UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 3, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
Commission
file number 1-10658
Micron
Technology, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
75-1618004
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
8000
S. Federal Way, Boise, Idaho
|
83716-9632
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code
|
(208)
368-4000
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No
o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes x No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
(Do
not check if a smaller reporting company)
|
Smaller
Reporting Company o
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No
x
The number of outstanding shares of the
registrant’s common stock as of January 6, 2010 was 850,661,583.
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
millions except per share amounts)
(Unaudited)
Quarter
ended
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,740 |
|
|
$ |
1,402 |
|
Cost
of goods sold
|
|
|
1,297 |
|
|
|
1,851 |
|
Gross margin
|
|
|
443 |
|
|
|
(449 |
) |
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
97 |
|
|
|
102 |
|
Research
and development
|
|
|
137 |
|
|
|
178 |
|
Restructure
|
|
|
(1 |
) |
|
|
(66 |
) |
Other
operating (income) expense, net
|
|
|
9 |
|
|
|
9 |
|
Operating income
(loss)
|
|
|
201 |
|
|
|
(672 |
) |
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2 |
|
|
|
10 |
|
Interest
expense
|
|
|
(47 |
) |
|
|
(41 |
) |
Other
non-operating income (expense), net
|
|
|
56 |
|
|
|
(10 |
) |
|
|
|
212 |
|
|
|
(713 |
) |
|
|
|
|
|
|
|
|
|
Income
tax (provision) benefit
|
|
|
7 |
|
|
|
(13 |
) |
Equity
in net losses of equity method investees, net of tax
|
|
|
(17 |
) |
|
|
(5 |
) |
Net income
(loss)
|
|
|
202 |
|
|
|
(731 |
) |
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interests
|
|
|
2 |
|
|
|
13 |
|
Net income (loss) attributable
to Micron
|
|
$ |
204 |
|
|
$ |
(718 |
) |
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.24 |
|
|
$ |
(0.93 |
) |
Diluted
|
|
|
0.23 |
|
|
|
(0.93 |
) |
|
|
|
|
|
|
|
|
|
Number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
846.3 |
|
|
|
773.3 |
|
Diluted
|
|
|
1,000.7 |
|
|
|
773.3 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
BALANCE SHEETS
(in
millions except par value amounts)
(Unaudited)
As
of
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
1,565 |
|
|
$ |
1,485 |
|
Receivables
|
|
|
1,091 |
|
|
|
798 |
|
Inventories
|
|
|
1,037 |
|
|
|
987 |
|
Other
current assets
|
|
|
76 |
|
|
|
74 |
|
Total current
assets
|
|
|
3,769 |
|
|
|
3,344 |
|
Intangible
assets, net
|
|
|
334 |
|
|
|
344 |
|
Property,
plant and equipment, net
|
|
|
6,876 |
|
|
|
7,089 |
|
Equity
method investments
|
|
|
366 |
|
|
|
315 |
|
Other
assets
|
|
|
381 |
|
|
|
367 |
|
Total assets
|
|
$ |
11,726 |
|
|
$ |
11,459 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,059 |
|
|
$ |
1,037 |
|
Deferred
income
|
|
|
212 |
|
|
|
209 |
|
Equipment
purchase contracts
|
|
|
353 |
|
|
|
222 |
|
Current
portion of long-term debt
|
|
|
618 |
|
|
|
424 |
|
Total current
liabilities
|
|
|
2,242 |
|
|
|
1,892 |
|
Long-term
debt
|
|
|
2,143 |
|
|
|
2,379 |
|
Other
liabilities
|
|
|
250 |
|
|
|
249 |
|
Total
liabilities
|
|
|
4,635 |
|
|
|
4,520 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micron
shareholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.10 par value,
authorized 3,000 shares, issued and outstanding 849.8 million and 848.7
million shares, respectively
|
|
|
85 |
|
|
|
85 |
|
Additional
capital
|
|
|
7,287 |
|
|
|
7,257 |
|
Accumulated
deficit
|
|
|
(2,181 |
) |
|
|
(2,385 |
) |
Accumulated other comprehensive
income (loss)
|
|
|
4 |
|
|
|
(4 |
) |
Total Micron shareholders’
equity
|
|
|
5,195 |
|
|
|
4,953 |
|
Noncontrolling
interests in subsidiaries
|
|
|
1,896 |
|
|
|
1,986 |
|
Total equity
|
|
|
7,091 |
|
|
|
6,939 |
|
Total liabilities and
equity
|
|
$ |
11,726 |
|
|
$ |
11,459 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
(Unaudited)
Quarter
ended
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
202 |
|
|
$ |
(731 |
) |
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
491 |
|
|
|
605 |
|
Share-based
compensation
|
|
|
31 |
|
|
|
9 |
|
Equity in net losses of equity
method investees, net of tax
|
|
|
17 |
|
|
|
5 |
|
Provision to write down
inventories to estimated market values
|
|
|
9 |
|
|
|
369 |
|
Gain from Inotera stock
issuance
|
|
|
(56 |
) |
|
|
-- |
|
Noncash restructure charges
(credits)
|
|
|
(6 |
) |
|
|
(83 |
) |
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in
receivables
|
|
|
(324 |
) |
|
|
138 |
|
Decrease in customer
prepayments
|
|
|
(60 |
) |
|
|
(29 |
) |
(Increase) decrease in
inventories
|
|
|
(59 |
) |
|
|
39 |
|
Increase (decrease) in accounts
payable and accrued expenses
|
|
|
66 |
|
|
|
(67 |
) |
Increase in deferred
income
|
|
|
-- |
|
|
|
78 |
|
Other
|
|
|
15 |
|
|
|
26 |
|
Net cash provided by operating
activities
|
|
|
326 |
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures
for property, plant and equipment
|
|
|
(62 |
) |
|
|
(270 |
) |
(Increase)
in restricted cash
|
|
|
(30 |
) |
|
|
-- |
|
Acquisition
of equity method investment
|
|
|
-- |
|
|
|
(409 |
) |
Proceeds
from maturities of available-for-sale securities
|
|
|
-- |
|
|
|
123 |
|
Proceeds
from sales of property, plant and equipment
|
|
|
31 |
|
|
|
6 |
|
Other
|
|
|
36 |
|
|
|
61 |
|
Net cash used for investing
activities
|
|
|
(25 |
) |
|
|
(489 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Repayments
of debt
|
|
|
(280 |
) |
|
|
(163 |
) |
Distributions
to noncontrolling interests
|
|
|
(88 |
) |
|
|
(150 |
) |
Payments
on equipment purchase contracts
|
|
|
(49 |
) |
|
|
(64 |
) |
Proceeds
from debt
|
|
|
200 |
|
|
|
285 |
|
Other
|
|
|
(4 |
) |
|
|
4 |
|
Net cash used for financing
activities
|
|
|
(221 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and equivalents
|
|
|
80 |
|
|
|
(218 |
) |
Cash
and equivalents at beginning of period
|
|
|
1,485 |
|
|
|
1,243 |
|
Cash
and equivalents at end of period
|
|
$ |
1,565 |
|
|
$ |
1,025 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
Income
taxes paid, net
|
|
$ |
(2 |
) |
|
$ |
(8 |
) |
Interest
paid, net of amounts capitalized
|
|
|
(36 |
) |
|
|
(29 |
) |
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Equipment acquisitions on
contracts payable and capital leases
|
|
|
176 |
|
|
|
153 |
|
See
accompanying notes to consolidated financial statements.
MICRON
TECHNOLOGY, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(tabular
amounts in millions except per share amounts)
(Unaudited)
Business
and Significant Accounting Policies
Basis of
presentation: Micron Technology, Inc. and its consolidated
subsidiaries (hereinafter referred to collectively as the “Company”) is a global
manufacturer and marketer of semiconductor devices, principally DRAM and NAND
Flash memory. In addition, the Company manufactures semiconductor
components for CMOS image sensors and other semiconductor
products. The primary products of the Company’s reportable segment,
Memory, are DRAM and NAND Flash memory. The accompanying consolidated
financial statements include the accounts of the Company and its consolidated
subsidiaries and have been prepared in accordance with accounting principles
generally accepted in the United States of America consistent in all material
respects with those applied in the Company’s Annual Report on Form 10-K for the
year ended September 3, 2009, except for changes resulting from the adoption of
new accounting standards for convertible debt and noncontrolling
interests. Prior year amounts and balances have been retrospectively
adjusted to reflect the adoption of these new accounting
standards. (See “Retrospective Adoption of New Accounting Standards”
note.)
In preparation of the accompanying
consolidated financial statements, the Company evaluated events and transactions
occurring after December 3, 2009 through January 12, 2010. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly the consolidated
financial position of the Company and its consolidated results of operations and
cash flows.
The Company’s fiscal year is the 52 or
53-week period ending on the Thursday closest to August 31. The
Company’s fiscal 2010 contains 52 weeks and the first quarter of fiscal 2010,
which ended on December 3, 2009, contained 13 weeks. The Company’s
fiscal 2009, which ended on September 3, 2009, contained 53 weeks and the first
quarter of fiscal 2009 contained 14 weeks. All period references are
to the Company’s fiscal periods unless otherwise indicated. These
interim financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company’s Annual
Report on Form 10-K for the year ended September 3, 2009.
Recently adopted accounting
standards: In May 2008, the FASB issued a new accounting
standard for convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement. This standard requires
that issuers of convertible debt instruments that may be settled in cash upon
conversion separately account for the liability and equity components of such
instruments in a manner such that interest cost will be recognized at the
entity’s nonconvertible debt borrowing rate in subsequent
periods. The Company adopted this standard as of the beginning of
2010 and retrospectively accounted for its $1.3 billion of 1.875% convertible
senior notes under the provisions of this guidance from the May 2007 issuance
date of the notes. As a result, prior financial statement amounts
were recast. (See “Retrospective Adoption of Accounting Standards”
note.)
In December 2007, the FASB issued a new
accounting standard on noncontrolling interests in consolidated financial
statements. This standard requires that (1) noncontrolling interests
be reported as a separate component of equity, (2) net income attributable to
the parent and to the noncontrolling interest be separately identified in the
statement of operations, (3) changes in a parent’s ownership interest while the
parent retains its controlling interest be accounted for as equity transactions
and (4) any retained noncontrolling equity investment upon the deconsolidation
of a subsidiary be initially measured at fair value. The Company
adopted this standard as of the beginning of 2010. As a result of the
retrospective adoption of the presentation and disclosure requirements, prior
financial statement amounts were recast. (See “Retrospective Adoption
of Accounting Standards” note.)
In December 2007, the FASB issued a new
accounting standard on business combinations, which establishes the principles
and requirements for how an acquirer (1) recognizes and measures in its
financial statements identifiable assets acquired, liabilities assumed, and any
noncontrolling interests in the acquiree, (2) recognizes and measures goodwill
acquired in the business combination or a gain from a bargain purchase and (3)
determines what information to disclose. The Company adopted this
standard effective as of the beginning of 2010. The adoption did not
have a significant impact on the Company’s financial statements.
In September 2006, the FASB issued a
new accounting standard on fair value measurements and disclosures, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. The Company adopted this standard effective as of
the beginning of 2009 for financial assets and financial
liabilities. The Company adopted this standard effective as of the
beginning of 2010 for all other assets and liabilities. The adoptions
did not have a significant impact on the Company’s financial
statements.
Recently issued accounting
standards: In June 2009, the FASB issued a new accounting
standard on variable interest entities which (1) replaces the quantitative-based
risks and rewards calculation for determining whether an enterprise is the
primary beneficiary in a variable interest entity with an approach that is
primarily qualitative, (2) requires ongoing assessments of whether an enterprise
is the primary beneficiary of a variable interest entity and (3) requires
additional disclosures about an enterprise’s involvement in variable interest
entities. The Company is required to adopt this standard as of
the beginning of 2011. The Company is evaluating the impact the
adoption of this standard will have on its financial statements.
Supplemental
Balance Sheet Information
Receivables
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Trade receivables (net of
allowance for doubtful accounts of $5 million and $5 million,
respectively)
|
|
$ |
884 |
|
|
$ |
591 |
|
Related party
receivables
|
|
|
53 |
|
|
|
70 |
|
Income and other
taxes
|
|
|
62 |
|
|
|
49 |
|
Other
|
|
|
92 |
|
|
|
88 |
|
|
|
$ |
1,091 |
|
|
$ |
798 |
|
Related party receivables included $52
million and $69 million due from Aptina Imaging Corporation under a wafer supply
agreement as of December 3, 2009 and September 3, 2009, respectively, and $1
million and $1 million, respectively, due from Inotera Memories, Inc. for
reimbursement of expenses incurred under a technology transfer
agreement.
As of December 3, 2009 and September 3,
2009, other receivables included $51 million and $29 million, respectively, due
from Intel Corporation for amounts related to NAND Flash product design and
process development activities.
Inventories
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$ |
298 |
|
|
$ |
233 |
|
Work in process
|
|
|
629 |
|
|
|
649 |
|
Raw materials and
supplies
|
|
|
110 |
|
|
|
105 |
|
|
|
$ |
1,037 |
|
|
$ |
987 |
|
The Company’s results of operations for
the first quarter of 2009 included a charge of $369 million to write down the
carrying value of work in process and finished goods inventories of memory
products (both DRAM and NAND Flash) to their estimated market
values.
Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
3, 2009
|
|
|
September
3, 2009
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and process
technology
|
|
$ |
436 |
|
|
$ |
(183 |
) |
|
$ |
439 |
|
|
$ |
(181 |
) |
Customer
relationships
|
|
|
127 |
|
|
|
(54 |
) |
|
|
127 |
|
|
|
(50 |
) |
Other
|
|
|
28 |
|
|
|
(20 |
) |
|
|
28 |
|
|
|
(19 |
) |
|
|
$ |
591 |
|
|
$ |
(257 |
) |
|
$ |
594 |
|
|
$ |
(250 |
) |
During the first quarter of 2010 and
2009, the Company capitalized $7 million and $12 million, respectively, for
product and process technology with weighted-average useful lives of 10
years.
Amortization expense for intangible
assets was $17 million and $22 million for the first quarter of 2010 and 2009,
respectively. Annual amortization expense for intangible assets is
estimated to be $67 million for 2010, $63 million for 2011, $55 million for
2012, $50 million for 2013 and $42 million for 2014.
Property,
Plant and Equipment
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
96 |
|
|
$ |
96 |
|
Buildings
|
|
|
4,471 |
|
|
|
4,463 |
|
Equipment
|
|
|
12,189 |
|
|
|
11,843 |
|
Construction in
progress
|
|
|
49 |
|
|
|
47 |
|
Software
|
|
|
272 |
|
|
|
269 |
|
|
|
|
17,077 |
|
|
|
16,718 |
|
Accumulated
depreciation
|
|
|
(10,201 |
) |
|
|
(9,629 |
) |
|
|
$ |
6,876 |
|
|
$ |
7,089 |
|
Depreciation expense was $454 million
and $569 million for the first quarter of 2010 and 2009,
respectively.
The Company, through its IM Flash joint
venture, has an unequipped wafer manufacturing facility in Singapore that has
been idle since it was completed in the first quarter of 2009. The
Company has been recording depreciation expense for the facility since it was
completed and its net book value was $617 million as of December 3,
2009. Utilization of the facility is dependent upon market
conditions, including, but not limited to, worldwide market supply of and demand
for semiconductor products, availability of financing, agreement between the
Company and its joint venture partner and the Company’s operations, cash flows
and alternative capacity utilization opportunities.
As of December 3, 2009 and September 3,
2009, the Company had buildings and equipment of $68 million and $81 million,
respectively, classified as held for sale assets and included in other
noncurrent assets.
Equity
Method Investments
|
The Company has partnered with Nanya
Technology Corporation (“Nanya”) in two Taiwan DRAM memory companies, Inotera
Memories, Inc. (“Inotera”) and MeiYa Technology Corporation (“MeiYa”), which are
accounted for as equity method investments. The Company also has an
equity method investment in Aptina Imaging Corporation (“Aptina”), a CMOS
imaging company.
DRAM joint
ventures with Nanya: The Company has a partnering arrangement
with Nanya pursuant to which the Company and Nanya jointly develop process
technology and designs to manufacture stack DRAM products. In
addition, the Company has deployed and licensed certain intellectual property
related to the manufacture of stack DRAM products to Nanya and licensed certain
intellectual property from Nanya. As a result, the Company is to
receive an aggregate of $207 million from Nanya through 2010. During
the first quarters of 2010 and 2009, the Company recognized $26 million and $28
million, respectively, of license revenue in net sales from this agreement and
had recognized $168 million of cumulative license revenue from May 2008 through
December 3, 2009. In addition, the Company may receive royalties in
future periods from Nanya for sales of stack DRAM products manufactured by or
for Nanya.
The Company has concluded that both
Inotera and MeiYa are variable interest entities because of the Inotera and
MeiYa supply agreements with the Company and Nanya. Nanya and the
Company are considered related parties under the accounting standards for
consolidating variable interest entities. The Company reviewed
several factors to determine whether it is the primary beneficiary of Inotera
and MeiYa, including the size and nature of the entities’ operations relative to
Nanya and the Company, nature of the day-to-day operations and certain other
factors. Based on those factors, the Company determined that Nanya is
more closely associated with, and therefore the primary beneficiary of, Inotera
and MeiYa. The Company accounts for its interests using the equity
method of accounting and does not consolidate these entities. The
Company recognizes its share of earnings or losses from these entities on a
two-month lag.
Inotera: In the first
quarter of 2009, the Company acquired a 35.5% ownership interest in Inotera, a
publicly-traded entity in Taiwan, from Qimonda AG. On August 3, 2009,
Inotera sold common shares in a public offering at a price equal to 16.02 New
Taiwan dollars per common share (approximately $0.49 U.S. dollars on August 3,
2009). As a result of the share issuance, the Company’s interest in
Inotera decreased from 35.5% to 29.8% and the Company recognized a gain of $56
million in the first quarter of 2010. As of December 3, 2009, the
ownership of Inotera was held 29.9% by Nanya, 29.8% by the Company and the
balance was publicly held. On December 15, 2009, Inotera’s Board of
Directors approved the issuance of 640 million common shares. The
issuance price was set on January 6, 2010 at 22.50 New Taiwan dollars per share
($0.70 U.S. dollars at January 6, 2010). The Company expects to
purchase its allotted portion of the offering, estimated to be approximately 150
million shares. The actual number of shares purchased by the Company
will vary depending on the number of shares purchased by Inotera’s employees and
other shareholders.
The proportionate share of Inotera’s
shareholders’ equity that the Company acquired in the first quarter of 2009 was
higher than the Company’s initial carrying value for Inotera. This
difference is being amortized as a credit to earnings in the Company’s statement
of operations through equity in net income (losses) of equity method investees
(the “Inotera Amortization”). The $56 million gain recognized in the
first quarter of 2010 on Inotera’s issuance of shares included $33 million of
Inotera Amortization. As of December 3, 2009, $165 million of Inotera
Amortization remained to be recognized over a weighted-average period of 4.3
years.
In connection with the acquisition of
the shares in Inotera, the Company and Nanya entered into a supply agreement
with Inotera (the “Inotera Supply Agreement”) pursuant to which Inotera will
sell trench and stack DRAM products to the Company and Nanya. Under
such formula, all parties’ manufacturing costs related to wafers supplied by
Inotera, as well as the Company’s and Nanya’s selling prices for the resale of
products from wafers supplied by Inotera, are considered in determining costs
for wafers from Inotera. The Company has rights and obligations to
purchase up to 50% of Inotera’s wafer production capacity. The cost
to the Company of wafers purchased under the Inotera Supply Agreement is based
on a margin sharing formula among the Company, Nanya and Inotera. In
the first quarter of 2010, the Company purchased $168 million of trench DRAM
products from Inotera under the Inotera Supply Agreement.
The Company’s results of operations for
the first quarter of 2010 include losses of $14 million for the Company’s share
of Inotera’s losses. Because the Company did not acquire its interest
in Inotera until October and November of 2008, the Company’s results of
operations for the first quarter of 2009 do not include any share of Inotera’s
results of operations for the quarterly period ended September 30,
2008. The losses recorded by the Company in the first quarter of 2010
are net of $13 million of the Inotera Amortization as defined above.
During the third quarter of 2009, the Company received $50 million from Inotera
pursuant to the terms of a technology transfer agreement, and in connection
therewith, recognized $5 million and $3 million of revenue in the first quarters
of 2010 and 2009, respectively. As of December 3, 2009, the Company
had unrecognized license fee revenue of $8 million related to the technology
transfer fee to recognize through the third quarter of 2010.
As of December 3, 2009, the carrying
value of the Company’s equity investment in Inotera was $280 million and is
included in equity method investments in the accompanying consolidated balance
sheet. During the first quarter of 2010, the Company recorded a gain
of $7 million to other comprehensive income (loss) and as of December 3, 2009,
had $4 million in accumulated other comprehensive income (loss) in the
accompanying consolidated balance sheets for cumulative translation adjustments
on its investment in Inotera. Based on the closing trading price of
Inotera’s shares in an active market on December 3, 2009, the market value of
the Company’s shares in Inotera was $744 million.
As of December 3, 2009, the Company’s
maximum exposure to loss on its investment in Inotera equaled the $284 million
recorded in the Company’s consolidated balance sheet for its investment in
Inotera including the $4 million gain in accumulated other comprehensive income
(loss). The Company may also incur losses in connection with its
obligations under the Inotera Supply Agreement to purchase up to 50% of
Inotera’s wafer production under a long-term pricing arrangement and charges
from Inotera for underutilized capacity.
MeiYa: The
Company and Nanya formed MeiYa in the fourth quarter of 2008. In
connection with the purchase of its ownership interest in Inotera, the Company
entered into a series of agreements with Nanya pursuant to which both parties
ceased future funding of, and resource commitments to, MeiYa. In
addition, MeiYa has sold substantially all of its assets to
Inotera. As of December 3, 2009, the ownership of MeiYa was held 50%
by Nanya and 50% by the Company. The carrying value of the Company’s
equity investment in MeiYa was $43 million and $42 million as of December 3,
2009 and September 3, 2009, respectively, and is included in equity method
investments in the accompanying consolidated balance sheets. In the
first quarter of 2010, the Company recorded a gain of $1 million in other
comprehensive income and as of December 3, 2009, had $(5) million in accumulated
other comprehensive income (loss) in the accompanying consolidated balance sheet
for cumulative translation adjustments on its investment in
MeiYa. The Company’s results of operations for the first quarter of
2010 includes a de minimis amount of income for its share of MeiYa’s results of
operations for the three-month period ended September 30, 2009. The
Company’s results of operations for the first quarter of 2009 include losses of
$2 million for its share of MeiYa’s results of operations for the three-month
period ended September 30, 2008.
As of December 3, 2009, the Company’s
maximum exposure to loss on its MeiYa investment equaled the $38 million
recorded in the Company’s consolidated balance sheet for its investment in
MeiYa, including the $(5) million loss in accumulated other comprehensive income
(loss).
Aptina: In
the fourth quarter of 2009, the Company sold a 65% interest in Aptina,
previously a wholly-owned subsidiary of the Company, to Riverwood Capital
(“Riverwood”) and TPG Capital (“TPG”). A portion of the 65% interest
held by Riverwood and TPG is in the form of convertible preferred shares that
have a liquidation preference over the common shares. As a result,
the Company’s interest represents 64% of Aptina’s common stock, and Riverwood
and TPG held 36% of Aptina’s common stock as of December 3,
2009. Under the equity method, the Company recognizes, on a two-month
lag, its share of Aptina’s results of operations based on its 64% share of
Aptina’s common stock. The Company’s results of operations for the
first quarter of 2010 included $3 million of losses from Aptina’s results of
operations for the three-month period ended October 8, 2009. As of
December 3, 2009 and September 3, 2009, the Company’s investment in Aptina was
$43 million and $44 million, respectively.
The Company’s manufactures Imaging
products to Aptina under a wafer supply agreement. In the first
quarter of 2010, the Company recognized $108 million of sales and $109 million
of cost of goods sold from products sold to Aptina.
Accounts
Payable and Accrued Expenses
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
541 |
|
|
$ |
526 |
|
Salaries, wages and
benefits
|
|
|
172 |
|
|
|
147 |
|
Related party
payables
|
|
|
129 |
|
|
|
83 |
|
Customer
advances
|
|
|
90 |
|
|
|
150 |
|
Income and other
taxes
|
|
|
40 |
|
|
|
32 |
|
Other
|
|
|
87 |
|
|
|
99 |
|
|
|
$ |
1,059 |
|
|
$ |
1,037 |
|
As of December 3, 2009 and September 3,
2009, related party payables consisted of amounts due to Inotera under the
Inotera Supply Agreement, including $129 million and $51 million, respectively,
for the purchase of trench DRAM products and $32 million for underutilized
capacity as of September 3, 2009. (See “Equity Method Investments – DRAM joint
ventures with Nanya – Inotera” note.)
As of December 3, 2009 and September 3,
2009, customer advances included $83 million and $142 million, respectively, for
the Company’s obligation to provide certain NAND Flash memory products to Apple
Computer, Inc. (“Apple”) until December 31, 2010 pursuant to a prepaid NAND
Flash supply agreement. As of December 3, 2009 and September 3, 2009,
other accounts payable and accrued expenses included $21 million and $24
million, respectively, for amounts due to Intel for NAND Flash product design
and process development and licensing fees pursuant to a product designs
development agreement.
Debt
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Convertible senior notes,
stated interest rate of 1.875%, effective interest rate of 7.9%, net of
discount of $282 million and $295 million, respectively, due June
2014
|
|
$ |
1,018 |
|
|
$ |
1,005 |
|
TECH credit facility, effective
interest rates of 3.9% and 3.6% , respectively, net of discount of $3
million and $2 million, respectively, due in periodic installments through
May 2012
|
|
|
497 |
|
|
|
548 |
|
Capital lease obligations,
weighted-average imputed interest rate of 6.7%, due in monthly
installments through February 2023
|
|
|
543 |
|
|
|
559 |
|
Convertible senior notes,
interest rate of 4.25%, due October 2013
|
|
|
230 |
|
|
|
230 |
|
EDB notes, denominated in
Singapore dollars, interest rate of 5.4%, due February
2012
|
|
|
217 |
|
|
|
208 |
|
Mai-Liao Power note, effective
imputed interest rate of 12.1%, net of discount of $14 million and $18
million, respectively, due November 2010
|
|
|
186 |
|
|
|
182 |
|
Convertible subordinated notes,
interest rate of 5.6%, due April 2010
|
|
|
70 |
|
|
|
70 |
|
Other notes
|
|
|
-- |
|
|
|
1 |
|
|
|
|
2,761 |
|
|
|
2,803 |
|
Less current
portion
|
|
|
(618 |
) |
|
|
(424 |
) |
|
|
$ |
2,143 |
|
|
$ |
2,379 |
|
In the first quarter of 2010, the
Company adopted the FASB’s new accounting standard for certain convertible
debt. The new standard was applicable to the Company’s 1.875%
convertible senior notes with an aggregate principal amount of $1.3 billion
issued in May 2007 (the “Convertible Notes”) and requires the liability and
equity components of the Convertible Notes to be stated
separately. (See “Retrospective Adoption of New Accounting Standards”
note.)
The TECH credit facility is
collateralized by substantially all of the assets of TECH (approximately $1,502
million as of December 3, 2009) and contains covenants that, among other
requirements, establish certain liquidity, debt service coverage and leverage
ratios, and restrict TECH’s ability to incur indebtedness, create liens and
acquire or dispose of assets. In the first quarter of 2010, the debt
covenants were modified and as of December 3, 2009, TECH was in compliance with
the covenants. In connection with the modification, the Company has
guaranteed approximately 85% of the outstanding amount borrowed under TECH’s
credit facility and the Company’s guarantee is expected to increase to 100% of
the outstanding amount borrowed under the facility in April
2010. Under the terms of the credit facility, TECH had $60 million in
restricted cash as of December 3, 2009.
In the first quarter of 2010, the
Company recorded $10 million in capital lease obligations with a
weighted-average imputed interest rate of 9.2%, payable in periodic installments
through February 2011. As of December 3, 2009, the Company had $42
million of capital lease obligations with covenants that require minimum levels
of tangible net worth, cash and investments, and restricted cash of $24
million. The Company was in compliance with these covenants as of
December 3, 2009.
On November 25, 2009, the Company’s
note with Nan Ya Plastics was replaced with a note from Mai-Liao Power
Corporation, an affiliate of Nan Ya Plastics. Nan Ya Plastics and
Mai-Liao Power Corporation are subsidiaries of Formosa Plastics
Corporation. The note with Mai-Liao Power Corporation has the same
terms and remaining maturity as the previous note with Nan Ya
Plastics. The Company’s note with Mai-Liao Power Corporation is
collateralized by a first priority security interest in the Inotera shares owned
by the Company which had a carrying value of $280 million as of December 3,
2009. (See “Equity Method Investments” note.)
Contingencies
The Company has accrued a liability and
charged operations for the estimated costs of adjudication or settlement of
various asserted and unasserted claims existing as of the balance sheet date,
including those described below. The Company is currently a party to
other legal actions arising out of the normal course of business, none of which
is expected to have a material adverse effect on the Company’s business, results
of operations or financial condition.
In the normal course of business, the
Company is a party to a variety of agreements pursuant to which it may be
obligated to indemnify the other party. It is not possible to predict
the maximum potential amount of future payments under these types of agreements
due to the conditional nature of the Company’s obligations and the unique facts
and circumstances involved in each particular
agreement. Historically, payments made by the Company under these
types of agreements have not had a material effect on the Company’s business,
results of operations or financial condition.
The Company is involved in the
following antitrust, patent and securities matters.
Antitrust
matters: On May 5, 2004, Rambus, Inc. (“Rambus”) filed a
complaint in the Superior Court of the State of California (San Francisco
County) against the Company and other DRAM suppliers alleging that the
defendants harmed Rambus by engaging in concerted and unlawful efforts affecting
Rambus DRAM (“RDRAM”) by eliminating competition and stifling innovation in the
market for computer memory technology and computer memory
chips. Rambus’s complaint alleges various causes of action under
California state law including, among other things, a conspiracy to restrict
output and fix prices, a conspiracy to monopolize, intentional interference with
prospective economic advantage, and unfair competition. Rambus
alleges that it is entitled to actual damages of more than a billion dollars and
seeks joint and several liability, treble damages, punitive damages, a permanent
injunction enjoining the defendants from the conduct alleged in the complaint,
interest, and attorneys’ fees and costs. Trial is scheduled to begin
in January 2010.
At least sixty-eight purported class
action price-fixing lawsuits have been filed against the Company and other DRAM
suppliers in various federal and state courts in the United States and in Puerto
Rico on behalf of indirect purchasers alleging price-fixing in violation of
federal and state antitrust laws, violations of state unfair competition law,
and/or unjust enrichment relating to the sale and pricing of DRAM products
during the period from April 1999 through at least June 2002. The
complaints seek joint and several damages, trebled, in addition to restitution,
costs and attorneys’ fees. A number of these cases have been removed
to federal court and transferred to the U.S. District Court for the Northern
District of California for consolidated pre-trial proceedings. On
January 29, 2008, the Northern District of California court granted in part and
denied in part the Company’s motion to dismiss plaintiffs’ second amended
consolidated complaint. Plaintiffs subsequently filed a motion
seeking certification for interlocutory appeal of the decision. On
February 27, 2008, plaintiffs filed a third amended complaint. On
June 26, 2008, the United States Court of Appeals for the Ninth Circuit agreed
to consider plaintiffs’ interlocutory appeal.
In addition, various states, through
their Attorneys General, have filed suit against the Company and other DRAM
manufacturers. On July 14, 2006, and on September 8, 2006 in an
amended complaint, the following Attorneys General filed suit in the U.S.
District Court for the Northern District of California: Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho,
Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North
Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West
Virginia, Wisconsin and the Commonwealth of the Northern Mariana
Islands. Thereafter, three states, Ohio, New Hampshire, and Texas,
voluntarily dismissed their claims. The remaining states filed a
third amended complaint on October 1, 2007. Alaska, Delaware,
Kentucky, and Vermont subsequently voluntarily dismissed their
claims. The amended complaint alleges, among other things, violations
of the Sherman Act, Cartwright Act, and certain other states’ consumer
protection and antitrust laws and seeks joint and several damages, trebled, as
well as injunctive and other relief. Additionally, on July 13, 2006,
the State of New York filed a similar suit in the U.S. District Court for the
Southern District of New York. That case was subsequently transferred
to the U.S. District Court for the Northern District of California for pre-trial
purposes. The State of New York filed an amended complaint on October
1, 2007. On October 3, 2008, the California Attorney General filed a
similar lawsuit in California Superior Court, purportedly on behalf of local
California government entities, alleging, among other things, violations of the
Cartwright Act and state unfair competition law.
Three purported class action DRAM
lawsuits also have been filed against the Company in Quebec, Ontario, and
British Columbia, Canada, on behalf of direct and indirect purchasers, alleging
violations of the Canadian Competition Act. The substantive
allegations in these cases are similar to those asserted in the DRAM antitrust
cases filed in the United States. Plaintiffs’ motion for class
certification was denied in the British Columbia and Quebec cases in May and
June 2008, respectively. Plaintiffs subsequently filed an appeal of
each of those decisions. On November 12, 2009, the British Columbia
Court of Appeal reversed the denial of class certification and remanded the case
for further proceedings. The appeal of the Quebec case is still
pending.
In February and March 2007, All
American Semiconductor, Inc., Jaco Electronics, Inc., and the DRAM Claims
Liquidation Trust each filed suit against the Company and other DRAM suppliers
in the U.S. District Court for the Northern District of California after
opting-out of a direct purchaser class action suit that was
settled. The complaints allege, among other things, violations of
federal and state antitrust and competition laws in the DRAM industry, and seek
joint and several damages, trebled, as well as restitution, attorneys’ fees,
costs and injunctive relief.
Three purported class action lawsuits
alleging price-fixing of SRAM products have been filed in Canada, asserting
violations of the Canadian Competition Act. These cases assert claims
on behalf of a purported class of individuals and entities that purchased SRAM
products directly or indirectly from various SRAM suppliers.
In addition, three purported class
action lawsuits alleging price-fixing of Flash products have been filed in
Canada, asserting violations of the Canadian Competition Act. These
cases assert claims on behalf of a purported class of individuals and entities
that purchased Flash memory directly and indirectly from various Flash memory
suppliers.
The Company is unable to predict the
outcome of these lawsuits and therefore cannot estimate the range of possible
loss. The final resolution of these alleged violations of antitrust
laws could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Patent
matters: As is typical in the semiconductor and other high
technology industries, from time to time, others have asserted, and may in the
future assert, that the Company’s products or manufacturing processes infringe
their intellectual property rights. In this regard, the Company is
engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of
Rambus’ patents and certain of the Company’s claims and
defenses. Lawsuits between Rambus and the Company are pending in the
U.S. District Court for the District of Delaware, U.S. District Court for the
Northern District of California, Germany, France, and Italy. On
January 9, 2009, the Delaware Court entered an opinion in favor of the Company
holding that Rambus had engaged in spoliation and that the twelve Rambus patents
in the suit were unenforceable against the Company. Rambus
subsequently appealed the decision to the U.S. Court of Appeals for the Federal
Circuit. That appeal is pending. In the U.S. District
Court for the Northern District of California, trial on a patent phase of the
case has been stayed pending resolution of Rambus' appeal of the Delaware
spoliation decision or further order of the California Court.
On March 6, 2009, Panavision Imaging,
LLC filed suit against the Company and Aptina Imaging Corporation, then a
wholly-owned subsidiary of the Company (“Aptina”), in the U.S. District Court
for the Central District of California. The complaint alleges that
certain of the Company and Aptina’s image sensor products infringe four
Panavision Imaging U.S. patents and seeks injunctive relief, damages, attorneys’
fees, and costs.
On December 11, 2009, Ring
Technology Enterprises of Texas LLC filed suit against the Company in the U.S.
District Court for the Eastern District of Texas alleging that certain of the
Company’s memory products infringe one Ring Technology U.S.
patent. The complaint seeks injunctive relief, damages, attorneys’
fees, and costs.
Among other things, the above lawsuits
pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, DDR3 SDRAM,
RLDRAM and image sensor products, which account for a significant portion of net
sales.
The Company is unable to predict the
outcome of assertions of infringement made against the Company and therefore
cannot estimate the range of possible loss. A court determination
that the Company’s products or manufacturing processes infringe the intellectual
property rights of others could result in significant liability and/or require
the Company to make material changes to its products and/or manufacturing
processes. Any of the foregoing could have a material adverse effect
on the Company’s business, results of operations or financial
condition.
Securities
matters: On February 24, 2006, a putative class action
complaint was filed against the Company and certain of its officers in the U.S.
District Court for the District of Idaho alleging claims under Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder. Four substantially similar complaints
subsequently were filed in the same Court. The cases purport to be
brought on behalf of a class of purchasers of the Company’s stock during the
period February 24, 2001 to February 13, 2003. The five lawsuits have
been consolidated and a consolidated amended class action complaint was filed on
July 24, 2006. The complaint generally alleges violations of federal
securities laws based on, among other things, claimed misstatements or omissions
regarding alleged illegal price-fixing conduct. The complaint seeks
unspecified damages, interest, attorneys’ fees, costs, and
expenses. On December 19, 2007, the Court issued an order certifying
the class but reducing the class period to purchasers of the Company’s stock
during the period from February 24, 2001 to September 18, 2002.
The Company is unable to predict the
outcome of these cases and therefore cannot estimate the range of possible
loss. A court determination in any of these actions against the
Company could result in significant liability and could have a material adverse
effect on the Company’s business, results of operations or financial
condition.
Retrospective
Adoption of New Accounting Standards
Effective at the beginning of 2010, the
Company adopted new accounting standards for noncontrolling interests and
certain convertible debt instruments. Reported amounts prior to 2010
in this 10-Q have been recast for the retrospective adoption of these standards,
and the impact the new standards is summarized below.
Noncontrolling
interests in subsidiaries: Under the new standard,
noncontrolling interests in subsidiaries is (1) reported as a separate component
of equity in the consolidated balance sheets and (2) included in net
income in the statement of operations.
Convertible debt
instruments: The new standard applies to convertible debt
instruments that may be fully or partially settled in cash upon conversion and
is applicable to the Company’s 1.875% convertible senior notes with an aggregate
principal amount of $1.3 billion issued in May 2007 (the “Convertible
Notes”). The standard requires the liability and equity components of
the Convertible Notes to be stated separately. The liability
component recognized at the issuance of the Convertible Notes equals the
estimated fair value of a similar liability without a conversion option and the
remainder of the proceeds received at issuance was allocated to
equity. In connection therewith, at the May 2007 issuance of the
Convertible Notes there was a $402 million decrease in debt, a $394 million
increase in additional capital, and an $8 million decrease in deferred debt
issuance costs (included in other noncurrent assets). The fair value
of the liability was determined using a interest rate for similar nonconvertible
debt issued as of the original May 2007 issuance date by entities with credit
ratings comparable to the Company’s credit rating at the time of
issuance. In subsequent periods, the liability component recognized
at issuance is increased to the principal amount of the Convertible Notes
through the amortization of interest costs. Through 2009, $107 million of
interest was amortized. Information related to equity and debt
components is as follows:
As of
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Carrying amount of the equity
component
|
|
$ |
394 |
|
|
$ |
394 |
|
Principal amount of the
Convertible Notes
|
|
|
1,300 |
|
|
|
1,300 |
|
Unamortized
discount
|
|
|
282 |
|
|
|
295 |
|
Net carrying amount of the
Convertible Notes
|
|
|
1,018 |
|
|
|
1,005 |
|
The unamortized discount as of December
3, 2009, will be recognized as interest expense over approximately 4.5 years
through June 2014, the maturity date of the Convertible Notes.
Information related to interest rates
and expenses is as follows:
|
|
Quarter
Ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Effective interest
rate
|
|
|
7.9 |
% |
|
|
7.9 |
% |
Interest costs related to
contractual interest coupon
|
|
|
6 |
|
|
|
7 |
|
Interest costs related to
amortization of discount and issuance costs
|
|
|
13 |
|
|
|
13 |
|
Effect of
retrospective adoption of new accounting standards on financial
statements: The following tables set forth the financial
statement line items affected by retrospective application of the new accounting
standards for noncontrolling interests and certain convertible debt as of and
for the periods indicated:
|
|
Consolidated
Statement of Operations
|
|
|
|
As
Previously Reported
|
|
|
Effect
of Adoption
|
|
|
As
Retrospectively Adjusted
|
|
|
|
Noncontrolling
Interests
|
|
|
Convertible
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended September 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
$ |
5,242 |
|
|
$ |
-- |
|
|
$ |
1 |
|
|
$ |
5,243 |
|
Interest
expense
|
|
|
(135 |
) |
|
|
-- |
|
|
|
(47 |
) |
|
|
(182 |
) |
Income
tax (provision)
|
|
|
(2 |
) |
|
|
-- |
|
|
|
1 |
|
|
|
(1 |
) |
Net loss
|
|
|
(1,835 |
) |
|
|
(111 |
) |
|
|
(47 |
) |
|
|
(1,993 |
) |
Net loss attributable to
Micron
|
|
|
-- |
|
|
|
(1,835 |
) |
|
|
(47 |
) |
|
|
(1,882 |
) |
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
(2.29 |
) |
|
|
-- |
|
|
|
(0.06 |
) |
|
|
(2.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended August 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
(82 |
) |
|
$ |
-- |
|
|
$ |
(36 |
) |
|
$ |
(118 |
) |
Net loss
|
|
|
(1,619 |
) |
|
|
(10 |
) |
|
|
(36 |
) |
|
|
(1,665 |
) |
Net loss attributable to
Micron
|
|
|
-- |
|
|
|
(1,619 |
) |
|
|
(36 |
) |
|
|
(1,655 |
) |
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
(2.10 |
) |
|
|
-- |
|
|
|
(0.04 |
) |
|
|
(2.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended December 4, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
(30 |
) |
|
$ |
-- |
|
|
$ |
(11 |
) |
|
$ |
(41 |
) |
Other
non-operating income (expense), net
|
|
|
(9 |
) |
|
|
-- |
|
|
|
(1 |
) |
|
|
(10 |
) |
Net loss
|
|
|
(706 |
) |
|
|
(13 |
) |
|
|
(12 |
) |
|
|
(731 |
) |
Net loss attributable to
Micron
|
|
|
-- |
|
|
|
(706 |
) |
|
|
(12 |
) |
|
|
(718 |
) |
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
(0.91 |
) |
|
|
-- |
|
|
|
(0.02 |
) |
|
|
(0.93 |
) |
|
|
Consolidated
Balance Sheet
|
|
|
|
As
Previously Reported
|
|
|
Effect
of Adoption
|
|
|
As
Retrospectively Adjusted
|
|
As
of September 3, 2009
|
|
Noncontrolling
Interests
|
|
|
Convertible
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$ |
7,081 |
|
|
$ |
-- |
|
|
$ |
8 |
|
|
$ |
7,089 |
|
Other
assets
|
|
|
371 |
|
|
|
-- |
|
|
|
(4 |
) |
|
|
367 |
|
Total assets
|
|
|
11,455 |
|
|
|
-- |
|
|
|
4 |
|
|
|
11,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$ |
2,674 |
|
|
$ |
-- |
|
|
$ |
(295 |
) |
|
$ |
2,379 |
|
Total
liabilities
|
|
|
4,815 |
|
|
|
-- |
|
|
|
(295 |
) |
|
|
4,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Micron
shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
capital
|
|
|
6,863 |
|
|
|
-- |
|
|
|
394 |
|
|
|
7,257 |
|
Accumulated
deficit
|
|
|
(2,291 |
) |
|
|
-- |
|
|
|
(94 |
) |
|
|
(2,385 |
) |
Accumulated other comprehensive
(loss)
|
|
|
(3 |
) |
|
|
-- |
|
|
|
(1 |
) |
|
|
(4 |
) |
Total equity of Micron
shareholders
|
|
|
-- |
|
|
|
4,654 |
|
|
|
299 |
|
|
|
4,953 |
|
Total equity
|
|
|
4,654 |
|
|
|
1,986 |
|
|
|
299 |
|
|
|
6,939 |
|
Total liabilities and
equity
|
|
|
11,455 |
|
|
|
-- |
|
|
|
4 |
|
|
|
11,459 |
|
|
|
Consolidated
Statement of Cash Flows
|
|
|
|
As
Previously Reported
|
|
|
Effect
of Adoption
|
|
|
As
Retrospectively Adjusted
|
|
|
|
Noncontrolling
Interests
|
|
|
Convertible
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended September 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,835 |
) |
|
$ |
(111 |
) |
|
$ |
(47 |
) |
|
$ |
(1,993 |
) |
Depreciation
and amortization
|
|
|
2,139 |
|
|
|
-- |
|
|
|
47 |
|
|
|
2,186 |
|
Noncontrolling
interests in net income (loss)
|
|
|
(111 |
) |
|
|
111 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended August 28, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,619 |
) |
|
$ |
(10 |
) |
|
$ |
(36 |
) |
|
$ |
(1,665 |
) |
Depreciation
and amortization
|
|
|
2,060 |
|
|
|
-- |
|
|
|
36 |
|
|
|
2,096 |
|
Noncontrolling
interests in net income (loss)
|
|
|
(10 |
) |
|
|
10 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended December 4, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(706 |
) |
|
$ |
(13 |
) |
|
$ |
(12 |
) |
|
$ |
(731 |
) |
Depreciation
and amortization
|
|
|
594 |
|
|
|
-- |
|
|
|
11 |
|
|
|
605 |
|
Other
(reflects current period classification)
|
|
|
12 |
|
|
|
13 |
|
|
|
1 |
|
|
|
26 |
|
Derivative Financial
Instruments
The Company is exposed to currency
exchange rate risk for the monetary assets and liabilities held in foreign
currencies, primarily the Singapore dollar, euro and yen. The Company
uses derivative instruments to manage exposures to foreign
currency. The Company’s primary objective in holding these
derivatives is to reduce the volatility of earnings associated with changes in
foreign currency. The Company’s derivatives consist primarily of
forward contracts that reduce the effects on earnings attributable to Micron
shareholders as a result of changes in foreign exchange rates. The
Company utilizes a rolling hedge strategy with currency forward contracts that
generally mature within 35 days. The currency forward contracts are
not designated for hedge accounting. At the end of each reporting
period, the Company’s monetary assets and liabilities denominated in foreign
currencies are remeasured in U.S. Dollars and the associated outstanding forward
contracts are marked-to-market. Fair value is determined using quoted
prices of forward contracts traded in an active market (Level
1). Realized and unrealized foreign currency gains and losses on
derivative instruments and the underlying monetary assets are included in other
operating income (expense).
The Company’s derivatives expose the
Company to credit risk to the extent that the counterparties may be unable to
meet the terms of the agreement. The Company seeks to mitigate such
risk by limiting its counterparties to major financial institutions and by
spreading the risk across multiple major financial institutions. In
addition, the potential risk of loss with any one counterparty resulting from
this type of credit risk is monitored on an ongoing basis.
Total gross notional amounts and fair
values for currency forward contracts outstanding as of December 3, 2009,
presented by currency, were as follows:
Currency
|
|
Notional
Amount Outstanding
(in
U.S. Dollars)
|
|
Balance
Sheet Location
|
|
Fair
Value
of
Asset (Liability)
|
|
|
|
|
|
|
|
|
|
Singapore
dollar
|
|
$ |
297 |
|
Receivables
|
|
$ |
0 |
|
Euro
|
|
|
216 |
|
Accounts
payable and accrued expenses
|
|
|
(0 |
) |
Yen
|
|
|
85 |
|
Accounts
payable and accrued expenses
|
|
|
(1 |
) |
|
|
$ |
598 |
|
|
|
$ |
(1 |
) |
For the first quarter of 2010, the
Company recognized a gain of $9 million in other operating income (expense) on
currency forward contracts.
Fair
Value Measurements
SFAS No. 157 establishes three levels
of inputs that may be used to measure fair value: quoted prices in active
markets for identical assets or liabilities (referred to as Level 1), observable
inputs other than Level 1 that are observable for the asset or liability either
directly or indirectly (referred to as Level 2) and unobservable inputs to the
valuation methodology that are significant to the measurement of fair value of
assets or liabilities (referred to as Level 3).
Fair value
measurements on a recurring basis: Assets measured at fair value on a
recurring basis as of September 3, 2009 and December 3, 2009 were as
follows:
|
|
As
of December 3, 2009
|
|
|
As
of September 3, 2009
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market(1)
|
|
$ |
1,388 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1,388 |
|
|
$ |
1,184 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1,184 |
|
Certificates
of deposit(2)
|
|
|
-- |
|
|
|
173 |
|
|
|
-- |
|
|
|
173 |
|
|
|
-- |
|
|
|
217 |
|
|
|
-- |
|
|
|
217 |
|
Marketable
equity investments(3)
|
|
|
16 |
|
|
|
-- |
|
|
|
-- |
|
|
|
16 |
|
|
|
15 |
|
|
|
-- |
|
|
|
-- |
|
|
|
15 |
|
Fixed
assets held for sale(3)(4)
|
|
|
-- |
|
|
|
-- |
|
|
|
68 |
|
|
|
68 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
$ |
1,404 |
|
|
$ |
173 |
|
|
$ |
68 |
|
|
$ |
1,645 |
|
|
$ |
1,199 |
|
|
$ |
217 |
|
|
$ |
-- |
|
|
$ |
1,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Included in cash and
equivalents
|
|
(2)$113 million and $60 million
included in cash and equivalents and other
noncurrent assets, respectively, as of December 3, 2009 and $187 million
and $30 million, respectively, as of September 3,
2009
|
|
(3)Included in other noncurrent
assets
|
|
(4) The Company adopted the
accounting standard for fair value measurements of nonfinancial assets and
nonfinancial liabilities at the beginning of 2010.
|
|
Level 2 assets are valued using
observable inputs in active markets for similar assets or alternative pricing
sources and models utilizing observable market inputs. During the
first quarter of 2009, the Company recognized impairment charges of $7 million
for other-than-temporary declines in the value of marketable equity
instruments.
The Company determined the fair values
of fixed assets held for sale using inputs obtained from equipment dealers
utilizing significant judgments regarding the remaining useful life and
configuration of these assets (Level 3). Losses recognized in the
first quarter of 2010 due to fair value measurements using Level 3 inputs were
not material.
As of December 3, 2009, the estimated
fair value of the Company’s convertible debt instruments was $1,624 million
compared to their carrying value of $1,318 million in debt (the carrying value
excludes the equity component of the Convertible Notes which is classified in
equity). As of September 3, 2009, the estimated fair value of the
Company’s convertible debt instruments was $1,410 million compared to their
carrying value of $1,305 million in debt (the carrying value excludes the equity
component of the Convertible Notes which is classified in equity). The
fair value of the convertible debt instruments is based on quoted market prices
in active markets (Level 1). As of December 3, 2009 and September 3, 2009,
the fair value of the Company’s other long-term debt instruments was $1,424
million and $1,458 million, respectively, as compared to their carrying value of
$1,443 million and $1,498 million, respectively. The fair value of the
Company’s other long-term debt instruments was estimated based on discounted
cash flows using inputs that are observable in the market or that could be
derived from or corroborated with observable market data, including interest
rates based on yield curves of similar debt issues from parties with similar
credit ratings as the Company (Level 2).
Amounts reported as cash and
equivalents, short-term investments, receivables, other assets, and accounts
payable and accrued expenses approximate their fair values.
Fair value
measurements on a nonrecurring basis: In the first quarter of 2010, the
Company determined the fair value of the liability component of its Convertible
Notes using a market interest rate for similar nonconvertible debt issued as of
the original issuance date by entities with credit ratings comparable to the
Company’s (Level 2). The fair value of the liability component was
retrospectively applied as of the inception date of the Convertible
Notes. (See “Adoption of Retrospective Accounting Guidance”
note.)
Equity
Plans
As of December 3, 2009, under its
equity plans, the Company had an aggregate of 183.1 million shares of its common
stock reserved for issuance for stock and restricted stock awards, of which
131.2 million shares were subject to outstanding awards and 51.9 million shares
were available for future grants. Awards are subject to terms and
conditions as determined by the Company’s Board of Directors.
Stock
options: The Company granted 14.1 million and 6.8 million
stock options during the first quarters of 2010 and 2009, respectively, with
weighted-average grant-date fair values per share of $4.02 and $2.31,
respectively.
The fair values of option awards were
estimated as of the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable and requires the input of subjective assumptions, including
the expected stock price volatility and estimated option life. The
expected volatilities utilized by the Company were based on implied volatilities
from traded options on the Company’s stock and on historical
volatility. The expected lives of options granted in and subsequent
to 2009 were based, in part, on historical experience and on the terms and
conditions of the options. The expected lives of options granted
prior to 2009 were based on the simplified method provided by the Securities and
Exchange Commission. The risk-free interest rates utilized by the
Company were based on the U.S. Treasury yield in effect at the time of the
grant. No dividends were assumed in the Company’s estimated option
values. Assumptions used in the Black-Scholes model are presented
below:
|
|
Quarter
ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Average expected life in
years
|
|
|
5.10 |
|
|
|
4.75 |
|
Weighted-average expected
volatility
|
|
|
61 |
% |
|
|
60 |
% |
Weighted-average risk-free
interest rate
|
|
|
2.3 |
% |
|
|
2.6 |
% |
Restricted stock
and restricted stock units (“Restricted Stock Awards”): As of
December 3, 2009, there were 10.4 million shares of Restricted Stock Awards
outstanding, of which 4.2 million were performance-based Restricted Stock
Awards. For service-based Restricted Stock Awards, restrictions
generally lapse either in one-fourth or one-third increments during each year of
employment after the grant date. For performance-based Restricted
Stock Awards, vesting is contingent upon meeting certain Company-wide
performance goals, whose achievement was deemed probable as of December 3,
2009.
During the first quarter of 2010, the
Company granted 1.8 million and 1.1 million shares of service-based and
performance-based Restricted Awards, respectively. During the first
quarter of 2009, the Company granted 1.7 million shares of
service-based Restricted Awards and 1.7 million shares of performance-based
Restricted Awards. The weighted-average grant-date fair values per
share were $7.51 and $4.48 for Restricted Awards granted during the first
quarters of 2010 and 2009, respectively.
Stock-based
compensation expense: Total compensation costs for the
Company’s equity plans were as follows:
|
|
Quarter
ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by caption:
|
|
|
|
|
|
|
Cost of goods
sold
|
|
$ |
7 |
|
|
$ |
4 |
|
Selling, general and
administrative
|
|
|
19 |
|
|
|
2 |
|
Research and
development
|
|
|
5 |
|
|
|
3 |
|
|
|
$ |
31 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by type of award:
|
|
|
|
|
|
|
|
|
Stock options
|
|
$ |
8 |
|
|
$ |
7 |
|
Restricted
stock
|
|
|
23 |
|
|
|
2 |
|
|
|
$ |
31 |
|
|
$ |
9 |
|
During the first quarter of 2010, the
Company determined that certain performance-based restricted stock that
previously has not been expensed, met the probability threshold for expense
recognition due to improved operating results. As of December 3,
2009, $140 million of total unrecognized compensation costs, net of estimated
forfeitures, related to non-vested awards was expected to be recognized through
the first quarter of 2014, resulting in a weighted-average period of 1.4
years. Stock-based compensation expense in the above presentation
does not reflect any significant income tax benefits, which is consistent with
the Company’s treatment of income or loss from its U.S.
operations. (See “Income Taxes” note.)
Restructure
In response to a severe downturn in the
semiconductor memory industry and global economic conditions, the Company
initiated a restructure plan in 2009 primarily within the Company’s Memory
segment. In the first quarter of 2009, IM Flash, a joint venture
between the Company and Intel, terminated its agreement with the Company to
obtain NAND Flash memory supply from the Company’s Boise
facility. Also, the Company and Intel agreed to suspend tooling and
the ramp of NAND Flash production at IM Flash’s Singapore wafer fabrication
facility. In addition, the Company phased out all remaining 200mm
DRAM wafer manufacturing operations in Boise, Idaho in the second half of
2009. The Company does not expect to incur any additional material
restructure charges related to the plan initiated in
2009. The following table summarizes
restructure charges (credits) resulting from the Company’s restructure
activities:
|
|
Quarter
Ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
(Gain)
write-down of equipment
|
|
$ |
(4 |
) |
|
$ |
56 |
|
Severance
and other termination benefits
|
|
|
1 |
|
|
|
22 |
|
Gain
from termination of NAND Flash supply agreement
|
|
|
-- |
|
|
|
(144 |
) |
Other
|
|
|
2 |
|
|
|
-- |
|
|
|
$ |
(1 |
) |
|
$ |
(66 |
) |
During the first quarter of 2010, the
Company made cash payments of $5 million for severance and related termination
benefits, and costs to decommission production facilities. As of
December 3, 2009 and September 3, 2009, $3 million and $5 million, respectively,
of restructure costs, primarily related to severance and other termination
benefits, remained unpaid and were included in accounts payable and accrued
expenses.
Other
Operating (Income) Expense, Net
Other operating (income) expense
consisted of the following:
|
|
Quarter
Ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Losses
from changes in currency exchange rates
|
|
$ |
21 |
|
|
$ |
3 |
|
(Gain)
loss on disposals of property, plant and equipment
|
|
|
(2 |
) |
|
|
14 |
|
Other
|
|
|
(10 |
) |
|
|
(8 |
) |
|
|
$ |
9 |
|
|
$ |
9 |
|
Income
Taxes
Income taxes for the first quarters of
2010 and 2009 primarily reflect taxes on the Company’s non-U.S. operations and
U.S. alternative minimum tax. The Company has a valuation allowance
for its net deferred tax asset associated with its U.S.
operations. The benefit for taxes on U.S. operations in the first
quarters of 2010 and 2009 was substantially offset by changes in the valuation
allowance.
Earnings
Per Share
Basic earnings per share is computed
based on the weighted-average number of common shares and stock rights
outstanding. Diluted earnings per share is computed based on the
weighted-average number of common shares and stock rights outstanding plus the
dilutive effects of stock options and convertible notes. Potential
common shares that would increase earnings per share amounts or decrease loss
per share amounts are antidilutive and are therefore excluded from diluted
earnings per share calculations. Antidilutive potential common shares
that could dilute basic earnings per share in the future were 99.8 million and
219.1 million for the first quarters of 2010 and 2009,
respectively.
|
|
Quarter
ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Net income (loss) available to
Micron’s shareholders - Basic
|
|
$ |
204 |
|
|
$ |
(718 |
) |
Net effect of assumed
conversion of debt
|
|
|
23 |
|
|
|
-- |
|
Net income (loss) available to
Micron’s shareholders - Diluted
|
|
$ |
227 |
|
|
$ |
(718 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding - Basic
|
|
|
846.3 |
|
|
|
773.3 |
|
Net effect of dilutive stock
options and assumed conversion of debt
|
|
|
154.4 |
|
|
|
-- |
|
Weighted-average common shares
outstanding - Diluted
|
|
|
1,000.7 |
|
|
|
773.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.24 |
|
|
$ |
(0.93 |
) |
Diluted
|
|
|
0.23 |
|
|
|
(0.93 |
) |
Comprehensive
Income (Loss)
Comprehensive income and comprehensive
income attributable to Micron for the first quarter of 2010 was $210 million and
$212 million, respectively, and each included, net of tax, $8 million of
unrealized gains from the change in cumulative translation adjustments for the
Company’s equity method investments. Comprehensive loss and
comprehensive loss attributable to Micron for the first quarter of 2009 was
$(727) million and $(714) million, respectively, and each included $4 million of
unrealized gains on investments, net of tax.
Consolidated
Variable Interest Entities
NAND Flash joint
ventures with Intel (“IM Flash”): The Company has formed two
joint ventures with Intel (IM Flash Technologies, LLC formed January 2006 and IM
Flash Singapore, LLP formed February 2007) to manufacture NAND Flash memory
products for the exclusive benefit of the partners. IMFT and IMFS are
each governed by a Board of Managers, with the Company and Intel initially
appointing an equal number of managers to each of the boards. The
number of managers appointed by each party adjusts depending on the parties’
ownership interests. These ventures will operate until 2016 but are
subject to prior termination under certain terms and conditions. IMFT
and IMFS are aggregated as IM Flash in the following disclosure due to the
similarity of their ownership structure, function, operations and the way the
Company’s management reviews the results of their operations. At
inception and through December 3, 2009, the Company owned 51% and Intel owned
49% of IM Flash.
IM Flash is a variable interest entity
because all costs of IM Flash are passed to the Company and Intel through
product purchase agreements. IM Flash is dependent upon the Company
and Intel for any additional cash requirements. The Company and Intel
are also considered related parties under the accounting standards for
consolidating variable interest entities due to restrictions on transfers of
ownership interests. As a result, the primary beneficiary of IM Flash
is the entity that is most closely associated with IM Flash. The
Company considered several factors to determine whether it or Intel is more
closely associated with IM Flash, including the size and nature of IM Flash’s
operations relative to the Company and Intel, and which entity had the majority
of economic exposure under the purchase agreements. Based on those
factors, the Company determined that it is more closely associated with IM Flash
and is therefore the primary beneficiary. Accordingly, the financial
results of IM Flash are included in the Company’s consolidated financial
statements and all amounts pertaining to Intel’s interests in IM Flash are
reported as noncontrolling interests in subsidiaries.
IM Flash manufactures NAND Flash memory
products using designs developed by the Company and Intel. Product
design and other research and development (“R&D”) costs for NAND Flash are
generally shared equally between the Company and Intel. As a result
of reimbursements received from Intel under a NAND Flash R&D cost-sharing
arrangement, the Company’s R&D expenses were reduced by $26 million and $32
million for the first quarters in 2010 and 2009, respectively.
IM Flash sells products to the joint
venture partners generally in proportion to their ownership at long-term
negotiated prices approximating cost. IM Flash sales to Intel were
$193 million and $318 million for the first quarters of 2010 and 2009,
respectively. As of December 3, 2009 and September 3, 2009, IM Flash
had receivables from Intel primarily for sales of NAND Flash products of $126
million and $95 million, respectively. In addition, as of December 3,
2009 and September 3, 2009, the Company had receivables from Intel of $51
million and $29 million, respectively, related to NAND Flash product design and
process development activities. As of September 3, 2009, IM Flash had
payables to Intel of $3 million for various services.
In the first quarter of 2009, IM Flash
substantially completed construction of a new 300mm wafer fabrication facility
structure in Singapore and the Company and Intel agreed to suspend tooling and
the ramp of production at this facility.
IM Flash distributed $88 million and
$145 million to Intel in the first quarters of 2010 and 2009, respectively, and
$91 million and $151 million to the Company in the first quarters of 2010 and
2009, respectively. The Company’s ability to access IM Flash’s cash
and marketable investment securities ($88 million as of December 3, 2009) to
finance the Company’s other operations is subject to agreement by the joint
venture partners.
Total IM Flash assets and liabilities
included in the Company’s consolidated balance sheets are as
follows:
As
of
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$ |
88 |
|
|
$ |
114 |
|
Receivables
|
|
|
141 |
|
|
|
111 |
|
Inventories
|
|
|
148 |
|
|
|
161 |
|
Other
current assets
|
|
|
6 |
|
|
|
8 |
|
Total current
assets
|
|
|
383 |
|
|
|
394 |
|
Property,
plant and equipment, net
|
|
|
3,201 |
|
|
|
3,377 |
|
Other
assets
|
|
|
58 |
|
|
|
63 |
|
Total assets
|
|
$ |
3,642 |
|
|
$ |
3,834 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
75 |
|
|
$ |
93 |
|
Deferred
income
|
|
|
136 |
|
|
|
137 |
|
Equipment
purchase contracts
|
|
|
2 |
|
|
|
1 |
|
Current
portion of long-term debt
|
|
|
6 |
|
|
|
6 |
|
Total current
liabilities
|
|
|
219 |
|
|
|
237 |
|
Long-term
debt
|
|
|
66 |
|
|
|
66 |
|
Other
liabilities
|
|
|
3 |
|
|
|
4 |
|
Total
liabilities
|
|
$ |
288 |
|
|
$ |
307 |
|
|
|
|
|
|
|
|
|
|
Amounts exclude intercompany
balances that are eliminated in the Company’s consolidated balance sheets.
IMFT and IMFS are
aggregated as IM Flash in this disclosure due to the similarity of their
ownership structure, function, operations and the way the Company’s
management reviews the results of their operations.
|
|
The creditors of IM Flash have recourse
only to the assets of IM Flash and do not have recourse to any other assets of
the Company.
MP Mask
Technology Center, LLC (“MP Mask”): In 2006, the Company
formed a joint venture, MP Mask, with Photronics, Inc. (“Photronics”) to produce
photomasks for leading-edge and advanced next generation
semiconductors. At inception and through December 3, 2009, the
Company owned 50.01% and Photronics owned 49.99% of MP Mask. The
Company purchases a substantial majority of the reticles produced by MP Mask
pursuant to a supply arrangement. In connection with the formation of
the joint venture, the Company received $72 million in 2006 in exchange for
entering into a license agreement with Photronics, which is being recognized
over the term of the 10-year agreement. As of December 3, 2009,
deferred income and other noncurrent liabilities included an aggregate of $46
million related to this agreement. MP Mask made distributions to both
the Company and Photronics of $5 million each in the first quarter of
2009.
MP Mask is a variable interest entity
because all costs of MP Mask are passed on to the Company and Photronics
through product purchase agreements and MP Mask is dependent upon the
Company and Photronics for any additional cash requirements. The
Company and Photronics are also considered related parties under the accounting
standards for consolidating variable interest entities due to restrictions on
transfers of ownership interests. As a result, the primary
beneficiary of MP Mask is the entity that is more closely associated with MP
Mask. The Company considered several factors to determine whether it
or Photronics is more closely associated with the joint venture. The
most important factor was the nature of the joint venture’s operations relative
to the Company and Photronics. Based on those factors, the Company
determined that it is more closely associated with the joint venture and
therefore is the primary beneficiary. Accordingly, the financial
results of MP Mask are included in the Company’s consolidated financial
statements and all amounts pertaining to Photonics’ interest in MP Mask are
reported as noncontrolling interests in subsidiaries.
Total MP Mask assets and liabilities
included in the Company’s consolidated balance sheets are as
follows:
As
of
|
|
December
3,
2009
|
|
|
September
3,
2009
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
27 |
|
|
$ |
25 |
|
Noncurrent
assets (primarily property, plant and equipment)
|
|
|
90 |
|
|
|
97 |
|
Current
liabilities
|
|
|
5 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
Amounts
exclude intercompany balances that are eliminated in the Company’s
consolidated balance sheets.
|
|
The creditors of MP Mask have recourse
only to the assets of MP Mask and do not have recourse to any other assets of
the Company.
Since the third quarter of 2009, the
Company has leased to Photronics a facility to produce photomasks. In
the first quarter of 2010, the Company received $1 million in lease payments
from Photronics.
TECH
Semiconductor Singapore Pte. Ltd.
Since 1998, the Company has
participated in TECH Semiconductor Singapore Pte. Ltd. (“TECH”), a semiconductor
memory manufacturing joint venture in Singapore among the Company, Canon Inc.
and Hewlett-Packard Company (“HP”). The
financial results of TECH are included in the Company’s consolidated financial
statements and all amounts pertaining to Canon Inc. and HP are reported as
noncontrolling interests in subsidiaries. As of December 3, 2009, the
Company holds an approximate 85% interest in TECH.
The shareholders’ agreement for the
TECH joint venture expires in April 2011. In September 2009, TECH
received a notice from HP that it does not intend to extend the TECH joint
venture beyond April 2011. The Company is working with HP and Canon
to reach a resolution of the matter. The parties’ inability to reach
a resolution of this matter prior to April 2011 could result in the dissolution
of TECH.
TECH’s cash and marketable investment
securities ($73 million as of December 3, 2009) are not anticipated to be
available to pay dividends of the Company or finance its other
operations. As of December 3, 2009, TECH had $497 million outstanding
under a credit facility which is collateralized by substantially all of the
assets of TECH (carrying value of approximately $1,502 million as of December 3,
2009) and contains covenants that, among other requirements, establish certain
liquidity, debt service coverage and leverage ratios, and restrict TECH’s
ability to incur indebtedness, create liens and acquire or dispose of
assets. In the first quarter of 2010, the debt covenants were
modified and as of December 3, 2009, TECH was in compliance with the
covenants. In connection with the modification, the Company has
guaranteed approximately 85% of the outstanding amount borrowed under TECH’s
credit facility and the Company’s guarantee is expected to increase to 100% of
the outstanding amount borrowed under the facility in April
2010. (See “Debt” note.)
Segment
Information
The primary products of the Company’s
Memory segment are DRAM and NAND Flash memory. In 2009, the Company
had two reportable segments, Memory and Imaging. In the first quarter
of 2010, Imaging no longer met the quantitative thresholds of a reportable
segment and management does not expect that Imaging will meet the quantitative
thresholds in future years. As a result, Imaging is no longer
considered a reportable segment and is included in the Company’s All Other
nonreportable segments. Prior period amounts have been recast to
reflect Imaging in All Other. Operating results of All Other
primarily reflect activity of Imaging and also include activity of the Company’s
microdisplay and other operations. Segment information reported below
is consistent with how it is reviewed and evaluated by the Company’s chief
operating decision makers and is based on the nature of the Company’s operations
and products offered to customers. The Company does not identify or
report depreciation and amortization, capital expenditures or assets by
segment.
|
|
Quarter
ended
|
|
|
|
December
3,
2009
|
|
|
December
4,
2008
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
Memory
|
|
$ |
1,623 |
|
|
$ |
1,222 |
|
All Other
|
|
|
117 |
|
|
|
180 |
|
Total consolidated net
sales
|
|
$ |
1,740 |
|
|
$ |
1,402 |
|
|
|
|
|
|
|
|
|
|
Operating income
(loss):
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
213 |
|
|
$ |
(675 |
) |
All Other
|
|
|
(12 |
) |
|
|
3 |
|
Total consolidated operating
income (loss)
|
|
$ |
201 |
|
|
$ |
(672 |
) |
Certain
Concentrations
Sales to HP, Intel and Apple were 12%,
12% and 11%, respectively, of the Company’s net sales in the first quarter of
2010, and sales to Intel were 25% in the first quarter of 2009. These
sales were included in the Memory segment.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion contains trend
information and other forward-looking statements that involve a number of risks
and uncertainties. Forward-looking statements include, but are not
limited to, statements such as those made in “Results of Operations” regarding
the future composition of the Company’s reportable segments; in “Gross Margin”
regarding future charges for inventory write-down; in “Selling, General and
Administrative” regarding future legal expenses; in “Stock-based Compensation”
regarding future costs to be recognized; in “Liquidity and Capital Resources”
regarding capital spending in 2010, increases in the percentage of TECH’s credit
facility guaranteed by the Company, future distributions from IM Flash to Intel,
future capital contributions to TECH and future purchases of Inotera
shares; and in “Recently Issued Accounting Standards” regarding the impact from
the adoption of new accounting standards. The Company’s actual
results could differ materially from the Company’s historical results and those
discussed in the forward-looking statements. Factors that could cause
actual results to differ materially include, but are not limited to, those
identified in “PART II. OTHER INFORMATION – Item 1A. Risk
Factors.” This discussion should be read in conjunction with the
Consolidated Financial Statements and accompanying notes and with the Company’s
Annual Report on Form 10-K for the year ended September 3, 2009. All
period references are to the Company’s fiscal periods unless otherwise
indicated. The Company’s fiscal year is the 52 or 53-week period
ending on the Thursday closest to August 31. The Company’s fiscal
2010, which ends on September 2, 2010, contains 53 weeks. All tabular
dollar amounts are in millions. All production data includes
production of the Company and its consolidated joint ventures and the Company’s
supply from Inotera.
Overview
The Company is a global manufacturer
and marketer of semiconductor devices, principally DRAM and NAND Flash
memory. In addition, the Company manufactures semiconductor
components for CMOS image sensors and other semiconductor
products. Its products are used in a broad range of electronic
applications including personal computers, workstations, network servers, mobile
phones and other consumer applications including Flash memory cards, USB storage
devices, digital still cameras, MP3/4 players and in automotive
applications. The Company markets its products through its internal
sales force, independent sales representatives and distributors primarily to
original equipment manufacturers and retailers located around the
world. The Company’s success is largely dependent on the market
acceptance of its diversified portfolio of semiconductor products, efficient
utilization of the Company’s manufacturing infrastructure, successful ongoing
development of advanced process technologies and the return on research and
development investments.
The Company has made significant
investments to develop the proprietary product and process technology that is
implemented in its worldwide manufacturing facilities and through its joint
ventures to enable the production of semiconductor products with increasing
functionality and performance at lower costs. The Company generally
reduces the manufacturing cost of each generation of product through
advancements in product and process technology such as its leading-edge
line-width process technology and innovative array architecture. The
Company continues to introduce new generations of products that offer improved
performance characteristics, such as higher data transfer rates, reduced package
size, lower power consumption and increased memory density. To
leverage its significant investments in research and development, the Company
has formed various strategic joint ventures under which the costs of developing
memory product and process technologies are shared with its joint venture
partners. In addition, from time to time, the Company has also sold
and/or licensed technology to other parties. The Company continues to
pursue additional opportunities to recover its investment in intellectual
property through partnering and other arrangements.
In the second half of calendar 2009,
the semiconductor memory industry experienced improving conditions following a
severe prolonged downturn that resulted from a significant oversupply of
products and challenging global economic conditions. Average selling
prices per gigabit for the Company’s DRAM and NAND Flash products increased 21%
and 5%, respectively, for the first quarter of 2010 as compared to the fourth
quarter of 2009. The Company reported net income attributable to
Micron of $204 million for the first quarter of 2010. The Company
recognized net losses attributable to Micron of $1.9 billion for 2009, $1.7
billion for 2008 and $331 million for 2007.
Retrospective
Adoption of New Accounting Standards: Effective at the beginning of 2010,
the Company adopted new accounting standards for noncontrolling interests and
certain convertible debt instruments. The impact of the retrospective
adoption of the new accounting standards is summarized below.
Noncontrolling
interests: Under the new standard, noncontrolling interests in
subsidiaries is (1) reported as a separate component of equity in the
consolidated balance sheets and (2) included in net income in the statement of
operations.
Convertible debt
instruments: The new standard applies to convertible debt
instruments that may be fully or partially settled in cash upon conversion and
is applicable to the Company’s 1.875% convertible senior notes with an aggregate
principal amount of $1.3 billion issued in May 2007 (the “Convertible
Notes”). The standard requires the liability and equity components of
the Convertible Notes to be stated separately. The liability
component recognized at the issuance of the Convertible Notes equals the
estimated fair value of a similar liability without a conversion option and the
remainder of the proceeds received at issuance was allocated to
equity. In connection therewith, at the May 2007 issuance of the
Convertible Notes there was a $402 million decrease in debt, a $394 million
increase in additional capital, and an $8 million decrease in deferred debt
issuance costs (included in other noncurrent assets). In subsequent
periods, the liability component recognized at issuance is increased to the
principal amount of the Convertible Notes through the amortization of interest
costs. Through 2009, $107 million of interest was amortized.
(See
“Item 1. Financial Statements – Notes to Consolidated Financial Statements –
Retrospective Adoption of New Accounting Standards.”)
Results
of Operations
|
|
First
Quarter
|
|
|
|
Fourth
Quarter
|
|
|
|
|
2010
|
|
|
%
of net sales
|
|
|
|
2009
|
|
|
%
of net sales
|
|
|
|
2009
|
|
|
%
of net sales
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
1,623 |
|
|
|
93 |
|
% |
|
$ |
1,222 |
|
|
|
87 |
|
% |
|
$ |
1,179 |
|
|
|
91 |
|
% |
All Other
|
|
|
117 |
|
|
|
7 |
|
% |
|
|
180 |
|
|
|
13 |
|
% |
|
|
123 |
|
|
|
9 |
|
% |
|
|
$ |
1,740 |
|
|
|
100 |
|
% |
|
$ |
1,402 |
|
|
|
100 |
|
% |
|
$ |
1,302 |
|
|
|
100 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memory
|
|
$ |
442 |
|
|
|
27 |
|
% |
|
$ |
(502 |
) |
|
|
(41 |
) |
% |
|
$ |
145 |
|
|
|
12 |
|
% |
All Other
|
|
|
1 |
|
|
|
1 |
|
% |
|
|
53 |
|
|
|
29 |
|
% |
|
|
24 |
|
|
|
20 |
|
% |
|
|
$ |
443 |
|
|
|
25 |
|
% |
|
$ |
(449 |
) |
|
|
(32 |
) |
% |
|
$ |
169 |
|
|
|
13 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
$ |
97 |
|
|
|
6 |
|
% |
|
$ |
102 |
|
|
|
7 |
|
% |
|
$ |
82 |
|
|
|
6 |
|
% |
Research
and development
|
|
|
137 |
|
|
|
8 |
|
% |
|
|
178 |
|
|
|
13 |
|
% |
|
|
139 |
|
|
|
11 |
|
% |
Restructure
|
|
|
(1 |
) |
|
|
(0 |
) |
% |
|
|
(66 |
) |
|
|
(5 |
) |
% |
|
|
12 |
|
|
|
1 |
|
% |
Other
operating (income) expense, net
|
|
|
9 |
|
|
|
1 |
|
% |
|
|
9 |
|
|
|
1 |
|
% |
|
|
(15 |
) |
|
|
(1 |
) |
% |
Equity
in net losses of equity method investees
|
|
|
(17 |
) |
|
|
(1 |
) |
% |
|
|
(5 |
) |
|
|
(0 |
) |
% |
|
|
(34 |
) |
|
|
(3 |
) |
% |
Net
income (loss) attributable to Micron
|
|
|
204 |
|
|
|
12 |
|
% |
|
|
(718 |
) |
|
|
(51 |
) |
% |
|
|
(100 |
) |
|
|
(8 |
) |
% |
The Company’s first quarter of 2010,
which ended December 3, 2009, contained 13 weeks as compared to 13 weeks for the
fourth quarter of 2009 and 14 weeks for the first quarter of 2009.
In 2009, the Company had two reportable
segments, Memory and Imaging. In the first quarter of 2010, Imaging
no longer met the quantitative thresholds of a reportable segment and management
does not expect that Imaging will meet the quantitative thresholds in future
years. As a result, Imaging is no longer considered a reportable
segment and is included in the Company’s All Other nonreportable
segments. Prior period amounts have been recast to reflect Imaging in
All Other. Operating results of All Other primarily reflect activity
of Imaging and also include activity of the Company’s microdisplay and other
operations.
Net
Sales
Memory sales for the first quarter of
2010 increased 38% from the fourth quarter of 2009 primarily due to a 50%
increase in sales of DRAM products and a 21% increase in sales of NAND Flash
products.
In response to adverse market
conditions, the Company shut down production of NAND for IM Flash at the
Company’s Boise fabrication facility beginning in the second quarter of 2009 and
phased out the remainder of its 200mm DRAM production at the Boise fabrication
facility in the second half of 2009. The Company will adjust
utilization of 200mm wafer processing capacity as product demand
varies.
Sales of DRAM products for the first
quarter of 2010 increased from the fourth quarter of 2009 primarily due to a 25%
increase in gigabits sold and a 21% increase in average selling
prices. Gigabit production of DRAM products increased 30% for the
first quarter of 2010 from the fourth quarter of 2009 primarily due to
additional supply received from the Company’s Inotera joint venture, which
ramped production of previously idle capacity. The Company’s DRAM
production also increased as a result of efficiencies achieved primarily through
transitions to higher density, advanced geometry devices. Sales of
DDR2 and DDR3 DRAM, the Company’s highest volume products, were 45% of the
Company’s total net sales for the first quarter of 2010, 36% of total net sales
for the fourth quarter of 2009 and 25% of net sales for the first quarter of
2009. The increase in DDR2 and DD3 DRAM sales in the first quarter of
2010 was primarily attributable to higher increases in average selling prices
relative to the Company’s other products and the increased supply from
Inotera.
The Company sells NAND Flash products
in three principal channels: (1) to Intel Corporation (“Intel”)
through its IM Flash consolidated joint venture at long-term negotiated prices
approximating cost, (2) to original equipment manufacturers (“OEM’s”) and other
resellers and (3) to retail customers. Aggregate sales of NAND Flash
products for the first quarter of 2010 increased 21% from the fourth quarter of
2009 and represented 33% of the Company’s total net sales for the
first quarter of 2010, 36% of total net sales for the fourth quarter of 2009 and
38% of net sales for the first quarter of 2009.
Sales through IM Flash to Intel were
$193 million for the first quarter of 2010, $156 million for the fourth quarter
of 2009 and $318 million for the first quarter of 2009. For the first
quarter of 2010, average selling prices for IM Flash sales to Intel decreased
slightly due to reductions in costs per gigabit. However, gigabit
sales to Intel were 27% higher in the first quarter of 2010 as compared to the
fourth quarter of 2009 primarily due to a 30% increase in gigabit production of
NAND Flash products over the same period as a result of the Company’s continued
transition to higher density NAND Flash products and other improvements in
product and process technologies.
Aggregate sales of NAND Flash products
to the Company’s OEM, reseller and retail customers were 20% higher for the
first quarter of 2010 as compared to the fourth quarter of 2009 primarily due to
a 14% increase in average selling prices and a 5% increase in gigabit
sales. Average selling prices to the Company’s OEM and reseller
customers for the first quarter of 2010 increased 17% compared to the fourth
quarter of 2009, while average selling prices of the Company’s Lexar brand,
directed primarily at the retail market, decreased 1% for the first quarter of
2010 compared to the fourth quarter of 2009.
The Company has formed partnering
arrangements under which it has sold and/or licensed technology to other
parties. The Company’s Memory segment recognized royalty and license
revenue of $35 million in the first quarter of 2010, $34 million in the fourth
quarter of 2009 and $36 million in the first quarter of 2009.
Memory sales for the first quarter of
2010 increased 33% from the first quarter of 2009 primarily due to a 54%
increase in sales of DRAM products and a 6% increase in sales of NAND Flash
products. Sales of DRAM products for the first quarter of 2010
increased from the first quarter of 2009 primarily due to a 74% increase in
gigabits sold partially offset by a 10% decline in average selling
prices. The decline in average selling prices on sales of DRAM
products was primarily attributable to a shift in product mix to a higher
proportion of DDR2 and DDR3 DRAM products that realize significantly lower
average selling prices per gigabit than sales of specialty DRAM
products. Gigabit production of DRAM products increased approximately
67% for the first quarter of 2010 despite the shutdown of the Boise fabrication
facility in the second half of 2009, primarily due to additional supply received
from the Company’s Inotera joint venture and production efficiencies from
improvements in product and process technologies. Sales of NAND Flash
products for the first quarter of 2009 increased 6% from the first quarter of
2009 primarily due to an increase of 57% in gigabits sold as a result of
production increases partially offset by a decline of 32% in average selling
prices per gigabit. Gigabit production of NAND Flash products
increased 85% for the first quarter of 2010 as compared to the first quarter of
2009, primarily due to transitions to higher density, advanced geometry
devices.
Gross
Margin
The Company’s gross margin percentage
for Memory products for the first quarter of 2010 improved to 27% from 12% for
the fourth quarter of 2009 primarily due to improvements in the gross margins
for both DRAM and NAND Flash products. Gross margins for Memory
products in the first quarter of 2010 were positively affected by significant
improvements in average selling prices as well as cost reductions for both DRAM
and NAND Flash products.
The Company’s gross margins are
impacted by charges to write down inventories to their estimated market values
as a result of the significant decreases in average selling prices for both DRAM
and NAND Flash products. As charges to write down inventories are
recorded in advance of when inventories are sold, gross margins in subsequent
reporting periods are higher than they otherwise would be. The impact
of inventory write-downs on gross margins for all periods reflects inventory
write-downs less the estimated net effect of prior period
write-downs. The effects of inventory write-downs on Memory gross
margins by period were as follows:
|
|
First
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
(amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
write-downs
|
|
$ |
-- |
|
|
$ |
(369 |
) |
|
$ |
-- |
|
Estimated
effect of previous inventory write-downs
|
|
|
22 |
|
|
|
157 |
|
|
|
91 |
|
Net effect of inventory
write-downs
|
|
$ |
22 |
|
|
$ |
(212 |
) |
|
$ |
91 |
|
In future periods, the Company will be
required to record additional inventory write-downs if estimated average selling
prices of products held in finished goods and work in process inventories at a
quarter-end date are below the manufacturing cost of those
products.
Improvements in gross margins on sales
of DRAM products for the first quarter of 2010 as compared to the fourth quarter
of 2009 were primarily due to the 21% increase in average selling prices and a
7% reduction in costs per gigabit. The reduction in DRAM costs per
gigabit was primarily due to production efficiencies and to the elimination of
Inotera underutilized capacity charges as Inotera ramped
production. DRAM production costs for the fourth quarter of 2009 were
adversely impacted by $30 million of underutilized capacity costs from
Inotera.
The Company’s gross margin on sales of
NAND Flash products for the first quarter of 2010 improved from the fourth
quarter of 2009 primarily due to the 5% increase in overall average selling
prices per gigabit and a 2% reduction in costs per gigabit. The reduction
in NAND Flash costs per gigabit was primarily due to lower manufacturing costs
as a result of increased production of higher-density, advanced-geometry
devices, in particular from the Company’s transition to 34nm process
technology. Gross margins on sales of NAND Flash products reflect sales of
approximately half of IM Flash’s output to Intel at long-term negotiated prices
approximating cost.
The Company’s gross margin percentage
for Memory products improved to 27% for the first quarter of 2010 from negative
41% for the first quarter of 2009 primarily due to significant cost reductions
and the net effects of inventory write-downs. The Company’s gross
margin on sales of DRAM products for the first quarter of 2010 improved from the
first quarter of 2009, primarily due to a reduction in costs per gigabit
partially offset by the decline in average selling prices per
gigabit. The Company’s gross margin on sales of NAND Flash products
for the first quarter of 2010 improved from the first quarter of 2009 primarily
due to a 62% reduction in costs per gigabit partially offset by the 32% decline
in average selling prices per gigabit. Cost reductions in the first
quarter of 2010 primarily reflect lower manufacturing costs.
The Company’s gross margin percentage
for All Other segments declined in the first quarter of 2010 from the fourth and
first quarters of 2009 primarily due to the conversion of Imaging operations to
a wafer foundry manufacturing model in connection with the Company’s sale of a
65% interest in Aptina Imaging Corporation (“Aptina”), previously a wholly-owned
subsidiary of the Company, on July 10, 2009. Under the wafer foundry
model, the Company sells all of its output of Imaging products to Aptina under a
wafer supply agreement with pricing terms that generally result in lower gross
margins than historically realized by the Company on sales of Imaging products
to end customers.
Selling,
General and Administrative
Selling, general and administrative
(“SG&A”) expenses for the first quarter of 2010 increased 18% from the
fourth quarter of 2009, primarily due to higher payroll expenses resulting from
the accrual of incentive-based compensation costs as a result of improved
operating results. SG&A expenses for the first quarter of 2010
decreased 5% from the first quarter of 2009 primarily due to lower Imaging
SG&A costs as a result of the sale of 65% interest in Aptina in the fourth
quarter of 2009 and one less week in the first quarter of 2010, partially offset
by higher payroll expenses resulting from the accrual of incentive-based
compensation costs. Future SG&A expense is expected to vary,
potentially significantly, depending on, among other things, the number of legal
matters that are resolved relatively early in their life-cycle and the number of
legal matters that progress to trial.
Research
and Development
Research and development (“R&D”)
expenses vary primarily with the number of development wafers processed, the
cost of advanced equipment dedicated to new product and process development, and
personnel costs. Because of the lead times necessary to manufacture
its products, the Company typically begins to process wafers before completion
of performance and reliability testing. The Company deems development
of a product complete once the product has been thoroughly reviewed and tested
for performance and reliability. R&D expenses can vary
significantly depending on the timing of product qualification as costs incurred
in production prior to qualification are charged to R&D.
R&D expenses for the first quarter
of 2010 were relatively unchanged from the fourth quarter of 2009 as lower
Imaging R&D costs resulting from the sale of a 65% interest in Aptina in the
fourth quarter of 2009 were offset by higher payroll expenses resulting from the
accrual of incentive-based compensation costs. R&D expenses were
reduced by $26 million in the first quarter of 2010, $24 million in the fourth
quarter of 2009 and $32 million in the first quarter of 2009 for amounts
reimbursable from Intel under a NAND Flash R&D cost-sharing
arrangement. R&D expenses for the first quarter of 2010 decreased
23% from the first quarter of 2009 primarily due to the sale of a 65% interest
in Aptina in the fourth quarter of 2009.
The Company’s process technology
research and development (“R&D”) efforts are focused primarily on
development of successively smaller line-width process technologies which are
designed to facilitate the Company’s transition to next generation memory
products. Additional process technology R&D efforts focus on the
enablement of advanced computing and mobile memory architectures, the
investigation of new opportunities that leverage the Company’s core
semiconductor expertise, and the development of new manufacturing
materials. Product design and development efforts are concentrated on
the Company’s high density DDR3 and mobile products, as well as high density and
mobile NAND Flash memory (including MLC technology), specialty memory products
and memory systems.
Other
Operating (Income) Expense, Net
Other operating (income) expense
consisted of the following:
|
|
First
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Losses
from changes in currency exchange rates
|
|
$ |
21 |
|
|
$ |
3 |
|
|
$ |
5 |
|
(Gain)
loss on disposals of property, plant and equipment
|
|
|
(2 |
) |
|
|
14 |
|
|
|
(1 |
) |
Loss
(credit) on Aptina spinoff
|
|
|
-- |
|
|
|
-- |
|
|
|
(12 |
) |
Other
|
|
|
(10 |
) |
|
|
(8 |
) |
|
|
(7 |
) |
|
|
$ |
9 |
|
|
$ |
9 |
|
|
$ |
(15 |
) |
Interest
Income/Expense
As a result of the adoption of a new
accounting standard for certain convertible debt, the Company modified its
accounting for its 1.875% Convertible Senior notes. The Company
retrospectively allocated the $1.3 billion aggregate principal amount
outstanding at inception between a liability component (issued at a discount)
and an equity component. The debt discount is being amortized from
issuance through June 2014, the maturity date of the Senior Notes, with the
amortization recorded as additional non-cash interest expense. As a
result, the Company incurred additional non-cash interest expense of $13 million
in the first quarter of 2010, $12 million in the fourth quarter of 2009, and $11
million in the first quarter of 2009. Interest expense for the first
quarter of 2010, fourth quarter of 2009 and first quarter of 2009, includes
aggregate amounts of non-cash amortization of debt discount and issuance costs
of $20 million, $20 million and $15 million, respectively. (See “Item
1. Financial Statements – Notes to Consolidated Financial Statements –
Retrospective Adoption of New Accounting Standards.”)
Other
non-operating income (expense), net
On August 3, 2009, Inotera sold common
shares in a public offering at a price equal to 16.02 New Taiwan dollars per
common share (approximately $0.49 U.S. dollars on August 3, 2009). As
a result of the issuance, the Company’s interest in Inotera decreased from 35.5%
to 29.8% and the Company recognized a gain of $56 million in the first quarter
of 2010 (including $33 million of Inotera Amortization). (See “Item
1. Financial Statements – Notes to Consolidated Financial Statements –
Supplemental Balance Sheet Information – Equity Method Investments –
Inotera.”)
Income
Taxes
Income taxes for the first quarter of
2010, fourth quarter of 2009 and first quarter of 2009 primarily reflect taxes
on the Company’s non-U.S. operations and U.S. alternative minimum
tax. The Company has a valuation allowance for its net deferred tax
asset associated with its U.S. operations. The benefit for taxes on
U.S. operations in the first quarter of 2010, fourth quarter of 2009 and first
quarter of 2009 was substantially offset by changes in the valuation
allowance.
Equity
in Net Losses of Equity Method Investees
In connection with its DRAM partnering
arrangements with Nanya, the Company has investments in two Taiwan DRAM memory
companies accounted for as equity method investments: Inotera and
MeiYa. Inotera and MeiYa each have fiscal years that end on December
31. The Company recognizes its share of Inotera’s and MeiYa’s
quarterly earnings or losses on a two-month lag. The Company
recognized losses from these equity method investments of $14 million for the
first quarter of 2010, $34 million for the fourth quarter of 2009 and $5 million
for the first quarter of 2009.
As a result of its sale of a 65%
interest in its Aptina subsidiary on July 10, 2009, the Company’s investment in
Aptina is accounted for as an equity method investment. The Company’s
shares in Aptina constitute 35% of Aptina’s total common and preferred stock and
64% of Aptina’s common stock. Under the equity method, the Company
recognizes its share of Aptina’s results of operations based on its 64% share of
Aptina’s common stock on a two-month lag. The Company recognized a
loss of $3 million in the first quarter of 2010 for its investment in
Aptina.
(See
“Item 1. Financial Statements – Notes to Consolidated Financial Statements –
Supplemental Balance Sheet Information – Equity Method
Investments.”)
Noncontrolling
Interests in Net (Income) Loss
Noncontrolling interests for 2009, 2008
and 2007 primarily reflects the share of income or losses of the Company’s TECH
joint venture attributed to the noncontrolling interests in TECH. The
Company purchased $99 million of TECH shares on February 27, 2009, $99 million
of TECH shares on June 2, 2009, and $60 million of TECH shares on August 27,
2009. As a result, noncontrolling interests in TECH were reduced from
approximately 27% as of August 28, 2008 to approximately 15% in August
2009. (See “Item 1. Financial Statements – Notes to Consolidated
Financial Statements – TECH Semiconductor Singapore Pte. Ltd.”)
Stock-based
Compensation
Total compensation cost for the
Company’s equity plans for the first quarter of 2010, fourth quarter of 2009 and
first quarter of 2009 was $31 million, $10 million and $9 million,
respectively. Stock-based compensation expenses for the first quarter
of 2010 increased from prior quarters primarily due to the accrual of
performance-based stock compensation costs as a result of improved operating
results. Stock compensation expenses fluctuate based on assessments
of whether the achievement of performance conditions is probable for
performance-based stock grants. As of December 3, 2009, $140 million
of total unrecognized compensation cost related to non-vested awards was
expected to be recognized through the first quarter of 2014.
Liquidity
and Capital Resources
As of December 3, 2009, the Company had
cash and equivalents and short-term investments totaling $1,565 million compared
to $1,485 million as of September 3, 2009. The balance as of December
3, 2009, included $88 million held at the Company’s IM Flash joint ventures and
$73 million held at the Company’s TECH joint venture. The Company’s
ability to access funds held by the joint ventures to finance the Company’s
other operations is subject to agreement by the joint venture partners, debt
covenants and contractual limitations. Amounts held by TECH are not
anticipated to be available to finance the Company’s other
operations.
The Company’s liquidity is highly
dependent on average selling prices for its products and the timing of capital
expenditures, both of which can vary significantly from period to
period. Depending on conditions in the semiconductor memory market,
the Company’s cash flows from operations and current holdings of cash and
investments may not be adequate to meet its needs for capital expenditures and
operations. Historically, the Company has used external sources of
financing to fund these needs. Due to conditions in the credit
markets, it may be difficult to obtain financing on terms acceptable to the
Company.
Operating
activities: Net cash provided by operating activities was $326
million for the first quarter of 2010 which reflected approximately $679 million
generated from the production and sales of the Company’s products partially
offset by an increase in working capital of approximately $353
million. The increase in working capital was primarily due to a $324
million increase in receivables due to the higher level of sales and in an
increase in the proportion of sales to original equipment manufacturers who
generally