | (133) | | 0 | |
| Change in inventory cost absorption | | Change in inventory cost absorption | (160) | | 0 | | | (160) | | 0 | |
| 3D XPoint inventory write-down | | 3D XPoint inventory write-down | (49) | | 0 | | | (49) | | 0 | |
| Stock-based compensation | (52 | ) | | (55 | ) | | (103 | ) | | (101 | ) | Stock-based compensation | (112) | | (85) | | | (204) | | (157) | |
| Patent license charges | | Patent license charges | (128) | | 0 | | | (128) | | 0 | |
| Restructure and asset impairments | (7 | ) | | (4 | ) | | (13 | ) | | (33 | ) | Restructure and asset impairments | (5) | | (10) | | | (13) | | (6) | |
| Flow-through of Inotera inventory step-up | — |
| | (60 | ) | | — |
| | (60 | ) | |
| Other | (4 | ) | | (14 | ) | | (7 | ) | | (18 | ) | Other | (7) | | (7) | | | (14) | | (15) | |
| | (63 | ) | | (133 | ) | | (123 | ) | | (212 | ) | | (594) | | (102) | | | (701) | | (178) | |
| | | | | | | | | | | | |
| Operating income | $ | 3,567 |
| | $ | 1,044 |
| | $ | 6,664 |
|
| $ | 1,403 |
| Operating income | $ | 663 | | $ | 440 | | | $ | 1,529 | | $ | 958 | |
Certain Concentrations
Revenue from WPG Holdings Limited was 12% of total revenue for the first six months of 2021.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual report on Form 10-K for the year ended August 31, 2017.September 3, 2020. 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. Fiscal 2021 contains 52 weeks and our fiscal 2020 contained 53 weeks. Our fiscal 2018second quarters and 2017first six months of 2020 and 2021 each contain 52 weeks. All production data includes the production of IMFTcontained 13 and Inotera.26 weeks, respectively. All tabular dollar amounts are in millions, except per share amounts.
Our Management's Discussion and Analysis 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. This discussion is organized as follows:
Overview: Overview of our operations, business, and highlights of key events.
Results of Operations: An analysis of our financial results consisting of the following:
| |
◦ | Operating results by business segment; |
| |
◦ | Operating results by product; and |
| |
◦ | Operating expenses and other. |
Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and liquidity.
Critical Accounting Estimates
Recently Issued Accounting Standards
Overview
Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative 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 3D XPoint memory, issolutions transforming how the world uses information to enrich life. Backed by nearly 40 years oflife for all. With a relentless focus on our
customers, technology leadership, ourand manufacturing and operational excellence, Micron delivers a rich portfolio of high-performance DRAM, NAND, and NOR memory and storage solutions enable disruptive trends, includingproducts through our Micron® and Crucial® brands. Every day, the innovations that our people create fuel the data economy, enabling advances in artificial intelligence machine learning, and autonomous vehicles in key market segments like cloud,5G applications that unleash opportunities — from the data center networking,to the intelligent edge and mobile.across the client and mobile user experience.
We manufacture our products at our worldwide wholly-owned facilities and joint venture facilities.also utilize subcontractors to perform certain manufacturing processes. 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 technology, which isare implemented in our manufacturing facilities. Wefacilities, and generally increase the density per wafer and reduce manufacturing costs of each generation of product through advancements in product and process technology, such as our leading-edge line-width process 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,advanced packaging solutions, lower power consumption, improved read/write reliability, and increased memory density. Storage products incorporating NAND, a controller, and firmware constitute aA significant portion of our sales. We generally developrevenues are from sales of managed NAND and SSD products, which incorporate NAND, a controller, firmware, and expect to introducein some cases, DRAM. An increasing portion of our SSDs incorporate proprietary controllers into our SSDs in new products starting in 2018.and firmware that we have developed. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and to 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 obtaining returns on our research and development (“R&D”) investments, efficient utilization of our manufacturing infrastructure, development and integration of advanced product and process technologies, 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,spending.
Cessation of 3D XPoint Development and successful R&D investments.Planned Sale of Our Facility in Lehi, Utah
To leverageIn the second quarter of 2021, we updated our significant investments in R&D, we have formed, and may continueportfolio strategy to form, strategic joint ventures that allow us to share the costs of developingfurther strengthen our focus on memory and storage innovations for the data center market. In connection therewith, we determined that there was insufficient market validation to justify the ongoing investments required to commercialize 3D XPoint at scale. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers for the sale of our Lehi facility that was dedicated to 3D XPoint production. As a result, we classified the property, plant, and equipment as held-for-sale and ceased depreciating the assets. We expect to reach an agreement for the sale of our Lehi facility within calendar year 2021. Our 3D XPoint technology development and Lehi facility operations are primarily included in our CNBU business unit.
Assets classified as held for sale are carried at the lower of fair value less cost to sell or carrying value. Significant judgments and assumptions are required to estimate their fair values. Actual selling prices could vary significantly from our estimated fair value and we could recognize losses in the event that the sales prices of assets classified as held for sale are lower than their carrying values.
Impact of COVID-19 on Our Business
Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across the globe. The ultimate severity and duration of these economic repercussions, including any resulting impact on our business, remain largely unknown and ultimately will depend on many factors. As a result, we have experienced volatility in the markets that our products are sold into, driven by the move to a stay-at-home economy and fluctuations in consumer and business spending, which has affected demand for certain of our products. The ultimate extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including the effectiveness and utilization of vaccines for COVID-19 and its variants, new information that may emerge concerning the severity of COVID-19 and its variants, and actions to contain or limit their spread.
From the start of the COVID-19 outbreak, we proactively implemented preventative protocols, which we continuously assess and update for changes in conditions and emerging trends. These protocols are intended to safeguard our team members, contractors, suppliers, customers, distributors, and communities, and to ensure
27
business continuity in the event government restrictions or severe outbreaks impact our operations at certain sites. While all our global manufacturing sites are currently operating with close to full staff and at normal capacity levels, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates. We may be required, or deem it to be in the best interest of our employees, customers, partners, suppliers, and stakeholders, to alter our business operations in order to maintain a healthy and safe environment. It is not clear what potential effects any such alterations or modifications may have on our business, including effects on our customers, employees, and prospects, or on our financial results. We are following government policies and recommendations designed to slow the spread of COVID-19 and remain committed to the health and safety of our team members, contractors, suppliers, customers, distributors, and communities.
We continuously assess our efforts to respond to the COVID-19 outbreak, which have included the following:
•In locations experiencing continued community COVID-19 infections, we prohibit onsite visitors and are generally requiring team members to work from home where possible. Where work from home is not possible, all on-site team members must complete health questionnaires, pass through thermal scanning equipment to ensure they do not have an elevated body temperature, wear a mask while on site, and adhere to physical distancing requirements and team member separation protocols. We have also enhanced our contact tracing, significantly decreased business travel, and where possible, made ventilation and other health and safety enhancements at our facilities and provided COVID-19 testing and vaccinations for our team members.
•To respond to changing market conditions, we shift supply from markets which have experienced declines in demand to markets that have experienced demand increases.
•We evaluate our supply chain and communicate with our suppliers to identify supply gaps and have taken steps to ensure continuity. In some cases, we have added alternative suppliers and increased our on-hand inventory of raw materials needed in our operations.
•We have added assembly and test capacity to provide redundant manufacturing capability through our network of captive operations and external partners.
•We have evaluated all our construction projects across our global manufacturing operations and enacted protocols to enhance the safety of our team members, suppliers, and contractors.
•We have developed strategies and implemented measures to respond to a variety of potential economic scenarios, such as limitations on new hiring and business travel and reductions of discretionary spending.
•We are working with government authorities in the jurisdictions where we operate, and continuing to monitor our operations in an effort to ensure we follow government requirements, relevant regulations, industry standards, and best practices to help safeguard our team members, while safely continuing operations at our sites across the globe.
We believe these actions are appropriate and prudent to safeguard our team members, contractors, suppliers, customers, and communities, while allowing us to safely continue operations. We cannot predict how the steps we, our team members, government entities, suppliers, or customers take in response to the COVID-19 outbreak will ultimately impact our business, outlook, or results of operations.
Product Technologies
Our product portfolio of memory and process technology with third parties. In addition,
from time to time, we alsostorage solutions, advanced solutions, and storage platforms is based on our high-performance semiconductor memory and storage technologies, including DRAM, NAND, NOR, and other technologies. We sell our products into various markets through our business units in numerous forms, including wafers, components, modules, SSDs, managed NAND, and MCP products. Our system-level solutions, including SSDs, managed NAND, and MCPs, typically include a controller and firmware and in some cases combine DRAM, NAND, and/or license technologyNOR.
DRAM: DRAM products are dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval with a variety of performance characteristics. DRAM products lose content when power is turned off (“volatile”) and are most commonly used in client, cloud server, enterprise, networking, graphics, industrial, and automotive markets. Low-power DRAM (“LPDRAM”) products, which are engineered to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partneringmeet standards for performance and power consumption, are sold into smartphone and other arrangements.mobile-device markets (including client markets for Chromebooks and notebook PCs), as well as into the automotive, industrial, and consumer markets.
NAND: NAND products are non-volatile, re-writeable semiconductor storage devices that provide high-capacity, low-cost storage with a variety of performance characteristics. NAND is used in SSDs for the enterprise and cloud, client, and consumer markets and in removable storage markets. Managed NAND is used in smartphones and other mobile devices, and in consumer, automotive, and embedded markets. Low-density NAND is ideal for applications like automotive, surveillance, machine-to-machine, automation, printer, and home networking.
NOR: NOR products are non-volatile re-writable semiconductor memory devices that provide fast read speeds. NOR is most commonly used for reliable code storage (e.g., boot, application, operating system, and execute-in-place code in an embedded system) and for frequently changing small data storage and is ideal for automotive, industrial, networking, and consumer applications.
3D XPoint: 3D XPoint is a class of non-volatile technology between DRAM and NAND in the memory and storage hierarchy. Effective as of the end of the second quarter of 2021, we ceased development of our 3D XPoint technology and products.
Results of Operations
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second
Quarter | First
Quarter | Second
Quarter | Six Months |
| 2021 | 2021 | 2020 | 2021 | 2020 |
| | | | | | | | | | |
| Revenue | $ | 6,236 | | 100% | $ | 5,773 | | 100% | $ | 4,797 | | 100% | $ | 12,009 | | 100% | $ | 9,941 | | 100% |
| Cost of goods sold | 4,587 | | 74% | 4,037 | | 70% | 3,442 | | 72% | 8,624 | | 72% | 7,220 | | 73% |
| Gross margin | 1,649 | | 26% | 1,736 | | 30% | 1,355 | | 28% | 3,385 | | 28% | 2,721 | | 27% |
| | | | | | | | | | |
| Research and development | 641 | | 10% | 647 | | 11% | 681 | | 14% | 1,288 | | 11% | 1,321 | | 13% |
| Selling, general, and administrative | 214 | | 3% | 214 | | 4% | 223 | | 5% | 428 | | 4% | 434 | | 4% |
| Other operating (income) expense, net | 131 | | 2% | 9 | | —% | 11 | | —% | 140 | | 1% | 8 | | —% |
| Operating income | 663 | | 11% | 866 | | 15% | 440 | | 9% | 1,529 | | 13% | 958 | | 10% |
| | | | | | | | | | |
| Interest income (expense), net | (32) | | (1)% | (38) | | (1)% | (12) | | —% | (70) | | (1)% | (15) | | —% |
| Other non-operating income (expense), net | 4 | | —% | 13 | | —% | (1) | | —% | 17 | | —% | 45 | | —% |
| Income tax (provision) benefit | (48) | | (1)% | (51) | | (1)% | (21) | | —% | (99) | | (1)% | (76) | | (1)% |
| Equity in net income (loss) of equity method investees | 16 | | —% | 13 | | —% | 1 | | —% | 29 | | —% | 3 | | —% |
| Net income attributable to noncontrolling interests | — | | —% | — | | —% | (2) | | —% | — | | —% | (19) | | —% |
| Net income attributable to Micron | $ | 603 | | 10% | $ | 803 | | 14% | $ | 405 | | 8% | $ | 1,406 | | 12% | $ | 896 | | 9% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Net Sales | | 2017 | | % of Net Sales | | 2018 | | % of Net Sales | | 2018 | | % of Net Sales | | 2017 | | % of Net Sales |
| Net sales | $ | 7,351 |
| | 100 | % | | $ | 4,648 |
| | 100 | % | | $ | 6,803 |
| | 100 | % | | $ | 14,154 |
| | 100 | % | | $ | 8,618 |
| | 100 | % |
| Cost of goods sold | 3,081 |
| | 42 | % | | 2,944 |
| | 63 | % | | 3,056 |
| | 45 | % | | 6,137 |
| | 43 | % | | 5,903 |
| | 68 | % |
| Gross margin | 4,270 |
| | 58 | % | | 1,704 |
| | 37 | % | | 3,747 |
| | 55 | % | | 8,017 |
| | 57 | % | | 2,715 |
| | 32 | % |
| | | | | | | | | | | | | | | | | | | | |
| SG&A | 196 |
| | 3 | % | | 187 |
| | 4 | % | | 191 |
| | 3 | % | | 387 |
| | 3 | % | | 346 |
| | 4 | % |
| R&D | 523 |
| | 7 | % | | 473 |
| | 10 | % | | 448 |
| | 7 | % | | 971 |
| | 7 | % | | 943 |
| | 11 | % |
| Other operating (income) expense, net | (16 | ) | | — | % | | — |
| | — | % | | 11 |
| | — | % | | (5 | ) | | — | % | | 23 |
| | — | % |
| Operating income | 3,567 |
| | 49 | % | | 1,044 |
| | 22 | % | | 3,097 |
| | 46 | % | | 6,664 |
| | 47 | % | | 1,403 |
| | 16 | % |
| | | |
|
| | | | | | | | | | | | | | | | |
| Interest income (expense), net | (61 | ) | | (1 | )% | | (153 | ) | | (3 | )% | | (101 | ) | | (1 | )% | | (162 | ) | | (1 | )% | | (285 | ) | | (3 | )% |
| Other non-operating income (expense), net | (53 | ) | | (1 | )% | | 34 |
| | 1 | % | | (204 | ) | | (3 | )% | | (257 | ) | | (2 | )% | | 20 |
| | — | % |
| Income tax (provision) benefit | (143 | ) | | (2 | )% | | (38 | ) | | (1 | )% | | (114 | ) | | (2 | )% | | (257 | ) | | (2 | )% | | (69 | ) | | (1 | )% |
| Equity in net income (loss) of equity method investees | 1 |
| | — | % | | 7 |
| | — | % | | — |
| | — | % | | 1 |
| | — | % | | 5 |
| | — | % |
| Net income attributable to noncontrolling interests | (2 | ) | | — | % | | — |
| | — | % | | — |
| | — | % | | (2 | ) | | — | % | | — |
| | — | % |
| Net income attributable to Micron | $ | 3,309 |
| | 45 | % | | $ | 894 |
| | 19 | % | | $ | 2,678 |
| | 39 | % | | $ | 5,987 |
| | 42 | % | | $ | 1,074 |
| | 12 | % |
Net Sales
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Total | | 2017 | | % of Total | | 2018 | | % of Total | | 2018 | | % of Total | | 2017 | | % of Total |
| CNBU | $ | 3,691 |
| | 50 | % | | $ | 1,917 |
| | 41 | % | | $ | 3,212 |
| | 47 | % | | $ | 6,903 |
| | 49 | % | | $ | 3,387 |
| | 39 | % |
| MBU | 1,566 |
| | 21 | % | | 1,082 |
| | 23 | % | | 1,365 |
| | 20 | % | | 2,931 |
| | 21 | % | | 2,114 |
| | 25 | % |
| SBU | 1,254 |
| | 17 | % | | 1,041 |
| | 22 | % | | 1,383 |
| | 20 | % | | 2,637 |
| | 19 | % | | 1,901 |
| | 22 | % |
| EBU | 829 |
| | 11 | % | | 590 |
| | 13 | % | | 830 |
| | 12 | % | | 1,659 |
| | 12 | % | | 1,168 |
| | 14 | % |
| All Other | 11 |
| | — | % | | 18 |
| | — | % | | 13 |
| | — | % | | 24 |
| | — | % | | 48 |
| | 1 | % |
| | $ | 7,351 |
| | | | $ | 4,648 |
| | | | $ | 6,803 |
| |
|
| | $ | 14,154 |
| |
|
| | $ | 8,618 |
| |
|
|
Percentages of total net sales reflect rounding and may not total 100%.
Total net salesRevenue:Total revenue for the second quarter of 20182021 increased 8% as compared to the first quarter of 20182021 primarily due to strong execution and market conditions for DRAM across our primary markets, particularly for server, mobile, and client. The strong demand for our products enabled us to increase DRAM average selling prices and sales volumes resulting in higher CNBU and MBU sales. Despite significant increases in SSD revenue insales of DRAM and NAND products. Sales of DRAM products for the second quarter of 20182021 increased 10% as compared to the first quarter of 2018, SBU revenue decreased2021 primarily due to declinesan upper-single-digit percent increase in bit shipments driven by the mobile, server, automotive, and networking markets. Sales of NAND component revenue.products for the second quarter of 2021 increased 5% as compared to the first quarter of 2021 primarily due to an upper-single-digit percent increase in bit shipments driven by managed NAND products sold in mobile markets and SSDs, partially offset by a lower-single-digit percent decline in average selling prices.
Total net salesrevenue for the second quarter and first six months of 20182021 increased 58%30% and 64%21%, respectively, as compared to the corresponding periods of 2017. Solid execution2020 primarily due to increases in DRAM and strong demandNAND sales. Sales of DRAM products for the second quarter of 2021 increased 44% as compared to the second quarter of 2020 primarily
29
due to growth in bit shipments in the upper-40% range driven by the mobile, client, networking, and automotive markets. Sales of DRAM products for the first six months of 2021 increased 30% as compared to the first six months of 2020 primarily due to growth in bit shipments in the lower-30% range. Sales of NAND products for the second quarter of 2021 increased 9% as compared to the second quarter of 2020 primarily due to increases in bit shipments in the low-30% range driven by consumer and mobile markets, partially offset by an upper-teens percentage decline in average selling prices. Sales of NAND products for the first six months of 2021 increased 10% as compared to the first six months of 2020 primarily due to increases in bit shipments in the mid-20% range, partially offset by a low-teens percentage decline in average selling prices.
Overall Gross Margin:Our overall gross margin percentage decreased to 26% for the second quarter of 2021 from 30% for the first quarter of 2021, primarily due to one-time impacts of changes in our products across our primary markets, particularly in client, enterprise, mobile,inventory costing method to FIFO and cloud, drove higher salescost absorption processes in the second quarter of 20182021, as detailed below. Our gross margins included the impact of underutilization costs at our Lehi facility of $111 million for all operating segmentsthe second quarter of 2021, $113 million for the first quarter of 2021, and significant increases$142 million for the second quarter of 2020. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and recognized a charge of $49 million to cost of goods sold in sales volumesthe second quarter of 2021 to write down 3D XPoint inventory due to our decision to cease further development of this technology. Our Lehi facility was dedicated to 3D XPoint production and we expect to reach an agreement for both DRAMthe sale of the facility within calendar 2021. As a result, we classified the property, plant, and Trade NAND productsequipment as well as increasesheld-for-sale and ceased depreciating the assets, which we expect to decrease depreciation expense by approximately $75 million in the third quarter of 2021.
Our overall gross margin percentage decreased to 26% for the second quarter of 2021 from 28% for the second quarter of 2020 primarily due to the impact of inventory accounting and costing changes and declines in average selling prices, for DRAM products.
Gross Margin
partially offset by manufacturing cost reductions resulting from strong execution in delivering products featuring advanced technologies and from continuous improvement initiatives to reduce production costs. Our overall gross margin percentage increased to 58%28% for the first six months of 2021 from 27% for the first six months of 2020 primarily due to manufacturing cost reductions, partially offset by the effects of inventory accounting and costing changes and declines in average selling prices.
Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to FIFO. Concurrently, as of the beginning of the second quarter of 2021, we modified our inventory cost-absorption processes used to estimate inventory values, which affects the timing of when costs are recognized. These changes resulted in a one-time increase to cost of goods sold of approximately $293 million in the second quarter of 2021.
Revenue by Business Unit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second
Quarter | First
Quarter | Second
Quarter | Six Months |
| 2021 | 2021 | 2020 | 2021 | 2020 |
| | | | | | | | | | |
| CNBU | $ | 2,636 | | 42% | $ | 2,546 | | 44% | $ | 1,967 | | 41% | $ | 5,182 | | 43% | $ | 3,946 | | 40% |
| MBU | 1,811 | | 29% | 1,501 | | 26% | 1,258 | | 26% | 3,312 | | 28% | 2,715 | | 27% |
| SBU | 850 | | 14% | 911 | | 16% | 870 | | 18% | 1,761 | | 15% | 1,838 | | 18% |
| EBU | 935 | | 15% | 809 | | 14% | 696 | | 15% | 1,744 | | 15% | 1,430 | | 14% |
| All Other | 4 | | —% | 6 | | —% | 6 | | —% | 10 | | —% | 12 | | —% |
| | $ | 6,236 | | | $ | 5,773 | | | $ | 4,797 | | | $ | 12,009 | | | $ | 9,941 | | |
Percentages of total revenue may not total 100% due to rounding.
Changes in revenue for each business unit for the second quarter of 2018 from 55% for the first quarter of 2018 primarily due to strong demand for our DRAM products that drove favorable pricing conditions, combined with overall reductions in manufacturing costs. The increase in our gross margin percentage for the second quarter of 2018 reflects margin expansion for DRAM products driven by the continued growth in product offerings and sales for server and mobile products featuring our 1X nm DRAM technology. Gross margin percentages increased for CNBU, MBU, and EBU operating segments in the second quarter of 20182021 as compared to the first quarter of 2018.2021 were as follows:
Our overall gross margin percentage•CNBU revenue increased to 58% for the second quarter of 2018 from 37% for the second quarter of 2017 and increased to 57% for the first six months of 2018 from 32% for the first six months of 2017, reflecting increases in the gross margin percentages for all operating segments,4% primarily due to strong executionincreases in volume and market demand together with manufacturing cost reductions. From January 2016 through December 6, 2016, the date we acquired the remaining interest in Inotera, we purchased all of Inotera's DRAM output under supply agreements at prices based on a formula that equally shared margin between Inotera and us. For the first quarter of 2017, we purchased $504 million of DRAM products from Inotera under these agreements, representing 37% of our aggregate DRAM bit production.
Operating Results by Business Segments
CNBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 3,691 |
| | $ | 1,917 |
| | $ | 3,212 |
| | $ | 6,903 |
| | $ | 3,387 |
|
| Operating income | 2,329 |
| | 736 |
| | 1,914 |
| | 4,243 |
| | 940 |
|
CNBU sales for the second quarter of 2018 increased 15% as compared to the first quarter of 2018 due to higher sales into cloud serverpricing across data center, networking, and client markets, and improved pricing for our DRAM products. As a result, CNBU operating income improved for the second quarter of 2018 comparedpartially offset by declines in sales to the first quartergraphics market.
•MBU revenue increased 21% primarily due to increases in bit shipments of 2018. See "Operating Resultshigh-value mobile MCP products driven by Product – DRAM"demand growth in smartphone markets as 5G momentum increases.
•SBU revenue decreased 7% primarily due to price declines.
•EBU revenue increased 16% primarily due to bit shipment increases driven by strong demand growth in automotive as demand recovered from pandemic-related shutdowns and growth in industrial markets.
Changes in revenue for further detail.
CNBU saleseach business unit for the second quarter and first six months of 2018 increased 93% and 104%, respectively,2021 as compared to the corresponding periods of 20172020 were as follows:
•CNBU revenue increased 34% and 31%, respectively, primarily due to increases in average selling prices for our products sold intobit shipments to the client, market, growthcloud server, and graphics markets.
•MBU revenue increased 44% and 22%, respectively, primarily due to increases in the cloud marketbit shipments for high-value mobile MCP products partially offset by price declines.
•SBU revenue decreased 2% and 4%, respectively, primarily due to price declines partially offset by increases in bit shipments for NAND products driven by significantconsumer markets.
•EBU revenue increased 34% and 22%, respectively, primarily due to increases in bit shipments to the automotive, industrial, and consumer markets from transitions to an increasing mix of high-density DRAM and NAND products, partially offset by price declines.
Operating Income (Loss) by Business Unit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Second
Quarter | First
Quarter | Second
Quarter | Six Months |
| 2021 | 2021 | 2020 | 2021 | 2020 |
| | | | | | | | | | |
| CNBU | $ | 709 | | 27% | $ | 483 | | 19% | $ | 283 | | 14% | $ | 1,192 | | 23% | $ | 684 | | 17% |
| MBU | 464 | | 26% | 370 | | 25% | 183 | | 15% | 834 | | 25% | 478 | | 18% |
| SBU | (59) | | (7)% | 4 | | —% | (2) | | —% | (55) | | (3)% | (219) | | (12)% |
| EBU | 141 | | 15% | 116 | | 14% | 79 | | 11% | 257 | | 15% | 192 | | 13% |
| All Other | 2 | | 50% | — | | —% | (1) | | (17)% | 2 | | 20% | 1 | | 8% |
| | $ | 1,257 | | | $ | 973 | | | $ | 542 | | | $ | 2,230 | | | $ | 1,136 | | |
Percentages reflect operating income (loss) as a percentage of revenue for each business unit.
Changes in operating income or loss for each business unit for the second quarter of 2021 as compared to the first quarter of 2021 were as follows:
•CNBU operating income increased primarily due to manufacturing cost reductions, increases in bit shipments, and increases in DRAM content per server, andpricing.
•MBU operating income increased primarily due to increases in sales into the enterprise market. Favorable conditionsbit shipments and manufacturing cost reductions.
•SBU operating margin declined primarily due to declines in key CNBU marketsNAND selling prices.
•EBU operating income increased primarily due to increases in bit shipments.
Changes in operating income or loss for each business unit for the second quarter and first six months of 2018 drove increases in average selling prices and sales volumes2021 as compared to the corresponding periods of 2017. 2020 were as follows:
•CNBU operating income increased primarily due to increases in bit shipments, manufacturing cost reductions, and higher selling prices, partially offset by higher R&D costs.
•MBU operating income increased primarily due to increases in sales of high-value MCP products, manufacturing cost reductions for low-power DRAM, and lower R&D costs, partially offset by declines in low-power DRAM and NAND pricing.
•SBU operating margin for the second quarter of 2021 declined from the second quarter of 2020 primarily due to decreases in selling prices, partially offset by manufacturing cost reductions and increases in bit shipments. SBU operating margin for the first six months of 2021 improved from the first six months of 2020 primarily due to lower manufacturing costs and increases in bit shipments, partially offset by decreases in selling prices.
•EBU operating income increased primarily due to increases in bit shipments and lower R&D costs, partially offset by lower selling prices.
31
Operating Expenses and Other
Research and Development:R&D expenses vary primarily with the number of development and pre-qualification 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. Development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.
R&D expenses for the second quarter of 2021 were relatively unchanged as compared to the first quarter of 2021.
R&D expenses for the second quarter and first six months of 2018 improved from2021 were 6% and 2% lower, respectively, as compared to the corresponding periods of 20172020, primarily due to improved pricing, manufacturing cost reductions,decreases in volumes of development and product mix.pre-qualification wafers, partially offset by increases in employee compensation and depreciation expense resulting from higher capital spending.
MBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 1,566 |
| | $ | 1,082 |
| | $ | 1,365 |
| | $ | 2,931 |
| | $ | 2,114 |
|
| Operating income | 689 |
| | 170 |
| | 505 |
| | 1,194 |
| | 259 |
|
MBU sales are comprised primarily of DRAMSelling, General, and NAND, with mobile DRAM products accounting for a significant majority of the sales. MBU salesAdministrative:SG&A expenses for the second quarter of 2018 increased 15%2021 were relatively unchanged as compared to the first quarter of 2018 primarily due to strong acceptance of our low-power DRAM products and increases in sales of mobile DRAM products into smartphone markets. MBU operating income for the second quarter of 2018 improved from the first quarter of 2018 primarily due to manufacturing cost reductions and increases in sales volumes for both DRAM and NAND products as well as improved DRAM pricing resulting from strong demand for our products.
MBU sales2021. SG&A expenses for the second quarter and first six months of 2018 increased 45% and 39%, respectively,2021 were relatively unchanged as compared to the corresponding periods of 2017 primarily due to improvements in DRAM pricing and increases in sales volumes, driven by customer qualifications for LPDRAM and managed NAND products, combined with higher memory content in smartphones.2020.
MBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to increases in average selling prices for mobile DRAM products, manufacturing cost reductions, and higher sales volumes.
SBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 1,254 |
| | $ | 1,041 |
| | $ | 1,383 |
| | $ | 2,637 |
| | $ | 1,901 |
|
| Operating income | 251 |
| | 71 |
| | 400 |
| | 651 |
| | 26 |
|
SBU sales of Trade NAND products for the second quarter of 2018 decreased 7% as compared to the first quarter of 2018 due to declines in NAND component sales from lower average selling prices, partially offset by increases in SSD sales. Sales of SSD storage products for the second quarter of 2018 increased 22% as compared to the first quarter of 2018, driven by strong demand in cloud and client markets for products incorporating our TLC 3D NAND technology. SBU Non-Trade sales were $136 million for the second quarter of 2018 as compared to $122 million for the first quarter of 2018 and $158 million for the second quarter of 2017. SBU operating income for the second quarter of 2018 was also adversely affected by costs associated with IMFT's production of 3D XPoint products at less than full capacity, partially offset by a mix shift to SSD products and NAND manufacturing cost reductions. See "Operating Results by Product – Trade NAND" for further details.
SBU sales of Trade NAND products for the second quarter and first six months of 2018 increased 23% and 40%, respectively, as compared to the corresponding periods of 2017 primarily due to increases in sales volumes from strong demand, particularly for sales of SSD products into the cloud market. SBU sales of SSD storage products for the second quarter and first six months of 2018 increased by 81% and 103%, respectively, as compared to the corresponding periods of 2017 primarily as a result of the launch of new SSD products incorporating our TLC 3D NAND technology. SBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to manufacturing cost reductions and improvements in product mix.
EBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 829 |
| | $ | 590 |
| | $ | 830 |
| | $ | 1,659 |
| | $ | 1,168 |
|
| Operating income | 363 |
| | 193 |
| | 342 |
| | 705 |
| | 371 |
|
EBU sales are comprised of DRAM, NAND, and NOR Flash in decreasing order of revenue. EBU sales for the second quarter of 2018 were relatively unchanged from the first quarter of 2018. EBU operating income for the second quarter of 2018 increased from the first quarter of 2018 primarily due to manufacturing cost reductions and improved pricing for DRAM products resulting from strong demand for our products.
EBU sales for the second quarter and first six months of 2018 increased 41% and 42%, respectively, as compared to the corresponding periods of 2017 primarily due to strong demand and higher sales volumes for DRAM, NAND, and eMCP in consumer markets. EBU operating income for the second quarter and first six months of 2018 increased as compared to the corresponding periods of 2017 as a result of increases in average selling prices, manufacturing cost reductions, and increases in sales volumes.
Operating Results by Product
Net Sales by Product
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Total | | 2017 | | % of Total | | 2018 | | % of Total | | 2018 | | % of Total | | 2017 | | % of Total |
| DRAM | $ | 5,213 |
| | 71 | % | | $ | 2,960 |
| | 64 | % | | $ | 4,562 |
| | 67 | % | | $ | 9,775 |
| | 69 | % | | $ | 5,381 |
| | 62 | % |
| Trade NAND | 1,805 |
| | 25 | % | | 1,412 |
| | 30 | % | | 1,866 |
| | 27 | % | | 3,671 |
| | 26 | % | | 2,684 |
| | 31 | % |
| Non-Trade | 136 |
| | 2 | % | | 158 |
| | 3 | % | | 122 |
| | 2 | % | | 258 |
| | 2 | % | | 281 |
| | 3 | % |
| Other | 197 |
| | 3 | % | | 118 |
| | 3 | % | | 253 |
| | 4 | % | | 450 |
| | 3 | % | | 272 |
| | 3 | % |
| | $ | 7,351 |
| | | | $ | 4,648 |
| | | | $ | 6,803 |
| | | | $ | 14,154 |
| | | | $ | 8,618 |
| | |
Percentages of total net sales reflect rounding and may not total 100%.
Non-Trade consists of NAND and 3D XPoint products manufactured and sold to Intel through IMFT under a long-term supply agreement at prices approximating cost. Information regarding products that combine both NAND and DRAM components is reported within Trade NAND. Other includes sales of NOR and trade 3D XPoint products.
DRAM
|
| | | | | |
| Second Quarter 2018 Versus | | First Six Months 2018 Versus |
| First Quarter 2018 | | Second Quarter 2017 | | First Six Months 2017 |
| | | | | |
| (percentage change) |
Average selling prices per gigabit | increased low double digit | | increased low 40% range | | increased high 40% range |
Gigabits sold | increased mid single digit | | increased low 20% range | | increased low 20% range |
Increases in sales volumes and prices for the second quarter of 2018 as compared to the first quarter of 2018 and second quarter of 2017 resulted from strong conditions for server, mobile, and client markets. Our gross margin percentage on sales of DRAM products for the second quarter of 2018 improved from the first quarter of 2018 and second quarter of 2017 primarily due to increases in average selling prices due to favorable market conditions and manufacturing cost reductions.
Trade NAND
|
| | | | | |
| Second Quarter 2018 Versus | | First Six Months 2018 Versus |
| First Quarter 2018 | | Second Quarter 2017 | | First Six Months 2017 |
| | | | | |
| (percentage change) |
Average selling prices per gigabyte | decreased mid-teens range | | decreased high single digit | | decreased mid single digit |
Gigabytes sold | increased low double digit | | increased low 40% range | | increased low 40% range |
Decreases in net sales for the second quarter of 2018 as compared to the first quarter of 2018 resulted from declines in average selling prices partially offset by increase in sales of cloud and client SSDs driven by growth and gains in market share for SSD products. Increases in net sales for the second quarter of 2018 as compared to the second quarter of 2017 primarily resulted from increases in sales of cloud and client SSDs. Our ability to meet increased demand for SSDs and other NAND products in the second quarter of 2018 was primarily due to improvements in process technology, including our transition to 3D NAND products and strong execution. Our gross margin percentage on sales of Trade NAND for the second quarter of 2018 declined slightly from the first quarter of 2018 as declines in average selling prices outpaced manufacturing cost reductions. Our gross margin percentage on sales of Trade NAND for the second quarter of 2018 improved from the second quarter of 2017 as manufacturing cost reductions outpaced declines in average selling prices.
Operating Expenses and Other
Selling, General, and Administrative
SG&A expenses for the second quarter of 2018 were relatively unchanged compared to the first quarter of 2018. SG&A expenses for the second quarter of 2018 were 5% higher than the second quarter of 2017 primarily due to increases in payroll costs. SG&A expenses for the first six months of 2018 were 12% higher than the first six months of 2017 primarily due to increases in performance-based pay and other payroll costs.
Research and Development
R&D expenses for the second quarter of 2018 were 17% higher than the first quarter of 2018 primarily due to higher volumes of product being processed that had not been qualified and increases in payroll costs. R&D expenses for the second quarter of 2018 were 11% higher than the second quarter of 2017 primarily due to increases in payroll costs. R&D expenses for the first six months of 2018 were slightly higher as compared to the first six months of 2017 due to increases in payroll costs, partially offset by lower volumes of product being processed that had not been qualified.
We share the cost of certain product and process development activities with development partners, including Intel. We expect to continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be delivered in 2019. In the second quarter of 2018, we and Intel mutually agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for each individual business' needs. Our R&D expenses were reduced by reimbursements under our arrangements by $58 million for the second quarter of 2018, $56 million for the first quarter of 2018, and $59 million for the second quarter of 2017.
Income Taxes
Income:Our income tax (provision) benefit consisted of the following:
| | | | | | | | | | | | | | | | | |
| Second
Quarter | First
Quarter | Second
Quarter | Six Months |
| 2021 | 2021 | 2020 | 2021 | 2020 |
| | | | | |
| Income before taxes | $ | 635 | | $ | 841 | | $ | 427 | | $ | 1,476 | | $ | 988 | |
| Income tax (provision) benefit | (48) | | (51) | | (21) | | (99) | | (76) | |
| Effective tax rate | 7.6 | % | 6.1 | % | 4.9 | % | 6.7 | % | 7.7 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Provisional estimate for the Repatriation Tax, net of adjustments related to uncertain tax positions | $ | (1,335 | ) | | $ | — |
| | $ | — |
| | $ | (1,335 | ) | | $ | — |
|
| Remeasurement of deferred tax assets and liabilities reflecting lower U.S. corporate tax rates | (133 | ) | | — |
| | — |
| | (133 | ) | | — |
|
| Provisional estimate for the release of the valuation allowance on the net deferred tax assets of our U.S. operations | 1,337 |
| | — |
| | — |
| | 1,337 |
| | — |
|
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (17 | ) | | (8 | ) | | (26 | ) | | (43 | ) | | (21 | ) |
| Other income tax (provision) benefit | 5 |
| | (30 | ) | | (88 | ) | | (83 | ) | | (48 | ) |
| | $ | (143 | ) | | $ | (38 | ) | | $ | (114 | ) | | $ | (257 | ) | | $ | (69 | ) |
| | | | | | | | | | |
| Effective tax rate | 4.1 | % | | 4.1 | % | | 4.1 | % | | 4.1 | % | | 6.1 | % |
Our income taxes reflectChanges to our effective tax rate in the following:
various provisional estimates forperiods presented were primarily due to the impacts of the Tax Act, including the Repatriation Tax, remeasurement of deferred tax assets and liabilities at the lower U.S. corporate rate of 21%, and release of a substantial portion of the valuation allowance on the net deferred tax assetsgeographic mix of our U.S. operations; andearnings.
operations
We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates.
On December 22, 2017, the U.S. government enacted the Tax Act which lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from foreign operations is taxedarrangements. These incentives expire, in the United States. As a result of our fiscal year-end, our U.S. statutory federal rate will be 25.7% for 2018 (based on the 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal year 2018) and 21% for subsequent years. The Tax Act imposes a Repatriation
Tax in 2018; provides a U.S. federal tax exemption on foreign earnings distributed to the United States; and, beginning in 2019, creates a Foreign Minimum Tax. The Tax Act allows us to elect to pay any Repatriation Tax due in eight annual interest-free payments in increasing amounts beginning in December 2018. In connection with the provisions of the Tax Act, we are continuing to evaluate whether to account for the Foreign Minimum Tax provisions that begin for us in 2019 as a period costwhole or in our measurement of deferred taxes.
SAB 118 allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act has not been completed when our financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts may be adjusted during a one-year measurement period as accounting for the income tax effects of the Tax Act are completed or as estimates are revised.
In accordance with SAB 118, we recorded certain provisional estimates included in the table above. Although the provisional estimates are based on the best available interpretations of the Tax Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatorypart, at various dates through 2034 and legislative guidance related to the Tax Act.
As noted above, provisional estimates were recorded for the Repatriation Tax and the release of the valuation allowance on the net deferred tax assets of our U.S. operations. To determine the amount of the Repatriation Tax, we must determine the accumulated foreign earnings of our foreign subsidiaries and the amount of foreign income tax paid on such earnings. The provisional estimate of the Repatriation Tax is also based, in part, on the amount of cash and other specified assets anticipated to be held by our foreign subsidiaries as of August 30, 2018, the end of our fiscal year 2018, which may determine the portion of the accumulated foreign earnings taxed at an effective rate of 15.5% or 8%. As a result, the Repatriation Tax may change as amounts are finalized. The U.S. Department of Treasury has issued interpretive guidance regarding the Repatriation Tax and we expect that they will issue additional guidance. Based on the information available, we can reasonably estimate the Repatriation Tax and therefore recorded a provisional amount; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release of the Repatriation Tax and the Tax Act.
We operate in a number of locations outside the Unites States, including Singapore, where we have tax incentive arrangements 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 by $436$45 million (benefiting our diluted earnings per share by $0.35)$0.04) for the second quarter of 2018,2021, by $391$56 million ($0.32 per diluted share) in the first quarter of 2018, and by $132 million ($0.110.05 per diluted share) for the first quarter of 2021, by $101 million ($0.09 per diluted share) for the first six months of 2021, and were not significant to our tax provision for the second quarter or first six months of 2017. The Tax Act establishes a new provision designed2020.
See “Item 1. Financial Statements – Notes to impose the Foreign Minimum Tax beginning in 2019. Consequently, we may incur additional U.S. taxConsolidated Financial Statements – Income Taxes.”
Other: Interest expense on income of our foreign subsidiaries that could offset a significant portion of the benefits realized from our tax incentive arrangements. Beginning in 2019, our tax rate may increase to the low teens percentage depending on profitability.
Other
Net interest expense decreased 40% for the second quarter of 20182021 decreased 13% as compared to the first quarter of 20182021 primarily due to decreases in debt obligations in the first six months of 2018. Net interest expense decreased 60% for the second quarter of 2018 as compared to the second quarter of 2017 primarily due to decreases in debt obligations, including the redemption of $600 million in principal amount of notes in the fourth quarter of 2017 and the redemption and conversion of an aggregate of $2.42 billion in principal amount of notes in the first six months of 2018, as well as an increase in capitalized interest from higher levels of capital spending.projects in process. Interest income also increased infor the second quarter of 20182021 was relatively unchanged as compared to the first quarter of 2021.
Interest expense for the second quarter of 2021 decreased 9% as compared to the second quarter of 20172020 primarily due to increasesa decrease in our aggregate cashinterest rates and investments. Netan increase in capitalized interest from higher levels of capital projects in process, partially offset by an increase in debt obligations. Interest expense decreased 43% for the first six months of 20182021 was relatively unchanged as compared to the first six months of 2017 primarily due2020. Interest income for the second quarter and first six months of 2021 decreased 71% and 74%, respectively, as compared to decreases in debt obligations, increases in interest incomethe corresponding periods of 2020 as a result of increasesdecreases in ourinterest rates, partially offset by higher cash and investments, and increases in capitalized interest.investment balances.
Further discussion of other operating and non-operating income and expenses can be found in "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans,” “– Other Operating (Income) Expense, Net” and “– Other Non-Operating Income (Expense), Net" notes.Net.”
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We are continuously evaluating alternatives for efficiently funding our capital expenditures 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 of securities. We have an undrawn revolving credit facility that expires in February 2020 and provides for additional borrowingsAs of upMarch 4, 2021, $2.50 billion was available to $750 million based on eligible receivables.draw under our Revolving Credit Facility. 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.months and thereafter for the foreseeable future.
To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate thatcapital expenditures in 20182021 for property, plant, and equipment, net of partner contributions, to be in the range of $7.5approximately $9 billion, plus or minus 5 percent, focused on technology transitions and product enablement. The actualActual amounts for 20182021 will vary depending on market conditions. As of March 1, 2018,4, 2021, we had commitmentspurchase obligations of approximately $1.6$2.02 billion for the acquisition of property, plant, and equipment, substantially all of which approximately $1.82 billion is expected to be paid within one year.
In May 2018, our Board of Directors authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to a Rule 10b5-1 trading plan. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. Since the authorization in May 2018, through March 4, 2021, we had repurchased an aggregate of $2.84 billion of the authorized amount.
Cash and marketable investments totaled $8.56 billion and $6.05$8.50 billion as of March 1, 20184, 2021 and August 31, 2017, respectively.$9.19 billion as of September 3, 2020. Our investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, which are diversified among industries and individual issuers. As of March 1, 2018, $3.94 billion of our cash and marketable investments was held by our foreign 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, we issued 34 million shares As of March 4, 2021, $2.45 billion of our common stockcash and marketable investments was held by our foreign subsidiaries.
Cash Flows:
| | | | | | | | |
| Six Months |
| 2021 | 2020 |
| | |
| Net cash provided by operating activities | $ | 5,024 | | $ | 4,012 | |
| Net cash provided by (used for) investing activities | (5,974) | | (2,899) | |
| Net cash provided by (used for) financing activities | (209) | | (1,207) | |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | 43 | | (14) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (1,116) | | $ | (108) | |
Operating Activities: Cash provided by operating activities reflects net income adjusted for $41.00 per sharecertain non-cash items, including depreciation expense, amortization of intangible assets, and stock-based compensation, and the effects of changes in a public offeringoperating assets and liabilities. The increase in cash provided by operating activities for proceeds of $1.36 billion, net of underwriting fees and other offering costs. In the first six months of 2018, we paid $2.932021 as compared to the first six months of 2020 was primarily due to higher net income compared with the prior period and changes in working capital.
Investing Activities: For the first six months of 2021, net cash used for investing activities consisted primarily of $5.54 billion inof expenditures for property, plant, and equipment (net of partner contributions) and $425 million of net outflows from purchases, sales, and maturities of available-for-sale securities.
For the first six months of 2020, net cash used for investing activities consisted primarily of $3.86 billion of expenditures for property, plant, and equipment (net of partner contributions) partially offset by $1.02 billion of net inflows from sales, maturities, and purchases of available-for-sale securities.
33
Financing Activities: For the first six months of 2021, net cash used for financing activities consisted primarily of $123 million for payments on equipment purchase contracts and $103 million for repayments of debt.
For the six months of 2020, net cash used for financing activities consisted primarily of $1.68 billion of cash payments to reduce our debt, including $621 million for IMFT member debt repayments, $534 million to prepay the 2025 Notes, $198 million to settle conversions of notes, and $129 million for scheduled repayment of finance leases; $744 million for the acquisition of noncontrolling interest in IMFT; and $94 million for the acquisition of 1.9 million shares of treasury stock under our $10 billion share repurchase or settlement upon conversionauthorization. Cash used for financing activities was partially offset by net proceeds of notes with an aggregate principal amount of $2.42 billion. $1.25 billion from borrowing the 2024 Term Loan A.
See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt." We may redeem, repurchase, or otherwise retire additional debt in the future.”
Limitations on the UsePotential Settlement Obligations of Cash and Investments
MMJ GroupConvertible Notes:Cash and marketable investments included $495 million held by the MMJ Group as of March 1, 2018. As a result of the corporate reorganization proceedings of MMJ initiated in March 2012, and for so long as such proceedings are continuing, the MMJ Group is prohibited from paying dividends to us. In addition, pursuant to an order of the Japan Court, the MMJ Group cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court and may, under certain circumstances, be subject to the approval of the legal trustee. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
MSTW and MTTW: Cash and marketable investments included $59 million held by MSTW and MTTW as of March 1, 2018. 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 included $317 million held by IMFT as of March 1, 2018. 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: As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the amounts held by MMJ, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable for U.S. federal income taxes; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. As we evaluate the impact of the Tax Act and the future cash needs of our global operations, we may revise the amount of the foreign earnings considered to be indefinitely reinvested outside of the United States. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Cash Flows
|
| | | | | | | |
| | First Six Months |
| | 2018 | | 2017 |
| Net cash provided by operating activities | $ | 7,984 |
| | $ | 2,543 |
|
| Net cash provided by (used for) investing activities | (3,843 | ) | | (5,385 | ) |
| Net cash provided by (used for) financing activities | (1,420 | ) | | 2,341 |
|
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | 4 |
| | (33 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 2,725 |
| | $ | (534 | ) |
Operating Activities:For the first six months of 2018, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $630 million of cash used for increases in receivables, partially offset by $93 million of cash provided by an increase in accounts payable and accrued expenses. For the first six months of 2017, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $773 million of cash used for net increases in receivables, $361 million of payments attributed to intercompany balances with Inotera, and $399 million of cash provided by net increases in accounts payable and accrued expenses.
Investing Activities: For the first six months of 2018, net cash used for investing activities consisted primarily of $4.22 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners), partially offset by $198 million of net inflows from sales, maturities, and purchases of available-for-sale securities. For the first six months of 2017, net cash used for investing activities consisted primarily of $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 $2.43 billion of expenditures for property, plant, and equipment (which excludes offsets of amounts funded by our partners).
Financing Activities: For the first six months of 2018, net cash used for financing activities consisted primarily of redemption of our 2023 Secured Notes for $1.37 billion in cash, redemption of our 2023 Notes for $1.05 billion in cash, conversions of our convertible notes for $511 million of cash, and $449 million for repayments of other notes payable and capital leases, partially offset by net proceeds of $1.36 billion from the issuance of 34 million shares of our common stock for $41.00 per share in a public offering and $650 million of proceeds from IMFT Member Debt. For the first six months of 2017, net cash provided by financing activities consisted primarily of $2.48 billion of net proceeds from the 2021 MSTW Term Loan and $445 million of net proceeds from the 2021 MSAC Term Loan, partially offset by $556 million for repayments of debt. See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt."Debt – 2032D Convertible Senior Notes.”
Contractual Obligations: See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases” and – Debt.”
Potential Settlement Obligations of Convertible Notes
Since the closing priceCritical Accounting Estimates
For a discussion of our common stock exceeded 130% of the conversion price per share of all our convertible notes for at least 20 trading days in the 30 trading day period ended on December 31, 2017, holders may convert their notes through the calendar quarter ended March 31, 2018. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending March 31, 2018 if all holders converted their notes. The amounts in the table below are based on our closing share price of $47.62 as of March 1, 2018.
|
| | | | | | | | | | | | | | | | | |
| | Settlement Option | | | | If Settled With Minimum Cash Required | | If Settled Entirely With Cash |
| | Principal Amount | | Amount in Excess of Principal | | Underlying Shares | | Cash | | Remainder in Shares | |
| 2032C Notes | Cash and/or shares | | Cash and/or shares | | 18 |
| | $ | — |
| | 18 |
| | $ | 849 |
|
| 2032D Notes | Cash and/or shares | | Cash and/or shares | | 18 |
| | — |
| | 18 |
| | 845 |
|
2033E Notes(1) | Cash | | Cash and/or shares | | 5 |
| | 197 |
| | 1 |
| | 261 |
|
2033F Notes(1) | Cash | | Cash and/or shares | | 27 |
| | 393 |
| | 18 |
| | 1,272 |
|
| 2043G Notes | Cash and/or shares | | Cash and/or shares | | 35 |
| | — |
| | 35 |
| | 1,674 |
|
| | | |
| | 103 |
| | $ | 590 |
| | 90 |
| | $ | 4,901 |
|
| |
(1)
| Amounts as of March 1, 2018 include $178 million and $129 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes and 2033F Notes, respectively, that had been converted but not settled. The settlement obligation of these notes will settle in cash in the third quarter of 2018. |
Contractual Obligations
As of March 1, 2018, the contractual obligations of principal and interest of all our notes payable was $9.80 billion, of which $610 million is due in the remainder of 2018, $3.30 billion is due in 2019 and 2020, $2.77 billion is due in 2021 and 2022, and $3.12 billion is due in 2023 and thereafter. There have been no other material changes to our contractual obligations as described in "Part Isignificant accounting estimates, see “Part II – Item 2. Management's7. Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations – Significant Accounting Estimates” of our Annual Report on Form 10-K for the year ended August 31, 2017, other than our purchase commitments for the acquisition of property, plant, and equipment as described above.
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Part I - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended August 31, 2017.September 3, 2020. Except for the criticalsignificant accounting estimatesestimate associated with our income taxesinventories as discussed below, there have been no material changes to our criticalsignificant accounting estimates since our Annual Report on Form 10-K for the year ended August 31, 2017.September 3, 2020.
Income taxesInventories: WeInventories are requiredstated at the lower of cost or net realizable value, with cost being determined on a FIFO basis. Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to estimate our provision for income taxesFIFO. Cost includes depreciation, labor, material, and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgmentoverhead costs, including product and interpretationsprocess technology costs. Determining net realizable value 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 involveinventories involves significant judgments, including among others, projecting future average selling prices and future sales volumes. To project average selling prices and sales volumes, manufacturingwe review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and overhead costs, levels of capital spending,demand, seasonal factors, general economic trends, and other factors thatinformation. Actual selling prices and volumes may vary significantly impactfrom projected prices and volumes due to the volatile nature of the semiconductor memory and storage markets. When these analyses reflect estimated net realizable values below our analysesmanufacturing costs, we record a charge to cost of goods sold in advance of when inventories are actually sold. As a result, the timing of when product costs are charged to costs of goods sold can vary significantly. 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 deferred tax assets that are more likely than notrealizable value of our inventory by approximately $371 million as of March 4, 2021. Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and volumes often vary significantly from projected prices and volumes, which could significantly impact cost of goods sold.
U.S. GAAP provides for products to be realized.
In connection withgrouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the Tax Act,determination of inventory categories. We review the major characteristics of product type and markets in determining the unit of account for which we recognized a provision for income taxes of $131 million in the second quarter of 2018, of which $133 million was related to the impact of remeasuring our deferred tax assets and liabilities to reflectperform the lower tax rateof cost or net realizable value analysis and $2 million of income tax benefit was considered a provisional estimate. The provisional estimate included $1.34 billion associated with the Repatriation Tax, essentially offset by a benefit of $1.34 billion for the release of the valuation allowance on the net deferred tax assets of our U.S. operations. Based on the information available, we recorded a provisional amount;
however, we are continuing to gather additional informationcategorize all inventories (including DRAM, NAND, and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance releaseother memory) as a result of the Tax Act.single group.
Recently Adopted Accounting Standards
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards.”
Recently Issued Accounting Standards
See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards."”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates. See discussion regarding certain interest rate risks below. For further discussion about market risk and sensitivity analysis related to changes in currency exchange rates, see "Part“Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk" ofRisk” in our Annual Report on Form 10-K for the year ended August 31, 2017.September 3, 2020.
Interest Rate Risk
We are exposed to interest rate risk related to our indebtedness and our investment portfolio. As of March 1, 2018 and August 31, 2017, the carrying value of our debt with fixed interest rates was $4.0 billion and $5.7 billion, respectively, and as a result, the fair value of our debt fluctuates with changes in market interest rates. We estimate that, as of March 1, 2018 and August 31, 2017, a decrease in market interest rates of 1% would increase the fair value of our fixed-rate debt by approximately $130 million and $273 million, respectively.
ITEM 4. 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 RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)1934, as amended (the “Exchange Act”)) 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'sSEC’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decision regarding disclosure.
During the second quarter of 2018,2021, we implemented new internal controls and modified existing internal controls related to our inventories as a result of changing from average cost to the FIFO inventory accounting method and our implementation of a standard cost inventory management system. Other than the foregoing, there were no other 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Part“Part I – Item 3. Legal Proceedings"Proceedings” of our Annual Report on Form 10-K for the year ended August 31, 2017September 3, 2020 and "Part“Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies"Contingencies” and "Item“Item 1A. Risk Factors"Factors” herein.
SEC regulations require disclosure of certain proceedings related to environmental matters unless we reasonably believe that the related monetary sanctions, if any, will be less than a specified threshold. We use a threshold of $1 million for this purpose.
ITEM 1A. RISK FACTORS
In addition to the factors discussed elsewhere in this Form 10-Q, the following arethis section discusses 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. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us. Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant. Any
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Risk Factor Summary
Risks Related to Our Business, Operations, and Industry
•the effects of the factors belowCOVID-19 outbreak;
•volatility in average selling prices of our products;
•our ability to maintain or improve gross margins;
•the highly competitive nature of our industry;
•our ability to develop and produce new memory and storage technologies, products, and markets;
•dependency on specific customers, concentration of revenue with a select number of customers, and customers who are located internationally;
•our international operations, including geopolitical risks;
•limited availability and quality of materials, supplies, and capital equipment and dependency on third-party service providers for ourselves and our customers;
•products that fail to meet specifications, are defective, or incompatible with end uses;
•disruptions to our manufacturing processes;
•breaches of our security systems or those of our customers, suppliers, or business partners;
•attracting, retaining, and motivating highly skilled employees;
•achieving or maintaining certain performance obligations associated with incentives from various governments;
•future acquisitions and/or alliances;
•restructure charges;
•customer responsible sourcing requirements and related regulations; and
•a downturn in the world-wide economy.
Risks Related to Intellectual Property and Litigation
•protecting our intellectual property and retaining key employees who are knowledgeable of and develop our intellectual property;
•legal proceedings and claims;
•allegations of anticompetitive conduct;
•risks associated with our former IMFT joint venture with Intel;
•claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others or failure to obtain or renew license agreements covering such intellectual property; and
•alleged patent infringement complaints in Chinese courts.
Risks Related to Laws and Regulations
•tariffs, trade restrictions, and/or trade regulations;
•tax expense and tax laws in key jurisdictions; and
•laws, regulations, or industry standards.
Risks Related to Capitalization and Financial Markets
•our ability to generate sufficient cash flows or obtain access to external financing;
•our debt obligations;
•changes in foreign currency exchange rates;
•counterparty default risk;
•volatility in the trading price of our common stock; and
•fluctuations in the amount and timing of our common stock repurchases and resulting impacts.
Risks Related to Our Business, Operations, and Industry
The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition.
The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread are uncertain and difficult to predict, but may include, and in some cases, have included and may continue to include:
•A decrease in short-term and/or long-term demand and/or pricing for our products and a global economic recession that could further reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses, and/or the general public in an effort to limit exposure to and the spreading of COVID-19, such as travel restrictions, quarantines, and business shutdowns or slowdowns;
•Negative impacts to our operations, including:
◦reductions in production levels, R&D activities, product development, technology transitions, yield enhancement activities, and qualification activities with our customers, resulting from our efforts to mitigate the impact of COVID-19 through measures we have enacted at our locations around the world in an effort to protect our employees’ and contractors’ health and well-being, including working from home, limiting the number of meeting attendees, reducing the number of people in certain of our sites at any one time, quarantines of team members, contractors, or vendors who are at risk of contracting, or have contracted, COVID-19, and limiting employee travel;
◦increased costs resulting from our efforts to mitigate the impact of COVID-19 through physical-distancing measures, working from home, upgrades to our sites, COVID-19 testing, enhanced cleaning measures, and the increased use of personal protective equipment at our sites;
◦increased costs for, or unavailability of, transportation, raw materials, or other inputs necessary for the operation of our business;
◦reductions in, or cessation of operations at any site or in any jurisdiction resulting from government restrictions on movement and/or business operations or our failure to prevent and/or adequately mitigate spread of COVID-19 at one or more of our sites;
◦our inability to continue, or increased costs of, construction projects due to delays in obtaining materials, equipment, labor, engineering services, government permits, or any other essential aspect of projects, which could impact our ability to introduce new technologies, reduce costs, or meet customer demand;
◦disruptions to our supply chain in connection with the sourcing and transportation of materials, equipment and engineering support, and services from or in geographic areas that have been impacted by COVID-19 and by efforts to contain the spread of COVID-19; and
•Deterioration of worldwide credit and financial markets that could: limit our ability to obtain external financing to fund our operations and capital expenditures; result in losses on our holdings of cash and investments due to failures of financial institutions and other parties; or result in a higher rate of losses on our accounts receivables due to credit defaults.
While certain COVID-19 vaccines have been approved and become available for use in the United States and certain other countries in recent months, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and when or if normal economic activity and business operations will resume.
These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition,condition. A sustained, prolonged, or stock price.recurring outbreak could exacerbate the adverse impact of such measures.
We have experienced volatilityVolatility in average selling prices for our semiconductor memory and storage products which may adversely affect our business.
We have experienced significant volatility in our average selling prices, including dramatic declines as noted in the table below, and may continue to experience such volatility in the future. In some prior periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in
37
the future. Decreases in averageAverage 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 | NAND |
| (percentage change in average selling prices) |
| | |
| 2020 from 2019 | (34) | % | (9) | % |
| 2019 from 2018 | (30) | % | (47) | % |
| 2018 from 2017 | 36 | % | (13) | % |
| 2017 from 2016 | 18 | % | (10) | % |
| 2016 from 2015 | (34) | % | (16) | % |
|
| | | | | |
| | DRAM | | Trade NAND |
| | | | |
| | (percentage change in average selling prices) |
| 2017 from 2016 | 19 | % | | (9 | )% |
| 2016 from 2015 | (35 | )% | | (20 | )% |
| 2015 from 2014 | (11 | )% | | (17 | )% |
| 2014 from 2013 | 6 | % | | (23 | )% |
| 2013 from 2012 | (11 | )% | | (18 | )% |
We may be unable to maintain or improve gross margins.
Our gross margins are dependent, in part, 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 maintain or reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, difficulties 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, changes in process technologies, and new products that may require relatively larger die sizes. Per
Many factors may result in a reduction of our output or a delay in ramping production, which could lead to underutilization of our production assets. These factors may include, among others, a weak demand environment, industry oversupply, inventory surpluses, difficulties in ramping emerging technologies, declining selling prices, and changes in supply agreements. A significant portion of our manufacturing costs are fixed and do not vary proportionally with changes in production output. As a result, lower utilization and corresponding increases in our per gigabit manufacturing costs may adversely affect our gross margins, business, results of operations, or financial condition.
In addition, per gigabit manufacturing costs may also be affected by a broader product portfolio, which may have smaller production quantities and shorter product lifecycles. Our business and the markets we serve are subject to rapid technological changes and material fluctuations in demand based on end-user preferences. As a result, we may have work in process or finished goods inventories that could become obsolete or in amounts that are in excess of our customers’ demand. Consequently, we may incur charges in connection with obsolete or excess inventories. In addition, due to the customized nature of certain of the products we manufacture, we may be unable to sell certain finished goods inventories to alternative customers or manufacture in-process inventory to different specifications, which may result in excess and obsolescence charges in future periods. Our inability to maintain or improve gross margins could have a material adverse effect on our business, results of operations, or financial condition.
The semiconductor memory and storage markets are highly competitive.
We face intense competition in the semiconductor memory and storage markets from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SK Hynix Inc.; ToshibaKioxia Holdings Corporation; and Western 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.disadvantage as our competitors may benefit from increased manufacturing scale and a stronger product portfolio. In addition, some governments such as China,may provide, or have provided and may continue to provide, significant assistance, financial assistanceor otherwise, to some of our competitors or to new entrants. entrants and may intervene in support of national industries and/or competitors. In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities that is intended to advance China’s stated national policy objectives. In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies. Some of our competitors may use aggressive pricing to obtain market share or take business of our key customers.
Our competitors generally seek to increase siliconwafer capacity, improve yields, and reduce die size in their product designs which may result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication 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. We, and some of our competitors, have plans to ramp, 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, wouldcould lead to further declines in average selling prices for our products and wouldcould 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.
As of March 1, 2018, we had debt with a carrying value of $9.32 billion. In addition, the conversion value in excess of principal of our convertible notes as of March 1, 2018 was $3.18 billion. In the first six months of 2018, and full years of 2017 and 2016, we paid $2.93 billion and 4 million shares of our treasury stock as non-cash settlement, $1.63 billion, and $94 million, respectively, to repurchase and settle notes with principal amounts of $2.42 billion, $1.55 billion, and $57 million,
respectively. As of March 1, 2018, we had an undrawn revolving credit facility that provided for additional borrowings of up to $750 million based on eligible receivables. Events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize this revolving credit facility. We have incurred in the past, and expect to incur in the future, 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.
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 market, 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 amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flows 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 are 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 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 2018 for property, plant, and equipment will be approximately $7.5 billion plus or minus 5 percent, which reflects the offset of amounts we expect to be funded by our partners. Investments in capital expenditures, offset by amounts funded by our partners, were $2.11 billion in the second quarter of 2018. As of March 1, 2018, we had cash and marketable investments of $8.56 billion. As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the cash held by the MMJ Group, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. In addition, cash of $317 million held by IMFT was 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 corporate reorganization proceedings of MMJ initiated in 2012, and for so long as such proceedings are continuing, MMJ is prohibited from paying dividends, including any cash dividends, to us and such proceedings require that excess earnings be used in MMJ's business or to fund the MMJ creditor payments. In addition, pursuant to an order of the Japan Court, MMJ cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court and may, under certain circumstances, be subject to approval of the legal trustee. As a result, the assets of MMJ are not available for use by us in our other operations. Furthermore, certain uses of the assets of MMJ, including 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 condition.
Our future success depends on our ability to develop and produce competitive new memory and storage technologies.
Our key semiconductor memory and storage 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, increasing bits per cell (i.e., cell levels), shrinking products in order to reduce costs, meeting higher density requirements, and improving power consumption and reliability. To meet these requirements, weWe may face technological barriers to continue to shrink our products at our current or historical rate, which has generally reduced per-unit cost. We have invested and expect thatto continue to invest in R&D for new memory technologies willand existing products, which involves significant risk and uncertainties. We may be developed byunable to recover our investment in R&D or otherwise realize the semiconductoreconomic benefits of reducing die size or increasing memory and storage industry.densities. Our competitors are working to develop new memory and storage technologies that may offer performance andand/or cost advantages to existing technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory and storage technologies. There can be no assurance of the following:
•that we will be successful in developing competitivenew 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.
We develop and produce advanced memory technologies including 3D XPoint memory, a new class of non-volatile technology. There isand there can be no assurance that our efforts to develop and market new product technologies will be successful. Unsuccessful efforts to develop new semiconductor memory and storage technologies could have a material adverse effect on our business, results of operations, or financial condition.
A significant portion of our revenue is concentrated with a select number of customers.
In each of the last three years, approximately one-half of our total revenue was from 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. Our customers’ demand for our products may fluctuate due to factors beyond our control. In addition, any consolidation of our customers could reduce the number of customers to whom our products may be sold. Our inability to meet our customers’ requirements or to qualify our products with them could adversely impact our revenue. Meaningful change in the inventory strategy of our customers, particularly those in China, could impact our industry bit demand growth outlook. The loss of, or restrictions on our ability to sell to, one or more of our major customers, such as those relating to Huawei described herein, or any significant reduction in orders from, or a shift in product mix by, customers could have a material adverse effect on our business, results of operations, or financial condition.
We face geopolitical and other risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.
In 2020, 52% of our revenue was from sales to customers who have headquarters located outside the United States. We ship our products to the locations specified by our customers. Customers with global supply chains and operations may request we deliver products to countries where they own or operate production facilities or to
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countries where they utilize third-party subcontractors or warehouses. As a result, 88% of our revenue in 2020 was from products shipped to customer locations outside the United States.
A substantial portion of our operations are conducted in Taiwan, Singapore, Japan, China, Malaysia, and India, and many of our customers, suppliers, and vendors also operate internationally. Our operations, and the global supply chain of the technology industry, are subject to a number of risks, including the effects of actions and policies of various governments across our global operations and supply chain. For example, political, economic, or other actions from China could impact Taiwan and its economy, and may adversely affect our operations in Taiwan, our customers, and the technology industry supply chain. In addition, the U.S. government has in the past restricted American firms from selling products and software to certain of our customers and may in the future impose similar bans or other restrictions on sales to one or more of our significant customers. These restrictions may not prohibit our competitors from selling similar products to our customers, which may result in our loss of sales and market share. Even when such restrictions are lifted, financial or other penalties or continuing export restrictions imposed with respect to our customers could have a continuing negative impact on our future revenue and results of operations, and we may not be able to recover any customers or market share we lose while complying with such restrictions.
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, including currency controls in China, which could negatively affect the amount and timing of payments from certain of our customers and, as a result, our cash flows;
•imposition of bans on sales of goods or services to one or more of our significant foreign customers;
•public health issues (for example, an outbreak of a contagious disease such as COVID-19, Severe Acute Respiratory Syndrome (“SARS-CoV”), avian and swine influenza, measles, or Ebola);
•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;
•theft of intellectual property;
•political and economic instability, including the effects of disputes between China and Taiwan;
•government actions or civil unrest preventing the flow of products, including delays in shipping and obtaining products, cancellation of orders, or loss or damage of products;
•problems with the transportation or delivery of 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 the ability to maintain flexibility with staffing levels;
•disruptions to manufacturing or R&D activities as a result of actions imposed by foreign governments;
•changes in economic policies of foreign governments; and
•difficulties in staffing and managing international operations.
If we or our customers, suppliers, or vendors are impacted by any of these risks, it could have a material adverse effect on our business, results of operations, or financial condition.
Our business, results of operations, or financial condition could be adversely affected by the limited availability and quality of materials, supplies, and capital equipment, or the dependency on third-party service providers for ourselves and our customers.
Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our materials and services. However, only a limited number of suppliers are capable of delivering certain materials and services that meet our standards and, in some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks. Shortages or increases in lead times have occurred in the past and may occur from time to time in the future. Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers used in a number of our products and with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers. Although we have certain long-term contracts with some of our third-party service providers, most of these contracts do not provide for long-term capacity commitments. To the extent we do not have firm commitments from our third-party service providers over a specific
time period or for any specific quantity, our service providers may allocate capacity to their other customers. Accordingly, capacity for our products may not be available when we need it or at reasonable prices.
Certain materials are primarily available in a limited number of countries, including rare earth elements, minerals, and metals available primarily from China. Trade disputes or other political conditions, economic conditions, or public health issues, such as COVID-19, may limit our ability to obtain such materials. Although these rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our suppliers’ ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China.
We and/or our suppliers and service providers could be affected by tariffs, embargoes, or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, responsible sourcing practices, public health crises, contagious disease outbreaks, or other matters, which could limit the supply of our materials and/or increase the cost. Environmental regulations could limit our ability to procure or use certain chemicals or materials in our operations or products. In addition, disruptions in transportation lines could delay our receipt of materials. Lead times for the supply of materials have been extended in the past. Our ability to procure components to repair equipment essential for our manufacturing processes could also be negatively impacted by various restrictions or disruptions in supply chains, among other items. The disruption of our supply of materials, components, or services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition. Similarly, if our customers experience disruptions to their supplies, materials, components, or services, or the extension of their lead times, they may reduce, cancel, or alter the timing of their purchases with us, which could have a material adverse effect on our business, results of operations, or financial condition.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. 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 reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.
New product and market development may be unsuccessful.
We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have made significant investments in product and process technology and anticipate expending significant resources for new semiconductor product and system-level solution development over the next several years. Additionally, we are increasingly differentiating our products and solutions to meet the specific demands of our customers, which increases our reliance on our customers’ ability to accurately forecast the needs and preferences of their customers. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers.
For certain of our markets, it is important that we deliver products in a timely manner with increasingly advanced performance characteristics at the time our customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may exclude us from further consideration as a supplier for those products. The process to develop new products requires us to demonstrate advanced functionality and performance, often well in advance of a planned ramp of production, in order to secure design wins with our customers. The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread could negatively impact our ability to meet anticipated timelines and/or expected or required quality standards with respect to the development of certain of our products. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand.
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Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand. There can be no assurance of the following:that:
•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 establish or maintain key relationships with customers, or that we will not be prohibited from working with certain customers, for specific chip set or design requirements;
that •we will be able to introduce new products into the market and qualify them 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.
Our 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 is 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'customers’ specifications offor those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products inat sufficient volume, quantity,volumes and prices in a timely manner. If we fail to identify or develop products on a timely basis, or at all, that comply with our customers'customers’ specifications or achieve design wins with our customers, we may experience a significant adverse impact on our salesrevenue 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'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'scustomers’ 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 discrete 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 need to 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. AsOur products and solutions may be deemed fully or partially responsible for functionality in our customers’ products and may result in sharing or shifting of product or financial liability from our customers to us for costs incurred by the end user as a result weof our customers’ products failing to perform as specified. In addition, if our products and solutions perform critical functions in our customers’ products or are used in high-risk consumer end products, such as autonomous driver assistance programs, home and enterprise security, smoke and noxious gas detectors, medical monitoring
equipment, or wearables for child and elderly safety, our potential liability may increase. 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 products 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 or harm our reputation or relationships with existing or potential customers.
Any 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.
Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements 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, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management's time and attention. As a result of these claims, we may be required to:
pay significant monetary damages, fines, royalties, or penalties;
enter into license or settlement agreements covering such intellectual property rights;
make material changes to or redesign our products and/or manufacturing processes; and/or
cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.
We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. (See also "Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.")
We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional 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 to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.
If our manufacturing process is disrupted by operational issues, natural disasters, or other events, our business, results of operations, or financial condition could be materially adversely affected.
We and our subcontractors 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 and our subcontractors maintain operations and continuously implement new product and process technology at our manufacturing operations,facilities, which are widely dispersed in multiple locations in several countries including the United States, Singapore, Taiwan, Japan, Malaysia, and China. Additionally,As a result of the necessary interdependence within our control over operationsnetwork of manufacturing facilities, an operational disruption at IMFT is limited byone of our agreements with Intel. or a subcontractor’s facilities may have a disproportionate impact on our ability to produce many of our products.
From time to time, wethere have experiencedbeen disruptions in ourthe manufacturing process as a result of power outages, improperly functioning equipment, disruptions in supply of raw materials or components, or equipment failures,failures. We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events, including earthquakes or tsunamis, or drought such as is occurring in central Taiwan, that could disrupt operations, resulting in increased costs, or disruptions to our or our suppliers’ or customers’ manufacturing operations. In addition, our suppliers and customers also have operations in such locations. Additionally, other environmental events. events including political or public health crises, such as an outbreak of contagious diseases like COVID-19, SARS-CoV, avian and swine influenza, measles, or Ebola, may affect our production capabilities or that of our suppliers, including as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or shipping. For example, in 2020, the government of Malaysia announced measures to restrict movement in that country in an effort to suppress the number of COVID-19 cases. Those restrictions temporarily limited our ability to fully operate our manufacturing facilities in that country. The events noted above have occurred from time to time and may occur in the future. As a result, in addition to disruptions to operations, our insurance premiums may increase or we may not be able to fully recover any sustained losses through insurance.
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'customers’ requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs, loss of revenues,revenue, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial 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'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 (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares as of March 1, 2018, 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 the Inotera 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 Micron 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 Micron 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.
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 operations, or financial 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 for 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, or those of our customers, suppliers, or business partners, 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.shutdowns, including through cyberattacks. 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, or breaches or attacks on our customers, suppliers, or business partners who have confidential or sensitive information regarding us and our customers and suppliers, could result in significant losses and damage our reputation with customers and suppliers and may expose us to
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litigation if the confidential information of our customers, suppliers, or employees is compromised,compromised. The foregoing could have a material adverse effect on our business, results of operations, or financial condition.
We must attract, retain, and motivate highly skilled employees.
To remain competitive, we must attract, retain, and motivate executives and other highly skilled employees, as well as effectively manage or plan for succession for key employees. Competition for experienced employees in our industry can be intense. Hiring and retaining qualified executives, engineers, technical staff, and sales representatives is critical to our business. Our inability to attract, retain, or effectively manage or plan for succession of key employees may inhibit our ability to maintain or expand our business operations. Additionally, changes to immigration policies in the numerous countries in which we operate, including the United States, as well as restrictions on global travel as a result of local or global public health crises requiring quarantines or other precautions to limit exposure to infectious diseases, may limit our ability to hire and/or retain talent in, or transfer talent to, specific locations. If our total compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, 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, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. We recorded net losses from changes in currency exchange rates of $36 million for the first six months of 2018, $74 million for 2017, and $24 million for 2016. Based on our foreign currency balances of monetary assets and liabilities, as of March 1, 2018, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $414 million. Although we hedge our primary exposures to changes in currency exchange rates from our monetary assets and liabilities, the effectiveness of 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. Exchange 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.
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, 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 and NAND. The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar 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, technology companies are inherently risky and may not be successful and could 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.
Our operations require raw materials, and in certain cases, third party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials 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, sub-assemblies, 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 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. 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.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. 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 reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.
Increases in tariffs or other taxes on our products or equipment and supplies could have an adverse impact on our operations.
We sell a significant majority of our products into countries outside the United States and we purchase a significant portion of equipment and supplies from suppliers outside the United States. The United States and other countries have levied tariffs and taxes on certain goods. Further tariffs, additional taxes or trade barriers may increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.
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 investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults. As a result, 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 disrupt operations. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, could have a material adverse effect on our business, results of operations, or financial condition.
Our incentives from various governments are conditional upon achieving or maintaining certain performance obligations and are subject to reduction, termination, or clawback.
We have received, and may in the future continue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to perform or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives. We cannot guarantee that we will successfully achieve performance obligations required to qualify for these incentives or that the granting agencies will provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our performance with thetheir terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition.
The operations of MMJ are subject to continued oversight byWe may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and 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 responsible for overseeing theformation 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 of MMJ, other than oversightactivities;
•diverting management’s attention from daily operations;
•managing larger or more complex operations and facilities and employees in relation to acts that need to be carried outseparate and diverse geographic areas;
•hiring and retaining key employees;
•requirements imposed by government authorities in connection with the Japan Proceedings,regulatory review of a transaction, which aremay include, among other things, divestitures or restrictions on the responsibilityconduct 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, compliance programs, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
•impairment of acquired intangible assets, goodwill, or other assets as a result of changing business conditions, technological advancements, or worse-than-expected performance of the legal trustee. MMJ's reorganization proceedingsacquired business.
The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in Japan,discussions regarding potential acquisitions and oversightsimilar opportunities. To the extent we are successful in completing any such transactions, we could be subject to some or all of the Japan Court, will continue untilrisks described above, including the final creditor payment is made under MMJ's planrisks pertaining to funding, assumption of reorganization, which is scheduled to occurliabilities, integration challenges, and increases in December 2019, butdebt that may occur on a later date to the extent any claimsaccompany such transactions. Acquisitions 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 reorganizationor alliances with, technology companies 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 Courtinherently risky and may not 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 materiallysuccessful 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.
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 restructure charges in future periods.
From time to time, we have, and in the future we may, enter into restructure initiatives in order to, among other items, streamline our operations; respond to changes in business conditions, our markets, or product offerings; or to centralize certain key functions. 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, such as our cessation of 3D XPoint development and the planned sale of our Lehi facility. 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.
Compliance with customer responsible sourcing requirements and related regulations could limit the supply and increase the cost of certain materials, supplies, and services used in manufacturing our products.
Many of our customers have adopted responsible sourcing programs that require us to periodically report on our supply chain and responsible sourcing efforts to ensure we source the materials, supplies, and services we use and incorporate into the products we sell in a manner that is consistent with their programs. 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 meet the specifications of their responsible sourcing programs. Meeting customer requirements may limit the sourcing and availability of some of the materials, supplies, and services we use, particularly when the availability of such materials, supplies, and services is concentrated to a limited number of suppliers. This may affect our ability and/or the cost to obtain sufficient quantities of materials, supplies, and services necessary for the manufacture of our products.
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing SEC regulations impose supply chain due diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo and finance or benefit local armed groups. These conflict minerals are commonly found in materials used in the manufacture of semiconductors.
Our inability to comply with customers’ requirements for responsible sourcing or with related regulations could have a material adverse effect on our business, results of operations, or financial condition.
A downturn in the worldwide economy may harm our business.
The health crisis caused by COVID-19 has adversely affected economic conditions and caused a downturn in the worldwide economy. Downturns in the worldwide economy have harmed our business in the past and the current downturn has adversely affected our business. As a result, demand for certain of our products, such as those used in smartphones, consumer electronics, and automotive, has been volatile. Reduced demand for these or other products could result in significant decreases in our average selling prices and product sales. If these adverse conditions persist or worsen, we could experience reduction in demand for our products and/or devices that incorporate our products. Future downturns could also adversely affect our business. In addition, to the extent our customers or distributors have elevated inventory levels, we may experience a decrease in short-term and/or long-term demand and/or pricing for our products.
A deterioration of conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivable due to credit defaults. As a result, downturns in the worldwide economy could have a material adverse effect on our business, results of operations, or financial condition.
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Risks Related to Intellectual Property and Litigation
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 secrets, 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 or other proprietary information. 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. 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.
Legal proceedings and claims could have a material adverse effect on our business, results of operations, or financial condition.
From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business or otherwise, both domestically and internationally. See “Part II. Other Information – Item 1. Legal Proceedings.” Any claim, with or without merit, could result in significant legal fees that could negatively impact our financial results, disrupt our operations, and require significant attention from our management. We could be subject to litigation or arbitration disputes arising from our relationships with vendors or customers, supply agreements, or contractual obligations with our subcontractors or business partners. We may also be associated with and subject to litigation arising from the actions of our vendors, subcontractors, or business partners. We may also be subject to litigation or claims as a result of our indemnification obligations, including obligations to defend our customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, trademarks, copyrights, or trade secrets. We may also be subject to claims or litigation arising from the terms of our product warranties or from product liability claims. As we continue to focus on developing system solutions with manufacturers of consumer products, including autonomous driving, augmented reality, and others, we may be exposed to greater potential for personal liability claims against us as a result of consumers’ use of those products. We, our officers, or our directors could also be subject to claims of alleged violations of securities laws. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities, and we may elect to self-insure with respect to certain matters. Exposures to various legal proceedings and claims could lead to significant costs and expenses as we defend claims, are required to pay damage awards, or enter into settlement agreements, any of which could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to allegations of anticompetitive conduct.
On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed the plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint that purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court dismissed the plaintiffs’ claims and entered judgment against them. On January 19, 2021, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit.
On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint. The consolidated complaint purported to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 through at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief.On December 21, 2020, the District Court granted Micron’s motion to dismiss and granted the plaintiffs permission to file a further amended complaint. On January 11, 2021, the plaintiffs filed a further amended complaint asserting substantially the same claims and seeking the same relief.
Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.
On May 15, 2018, the Chinese State Administration for Market Regulation (“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.
We are unable to predict the outcome of these matters and cannot make a reasonable estimate of the potential loss or range of possible losses. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
We face risks associated with our former IMFT joint venture with Intel.
Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers for the sale of our Lehi, Utah, facility (our former IMFT joint venture with Intel) that was dedicated to 3D XPoint production. The value we may receive upon the disposition of our Lehi facility could be affected by a number of factors. As such, our valuation requires significant estimates and judgments and the actual amounts received could be materially different from our estimates. If the value we receive upon disposition of the Lehi facility is below net book value, our business, results of operations, or financial condition could be materially adversely affected. We also face risks from our arbitration proceeding with Intel in connection with our former IMFT joint venture, in which we and Intel have made claims against each other for damages relating to the joint venture. For information regarding the arbitration proceeding, see “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.” The foregoing could have a material adverse effect on our business, results of operations, or financial condition.
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Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements 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, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management’s time and attention. As a result of these claims, we may be required to:
•pay significant monetary damages, fines, royalties, or penalties;
•enter into license or settlement agreements covering such intellectual property rights;
•make material changes to or redesign our products and/or manufacturing processes; and/or
•cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.
We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional 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 to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.
We have been served with complaints in Chinese courts alleging patent infringement.
We have been served with complaints in Chinese courts alleging that we infringe certain Chinese patents by manufacturing and selling certain products in China. The complaints seek orders requiring us to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages plus court fees.
We are unable to predict the outcome of these assertions of infringement made against us and cannot make a reasonable estimate of the potential loss or range of possible losses. 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 operations in China, products, and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
The acquisition of our ownership interest in Inotera from Qimonda AG (“Qimonda”) has been challenged by the administrator of the insolvency proceedings for Qimonda.
In January 2011, Dr. Michael Jaffé, administrator for Qimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V. (“Micron B.V.”), in the District Court of Munich, Civil Chamber. The complaint seeks to void a share purchase agreement between Micron B.V. and Qimonda signed in 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda’s shares of Inotera, representing approximately 18% of Inotera’s outstanding shares at that time, 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 a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies” for further information regarding the matter.
We are unable to predict the outcome of the matter and cannot make a reasonable estimate of the potential loss or range of possible losses. 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 operations, or financial condition.
Risks Related to Laws and Regulations
Increases in tariffs or other trade restrictions or taxes on our or our customers’ products or equipment and supplies could have an adverse impact on our operations.
In 2020, 88% of our revenue was from products shipped to customer locations outside the United States. We also purchase a significant portion of equipment and supplies from suppliers outside the United States. Additionally, a significant portion of our facilities are located outside the United States, including in Taiwan, Singapore, Japan, Malaysia, and China.
The United States and other countries have levied tariffs and taxes on certain goods. General trade tensions between the United States and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. Some of our products are included in these tariffs. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by U.S. and Chinese leaders. Additionally, the United States has threatened to impose tariffs on goods imported from other countries, which could also impact certain of our customers’ or our operations. If the United States were to impose current or additional tariffs on components that we or our suppliers source, our cost for such components would increase. We may also incur increases in manufacturing costs and supply chain risks due to our efforts to mitigate the impact of tariffs on our customers and our operations. Additionally, tariffs on our customers’ products could impact their sales of such end products, resulting in lower demand for our products.
We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what actions may be taken by other countries in retaliation. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.
Trade regulations have restricted our ability to sell our products to several customers, could restrict our ability to sell our products to other customers or in certain markets, or could otherwise restrict our ability to conduct operations.
International trade disputes have led, and may continue to lead, to new and increasing trade barriers and other protectionist measures that can increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to sell to certain customers or markets, limit our ability to procure components or raw materials, impede or slow the movement of our goods across borders, impede our ability to perform R&D activities, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may lead to further changes in trade policy, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in, or restrict our access to, some markets and/or customers.
Escalating tensions between the United States and China have led to increased trade restrictions and have affected customer ordering patterns. For example, the U.S. Bureau of Industry and Security (“BIS”) has recently enacted increasingly broad trade restrictions with respect to Huawei (which represented approximately 10% of our revenue in the fourth quarter of 2020 and 12% in 2019), culminating with restrictions that took effect on September 15, 2020 and that currently prevent us and many other companies from shipping products to Huawei. We cannot predict the duration these restrictions will remain in place, whether the BIS will grant us or others licenses to ship products to Huawei, or whether the BIS or other U.S. or foreign government entities will enact similar restrictions with respect to other customers, markets, or products. We may not be able to replace the lost revenue opportunities associated with such restrictions.
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The United States has also imposed other restrictions on the export of U.S. regulated products and technology to certain Chinese technology companies, including certain of our customers. These restrictions have reduced our sales, and continuing or future restrictions could adversely affect our financial results, result in reputational harm to us due to our relationship with such companies, or lead such companies to develop or adopt technologies that compete with our products. It is difficult to predict what further trade-related actions governments may take, and we may be unable to quickly and effectively react to such actions. For example, U.S. legislation has expanded the power of the U.S. Department of Commerce to restrict the export of “emerging and foundational technologies” yet to be identified, which could impact our current or future products.
Trade disputes and protectionist measures, or continued uncertainty about such matters, could result in declining consumer confidence and slowing economic growth or recession, and could cause our customers to reduce, cancel, or alter the timing of their purchases with us. Sustained trade tensions could lead to long-term changes in global trade and technology supply chains, which could adversely affect our business and growth prospects. Trade restrictions that may be imposed by the United States, China, or other countries may impact our business in ways we cannot reasonably quantify, including that some of our customers’ products which incorporate our solutions may also be impacted. Restrictions on our ability to sell and ship our products to Huawei have had an adverse effect on our business, results of operations, or financial condition. In addition, further increases in trade restrictions or barriers may negatively impact our revenue, and any licenses we have received or could receive in the future could be rendered ineffective. Any such changes may have a further adverse effect on our business, results of operations, or financial condition.
The technology industry is subject to intense media, political, and regulatory scrutiny, which can increase our exposure to government investigations, legal actions, and penalties. Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, or agents will not violate such laws or our policies. Violations of trade laws, restrictions, or regulations can result in fines; criminal sanctions against us or our officers, directors, or employees; prohibitions on the conduct of our business; and damage to our reputation.
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,arrangements, failure to meet performance obligations with respect to tax incentive agreements, expanding our operations in various countries, and changes in tax laws and regulations. WeAdditionally, 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. federalworld and statecertain tax returns may remain open to examination for 2013 through 2017. In addition, tax returns that remain open to examination in Japan and Taiwan range from the years 2012 to 2017, and in Singapore from 2013 to 2017.several years. 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.
A change in tax laws in key jurisdictions could materially increase our tax expense.
OnWe are subject to income taxes in the United States and many foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could significantly increase our effective tax rate and ultimately reduce our cash flows from operating activities and otherwise have a material adverse effect on our financial condition. For example, our effective tax rate increased from 1.2% for 2018 to 9.8% for 2019 primarily as a result of the Tax Cuts and Jobs Act enacted in December 22, 2017 by the United States. Additionally, various levels of government are increasingly focused on tax reform and other legislative actions to increase tax revenue. President Biden has indicated that he supports increasing the U.S. government enacted the Tax Act. The Tax Act lowers the U.S.federal corporate income tax rate from 35% toits current 21% and significantly affects how income from our foreign operations are taxed. Further changes in the United States. As a resulttax laws of our fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of 25.7% for 2018, and 21% for subsequent years. Based on the information available, we recorded provisional amounts under SAB 118; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax. The final tax impacts may differ from our provisional estimates due to, among other things, the issuance of additional regulatory and legislative guidance. Asforeign jurisdictions could arise as a result of the Tax Act, ourbase erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which represents a coalition of member countries and recommended changes to numerous long-standing tax rate may increase up to the low teens percentage depending on future profitability.
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, ourprinciples. If implemented by taxing authorities, such changes, as well as changes in U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $3.88 billionlaws or in taxing jurisdictions’ administrative interpretations, decisions, policies, 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. As of March 1, 2018, after recording the provisional estimated impact of the Tax Act, which includes the utilization of a substantial portion of our U.S. deferred tax assets, we had net deferred tax assets of $1.95 billion and valuation allowances of $943 million against our deferred tax assets. 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 andpositions, could have a material adverse effect on our business, results of operations, or financial condition.
We and others are subject to a variety of laws, regulations, or industry standards, including with respect to climate 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 SEC 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. Our inability to comply with the regulations regarding the use of conflict minerals could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to a variety of laws and regulations that may result in additional costs and liabilities.
The manufacturing of our products requires the use of facilities, equipment, and materials that are subject to a broad array of laws and regulations in numerous jurisdictions in which we operate. Additionally, we are subject to a variety of other laws and regulations relative to the construction, maintenance, and operations of our facilities. Any of thesechanges in laws, regulations, or regulationsindustry standards could cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and otherwise harm our operations and financial condition. Any failure to comply with these laws, regulations, or regulationsindustry standards could adversely impact our reputation and our financial results. Additionally, we partner with other companies inengage various third parties as sales channel partners or to represent us or otherwise act on our joint ventures, whichbehalf who are also subject to a broad array of laws, regulations, and regulations.industry standards. Our ownership inengagement with these joint venturesthird parties may also expose us to risks associated with their respective compliance with these laws and regulations.
Climate change concerns and the potential resulting environmental impact may result in new environmental, health, and safety laws and regulations that may affect us, our suppliers, and our customers. Such laws or regulations could cause us to incur additional direct costs for compliance, as well as increased indirect costs resulting from our customers, suppliers, or both incurring additional compliance costs that are passed on to us. These costs may adversely impact our results of operations and financial condition. In addition, climate change may pose physical risks to our manufacturing facilities or our suppliers’ facilities, including increased extreme weather events that could result in supply delays or disruptions.
As a result of thesethe items detailed in this risk factor, we could experience the following:
•suspension of production;production or sales of our products;
•remediation costs;
•alteration of our manufacturing processes;
•regulatory penalties, fines, and legal liabilities; and
•reputational challenges.
OurCompliance with, or our failure, or the failure of our joint ventures,third-party sales channel partners or agents, to comply with, these laws, and regulations, or industry standards could have a material adverse effect on our business, results of operations, or financial condition.
Risks Related to Capitalization and Financial Markets
We face risks associated withmay be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our international salesoperations, make scheduled debt payments, and make adequate capital investments.
Our cash flows from operations that could materially adversely affect our business, results of operations, or financial condition.
Sales to customers outside the United States approximated 86% of our consolidated net sales for 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, Japan, and China. 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 restrictionsdepend primarily on the transfervolume of funds;semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process 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.
compliance with U.S.
We estimate capital expenditures in 2021 for property, plant, and international laws involving international operations, including the Foreign Corrupt Practices Actequipment, net of 1977, as amended, exportpartner contributions, will be approximately $9 billion, focused on technology transitions and import laws,product enablement. Investments in capital expenditures may not generate expected returns or cash flows. Delays in completion and similar rules and regulations;
theftramping 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 onnew production facilities could significantly impact our ability to maintain flexibility withrealize expected returns on 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 factorscapital expenditures, which could have a material adverse effect on our business, results of operations, or financial condition.
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 or at all. We have experienced volatility in our cash flows and operating results and may continue to experience such volatility in the future, which may negatively affect our credit rating. Our credit rating may also be affected by our liquidity, financial results, economic risk, or other factors, which may increase the cost of future borrowings and
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make it difficult for us to obtain financing on terms acceptable to us or at all. In addition, if our credit rating declines below a certain level, our credit facility will be required to become secured by certain of our assets, which may limit the amount or increase the cost of future financings. There can be no assurance that we will be able to generate sufficient cash flows, access capital or credit 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 condition.
Debt obligations could adversely affect our financial condition.
We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and to restructure our capital structure, including the refinancing of existing debt. As of March 4, 2021:
•we had debt with a carrying value of $6.62 billion;
•$2.50 billion of our Revolving Credit Facility was available to us; and
•the conversion value in excess of principal of our convertible notes was $995 million, based on the trading price of our common stock of $84.33 per share on such date.
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;
•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.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows or obtain external financing in the future. This, to some extent, is subject to market, 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 amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our Revolving Credit Facility. In 2019, we suspended the security interest in the collateral under our credit facility; however, if our corporate credit rating were to decline below a certain level, the security interest would be automatically reinstated, which may limit the amount or increase the cost of future financings. If we are unable to generate sufficient cash flows 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 are 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.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. 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 have been volatile and may be volatile in future periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange 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.
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 call contracts on our common stock, and derivative instruments. Additionally, we are subject to counterparty default risk from our customers for amounts receivable from them. 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 theirits contractual commitments which could then lead to theirits defaulting on theirits 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'scounterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of such default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.
The trading price of our common stock has been and may continue to be volatile.
Our common stock has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, we, the technology industry, and the stock market as a whole have on occasion experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to the specific operating performance of individual companies. The trading price of our common stock may fluctuate widely due to various factors, including, but not limited to, actual or anticipated fluctuations in our financial condition and operating results, changes in financial estimates by us or financial estimates and ratings by securities analysts, changes in our capital structure, including issuance of additional debt or equity to the public, interest rate changes, regulatory changes, news regarding our products or products of our competitors, and broad market and industry fluctuations. For these reasons, investors should not rely on recent or historical trends to predict future trading prices of our common stock, financial condition, results of operations, or cash flows. Investors in our common stock may not realize any return on their investment in us and may lose some or all of their investment. Volatility in the trading price of our common stock could also result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources.
The amount and frequency of our share repurchases may fluctuate, and we cannot guarantee that we will fully consummate our share repurchase authorization, or that it will enhance long-term shareholder value. Share repurchases could also increase the volatility of the trading price of our stock and will diminish our cash reserves.
The amount, timing, and execution of our share repurchases pursuant to our share repurchase authorization may fluctuate based on our operating results, cash flows, and priorities for the use of cash for other purposes. For example, we repurchased 66.4 million shares for $2.66 billion in 2019, 3.6 million shares for $176 million in 2020, and did not repurchase any shares in the first six months of 2021. These other purposes include, but are not limited to, operational spending, capital spending, acquisitions, and repayment of debt. Other factors, including changes in tax laws, could also impact our share repurchases. Although our Board of Directors has authorized share repurchases of up to $10 billion of our outstanding common stock, the authorization does not obligate us to repurchase any common stock.
We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value. The repurchase authorization could affect the trading price of our stock and increase volatility, and any announcement of a pause in, or termination of, this program may result in a decrease in the trading price of our stock. In addition, this program will diminish our cash reserves.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In May 2018, we announced that our Board of Directors authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. During the second quarter ended March 4, 2021, we did not repurchase common stock under the authorization and as of 2018, we share-settled allMarch 4, 2021, $7.16 billion of our remaining 2032C and 2033E Capped Calls and a portionthe authorization remained available for the repurchase of our 2032D Capped Calls and received 7,022,506 shares of our common stock.
|
| | | | | | | | | | | | | |
| Period | | (a) Total number of shares purchased | | (b) Average price paid per share | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under publicly announced plans or programs |
| December 1, 2017 | – | January 4, 2018 | | 4,710,314 |
| | $ | 45.68 |
| | | | |
| January 5, 2018 | – | February 1, 2018 | | — |
| | — |
| | | | |
| February 2, 2018 | – | March 1, 2018 | | 2,312,192 |
| | 42.47 |
| | | | |
| | | | | 7,022,506 |
| | 44.62 |
| |
| | |
Shares of common stock withheld as payment of withholding taxes and 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 amounts above.plan.
ITEM 6. ExhibitsEXHIBITS
| | | | | | | | | | | | | | | | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 3.2 | | | 8-K | | 3.1 | 2/16/21 |
| 10.4 | | | DEF 14A | | A | 12/1/20 |
| 10.15 | | X | | | | |
| 18 | | X | | | | |
| 31.1 | | X | | | | |
| 31.2 | | X | | | | |
| 32.1 | | X | | | | |
| 32.2 | | X | | | | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | | | | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | | | | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | | | | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | | | | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | | | | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | | | | |
55 |
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 3.1 | | | 8-K | | 99.2 | 1/26/15 |
| 3.2 | | | 8-K | | 99.1 | 4/15/14 |
| 10.1 | | | DEF 14A | | B | 12/7/2017 |
| 10.75 | | | DEF 14A | | A | 12/7/2017 |
| 10.76 | | ü | | | | |
| 31.1 | | ü | | | | |
| 31.2 | | ü | | | | |
| 32.1 | | ü | | | | |
| 32.2 | | ü | | | | |
| 101.INS | XBRL Instance Document | ü | | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | ü | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ü | | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ü | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ü | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ü | | | | |
SIGNATURES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | |
| | Micron Technology, Inc. |
| | | (Registrant) |
| | | |
| | | |
| Date: | March 23, 2018April 1, 2021 | By: | /s/ David A. Zinsner |
| | | David A. Zinsner |
| | | Senior Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
| | | /s/ Scott Allen |
| | | Scott Allen |
| | | Corporate Vice President and Chief Accounting Officer |
| | | (Principal Accounting Officer) |
