10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One) | |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 3, 2015
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10658
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 75-1618004 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
8000 S. Federal Way, Boise, Idaho | 83716-9632 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code | (208) 368-4000 |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Name of each exchange on which registered |
Common Stock, par value $.10 per share | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes T No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No T
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act: |
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Large Accelerated Filer x | Accelerated Filer o | Non-Accelerated Filer o (Do not check if a smaller reporting company) | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of such stock on March 5, 2015, as reported by the NASDAQ Global Select Market, was approximately $27.7 billion. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's common stock as of October 21, 2015, was 1,085,753,663.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrant’s Fiscal 2015 Annual Meeting of Shareholders to be held on January 28, 2016, are incorporated by reference into Part II and Part III of this Annual Report on Form 10-K.
Definitions of Commonly Used Terms
As used herein, "we," "our," "us," and similar terms include Micron Technology, Inc. and its subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:
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Term | | Definition | | Term | | Definition |
2014 Notes | | 1.875% Convertible Notes due 2014 | | LPDRAM | | Mobile Low-Power DRAM |
2022 Notes | | 5.875% Senior Notes due 2022 | | MAI | | Micron Akita, Inc. |
2023 Notes | | 5.250% Senior Notes due 2023 | | MCP | | Multi-Chip Package |
2024 Notes | | 5.250% Senior Notes due 2024 | | Micron | | Micron Technology, Inc. (Parent Company) |
2025 Notes | | 5.500% Senior Notes due 2025 | | MIT | | Micron Technology, Italia, S.r.l. |
2026 Notes | | 5.625% Senior Notes due 2026 | | MLC | | Multi-Level Cell |
2027 Notes | | 1.875% Convertible Notes due 2027 | | MMJ | | Micron Memory Japan, Inc. |
2031 Notes | | 2031A and 2031B Notes | | MMJ Companies | | MAI and MMJ |
2031A Notes | | 1.500% Convertible Senior Notes due 2031 | | MMJ Group | | MMJ and its subsidiaries |
2031B Notes | | 1.875% Convertible Senior Notes due 2031 | | MMT | | Micron Memory Taiwan Co., Ltd. |
2032 Notes | | 2032C and 2032D Notes | | MP Mask | | MP Mask Technology Center, LLC |
2032C Notes | | 2.375% Convertible Senior Notes due 2032 | | OEM | | Original Equipment Manufacturer |
2032D Notes | | 3.125% Convertible Senior Notes due 2032 | | Photronics | | Photronics, Inc. |
2033 Notes | | 2033E and 2033F Notes | | PSRAM | | Pseudo-static DRAM |
2033E Notes | | 1.625% Convertible Senior Notes due 2033 | | Qimonda | | Qimonda AG |
2033F Notes | | 2.125% Convertible Senior Notes due 2033 | | R&D | | Research and Development |
2043G Notes | | 3.00% Convertible Senior Notes due 2043 | | Rexchip | | Rexchip Electronics Corporation |
Aptina | | Aptina Imaging Corporation | | RLDRAM | | Reduced Latency DRAM |
Elpida | | Elpida Memory, Inc. | | SEC | | Securities and Exchange Commission |
Gb | | Gigabit | | SG&A | | Selling, General and Administration |
HMC | | Hybrid Memory Cube | | SLC | | Single-Level Cell |
HP | | Hewlett-Packard Company | | SSD | | Solid-State Drive |
IMFT | | IM Flash Technologies, LLC | | ST | | STMicroelectronics S.r.l. |
Inotera | | Inotera Memories, Inc. | | Tera Probe | | Tera Probe, Inc. |
Intel | | Intel Corporation | | TLC | | Triple-Level Cell |
Japan Court | | Tokyo District Court | | VIE | | Variable Interest Entity |
PART I
ITEM 1. BUSINESS
The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in "Products" regarding increased sales of DDR4 products, growth in demand for NAND Flash products and SSDs, and production of 3D NAND Flash and 3D XPoint™ memory, and in "Manufacturing" regarding the transition to smaller line-width process technologies and 3D NAND Flash. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Item 1A. Risk Factors." All period references are to our fiscal periods unless otherwise indicated.
Corporate Information
Micron, a Delaware corporation, was incorporated in 1978. Our executive offices are located at 8000 South Federal Way, Boise, Idaho 83716-9632 and our telephone number is (208) 368-4000. Information about us is available on the internet at www.micron.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to these reports, are available through our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Materials filed or furnished by us with the SEC are also available at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling (800) SEC-0330. Also available on our website are our: Corporate Governance Guidelines, Governance Committee Charter, Compensation Committee Charter, Audit Committee Charter, and Code of Business Conduct and Ethics. Any amendments or waivers of our Code of Business Conduct and Ethics will also be posted on our website at www.micron.com within four business days of the amendment or waiver. Copies of these documents are available to shareholders upon request. Information contained or referenced on our website is not incorporated by reference and does not form a part of this Annual Report on Form 10-K.
Overview
Micron Technology, Inc., including its consolidated subsidiaries, is a global leader in advanced semiconductor systems. Our broad portfolio of high-performance memory technologies, including DRAM, NAND Flash, and NOR Flash, is the basis for solid-state drives, modules, multi-chip packages, and other system solutions. Our memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded, and automotive applications. We market our products through our internal sales force, independent sales representatives, and distributors primarily to OEMs and retailers located around the world. Our success is largely dependent on the market acceptance of our diversified portfolio of semiconductor products, efficient utilization of our manufacturing infrastructure, successful ongoing development of advanced product and process technologies, and generating a return on R&D investments.
We obtain products for sale to our customers from our wholly-owned manufacturing facilities and our joint ventures. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions and various partnering arrangements.
We make significant investments to develop the proprietary product and process technologies that are implemented in our worldwide manufacturing facilities and through our joint ventures. These investments enable our production of semiconductor products with increasing functionality and performance at lower costs. We generally reduce the manufacturing cost of each generation of product through advancements in product and process technologies, such as our leading-edge line-width process technology. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, reduced package size, lower power consumption, improved read/write reliability, and increased memory density. To leverage our significant investments in R&D, we have formed, and may continue to form, strategic joint ventures that allow us to share the costs of developing memory product and process technologies with joint venture partners. In addition, from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.
On July 31, 2013, we completed the acquisition of Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT (together, the "MMJ Acquisition"). The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan, and an assembly and test facility located in Akita, Japan. These wafer fabrication facilities together represented approximately 30% of our total wafer capacity for 2015. The operations from the MMJ Acquisition, which are included primarily in our MBU and CNBU segments, include the manufacture of mobile DRAM targeted to mobile phones and tablets and computing DRAM targeted to desktop PCs, servers, notebooks, and workstations. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc.")
Business Segments
We have the following four business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"): Includes memory products sold into compute, networking, graphics, and cloud server markets.
Mobile Business Unit ("MBU"): Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"): Includes memory products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Embedded Business Unit ("EBU"): Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.
For more information regarding our segments, see "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Segment Information."
Products
DRAM
DRAM products are high-density, low-cost-per-bit, random access memory devices that provide high-speed data storage and retrieval with a variety of performance, pricing, and other characteristics. Sales of DRAM products were 64%, 68%, and 48% of our total net sales in 2015, 2014, and 2013, respectively. DRAM products are sold by CNBU, MBU, and EBU.
DDR3 DRAM is a standardized, high-density, high-volume, DRAM product, which offers high speed and high bandwidth at a relatively low cost. DDR3 products are primarily targeted at computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications. In 2015, we offered DDR3 products in 1Gb, 2Gb, 4Gb, and 8Gb densities. We also offered next generation DDR4 DRAM products in 4Gb and 8Gb densities in 2015 and we expect sales of these products to increase significantly in 2016 as they replace DDR3 DRAM products in many applications. Sales of DDR3 and DDR4 DRAM products were 38%, 40%, and 31% of our total net sales in 2015, 2014, and 2013, respectively.
LPDRAM products offer lower power consumption relative to other DRAM products and are used primarily in mobile phones, tablets, embedded applications, ultra-thin laptop computers, and other mobile consumer devices that require low power consumption. We offer DDR4, DDR3, DDR2, and DDR versions of LPDRAM. Sales of LPDRAM products were 18%, 20%, and 6% of our total net sales in 2015, 2014, and 2013, respectively.
We also offer other DRAM products targeted to specialty markets including DDR2 DRAM, DDR DRAM, GDDR5 DRAM, SDRAM, RLDRAM, and PSRAM. These products are used primarily in networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades. We offer HMC products, which are semiconductor memory devices where vertical stacks of DRAM die that are connected using through-silicon-via interconnects are placed above a small, high-speed logic layer. HMC enables ultra-high system performance and is targeted primarily at networking and high performance computing applications.
Non-Volatile Memory
Non-Volatile Memory includes NAND Flash and 3D XPoint™ memory. Through 2015, substantially all of our Non-Volatile Memory sales were from NAND Flash products. NAND Flash products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off. NAND Flash sales were 33%, 27%, and 40% of our total net sales in 2015, 2014, and 2013, respectively. NAND Flash is ideal for mass-storage devices due to its fast erase and write times, high density, and low cost per bit relative to other solid-state memories. Embedded NAND Flash-based storage devices are utilized in mobile phones, SSDs, tablets, computers, industrial and automotive applications, networking, and other personal and consumer applications. Removable storage devices, such as USB and Flash memory cards, are used with applications such as PCs, digital still cameras, and mobile phones. The market for NAND Flash products has grown rapidly and we expect it to continue to grow due to increased demand for these and other embedded and removable storage devices. NAND Flash products are sold by SBU, EBU, MBU, and CNBU.
Our NAND Flash products feature a small cell structure that enables higher densities for demanding applications. We offer high-speed SLC, MLC, and TLC NAND Flash products that are compatible with advanced interfaces. MLC and TLC products have two and three times, respectively, the bit density of SLC products. In 2015, we offered SLC NAND Flash products in 1Gb to 64Gb densities; 2-bit-per-cell MLC NAND Flash products in 8Gb to 128Gb densities; and 3-bit-per-cell TLC NAND Flash in 128Gb density. In 2015, we began sampling products featuring our new 3D NAND Flash technology, which stacks layers of data storage cells vertically to create storage devices with three times higher capacity than competing NAND Flash technologies. This enables more storage in a smaller space, bringing significant cost savings, low power usage and high performance to a range of mobile consumer devices as well as the most demanding enterprise deployments. We expect to be in production of a 256Gb MLC version and 384Gb TLC version of 3D NAND Flash products by the end of calendar year 2015.
We offer client and enterprise SSDs which feature higher performance, reduced-power consumption, and enhanced reliability as compared to typical hard disk drives. Our client SSDs are targeted at notebooks, desktops, workstations, and other consumer applications. Using our NAND Flash process technology and a leading-edge SATA 6 Gb per second interface, our SSDs deliver read and write speeds that help improve boot and application load times and deliver higher performance than hard disk drives. Our client SSDs feature industry-leading encryption for corporate users and are offered in a 2.5-inch, M.2., and mSATA modules, with densities up to 1 terabyte. Our enterprise SSDs are targeted at server and storage applications and incorporate our Extended Performance and Enhanced Reliability Technology ("XPERT") architecture, which closely incorporates the storage and controller through highly optimized firmware algorithms and hardware enhancements. The end result is a set of market-focused enterprise features that deliver ultra-low latencies, improved data transfer time, power-loss protection, and cost-effectiveness, along with higher capacities and power efficiency. We offer enterprise SSDs with both PCIe and SATA interfaces and capacities up to 1.4 terabytes. We expect that demand for both client and enterprise SSDs will continue to increase significantly over the next several years.
We also offer managed MCP products, which incorporate our NAND Flash. These managed NAND Flash products include e-MMC, e-MCP, and embedded USB. Our e-MMC products combine NAND Flash with a logic controller that performs media management and Error Code Correction ("ECC"), which provides reduced ECC complexity, better system performance, improved reliability, easy integration, and lower overall system costs. Our e-MCP products combine e-MMC with LPDRAM on the same substrate, which improves overall functionality and performance while simplifying system design.
Through our Lexar® brand, we sell high-performance digital media products and other flash-based storage products through retail and OEM channels. Our digital media products include a variety of flash memory cards and JumpDrive® products with a range of speeds, capacities, and value-added features. We offer flash memory cards in a variety of speeds and capacities and in all major media formats, including CompactFlash®, Memory Stick®, and Secure Digital ("SD") formats. CompactFlash and Memory Stick products sold by us incorporate our patented controller technology. Other products, including SD memory cards and some JumpDrive products, incorporate third party controllers. We also manufacture products that are sold under other brand names and resell flash memory products that are purchased from other NAND Flash suppliers.
In the fourth quarter of 2015, we introduced 3D XPoint technology, a new category of non-volatile memory. 3D XPoint memory's innovative, transistor-less, cross point architecture creates a three-dimensional checkerboard where memory cells sit at the intersection of word lines and bit lines, allowing the cells to be addressed individually. As a result, data can be written and read in small sizes, leading to fast and efficient read/write processes. We plan to produce commercial volumes of 3D XPoint memory products in 2016.
Other
Other products included primarily NOR Flash, which are electrically re-writeable, semiconductor memory devices that offer fast read times which are used in wireless and embedded applications.
Partnering Arrangements
The following is a summary of our partnering arrangements as of September 3, 2015:
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Entity | | | | Member or Partner | | Micron Ownership Interest | | Formed/ Acquired | | Product Market |
Consolidated entities: | | | | | | | | |
IMFT | (1) | | | Intel Corporation | | 51% | | 2006 | | Non-Volatile |
MP Mask | (2) | | | Photronics, Inc. | | 50% | | 2006 | | Photomasks |
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Equity method investments: | | | | | | | | |
Inotera | (3) | | | Nanya Technology Corporation | | 33% | | 2009 | | DRAM |
Tera Probe | (4) | | | Various | | 40% | | 2013 | | Wafer Probe |
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(1) | IMFT: We partner with Intel for the design, development, and manufacture of NAND Flash and 3D XPoint memory products. In connection therewith, we formed the IMFT joint venture with Intel to manufacture NAND Flash and 3D XPoint memory products for the exclusive use of the members. The members share the output of IMFT generally in proportion to their investment. We sell a portion of our products to Intel through IMFT at long-term negotiated prices approximating cost. We generally share with Intel the costs of product design and process development activities for NAND Flash memory and 3D XPoint memory. The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. Commencing in January 2015, Intel can put to us, and commencing in January 2018, we can call from Intel, Intel's interest in IMFT, in either case, for an amount equal to the noncontrolling interest balance attributable to Intel at that time. If Intel elects to sell to us, we can elect to set the closing date of the transaction to be any time within two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – IMFT.") |
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(2) | MP Mask: We produce photomasks for leading-edge and advanced next-generation semiconductors through MP Mask, a joint venture with Photronics. On March 24, 2015, we notified Photronics of our election to terminate MP Mask effective in May 2016. Upon termination, we have the right to acquire Photronics' interest in MP Mask for an amount equal to the noncontrolling interest balance. Since its inception, we and Photronics have each owned approximately 50% of MP Mask. We purchase a substantial majority of the photomasks produced by MP Mask pursuant to a supply arrangement. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – MP Mask.") |
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(3) | Inotera: We partner with Nanya for the manufacture of DRAM products by Inotera, a Taiwan DRAM memory company. Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting discounts from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity Method Investments – Inotera.") |
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(4) | Tera Probe: We have an approximate 40% ownership interest in Tera Probe, an entity that provides semiconductor wafer testing and probe services to us and others. |
Manufacturing
Our manufacturing facilities are located in the United States, China, Japan, Malaysia, Singapore, and Taiwan. Our Inotera joint venture has a wafer fabrication facility in Taiwan. Nearly all of our products are manufactured on 300mm wafers in facilities that generally operate 24 hours per day, 7 days per week. Semiconductor manufacturing is extremely capital intensive, requiring large investments in sophisticated facilities and equipment. A significant portion of our semiconductor equipment is replaced every three to five years with increasingly advanced equipment. DRAM, NAND Flash, and NOR Flash products share a number of common manufacturing processes, enabling us to leverage our product and process technologies and manufacturing infrastructure across these product lines. In 2015, we began construction of a significant expansion of our wafer fabrication facilities in Singapore for production of NAND Flash memory.
Our process for manufacturing semiconductor products is complex, involving a number of precise steps, including wafer fabrication, assembly, and test. Efficient production of semiconductor products requires utilization of advanced semiconductor manufacturing techniques and effective deployment of these techniques across multiple facilities. The primary determinants of manufacturing cost are process line-width, number of mask layers, number of fabrication steps, and number of good die produced on each wafer. Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type, and cleanliness of the manufacturing environment. We continuously enhance our production processes, reducing die sizes, and transitioning to higher density products. In 2015, the majority of our DRAM production was manufactured on our 25nm line-width process technologies. We expect that by the second half of 2016 the majority of our DRAM production will be manufactured on our 20nm line-width process technology. In 2015, a majority of our NAND Flash production was manufactured on our 20nm and 16nm line-width process technology. We began production of 3D NAND Flash products in 2015 and expect that in 2016 the majority of our NAND Flash production will be manufactured using 16nm line-width process technology or 3D NAND technology.
Wafer fabrication occurs in a highly controlled, clean environment to minimize dust and other yield and quality-limiting contaminants. Despite stringent manufacturing controls, individual circuits may be nonfunctional or wafers may need to be scrapped due to equipment errors, minute impurities in materials, defects in photomasks, circuit design marginalities or defects, and dust particles. Success of our manufacturing operations depends largely on minimizing defects to maximize yield of high-quality circuits. In this regard, we employ rigorous quality controls throughout the manufacturing, screening, and testing processes. We are able to recover certain devices by testing and grading them to their highest level of functionality.
We test our products at various stages in the manufacturing process, perform high temperature burn-in on finished products, and conduct numerous quality control inspections throughout the entire production flow. In addition, we use our proprietary AMBYX™ line of intelligent test and burn-in systems to perform simultaneous circuit tests of semiconductor memory die during the burn-in process, capturing quality and reliability data, and reducing testing time and cost.
We sell semiconductor products in both packaged and unpackaged (i.e. "bare die") forms. Our packaged products include memory modules, SSDs, MCPs, managed NAND, memory cards, USB devices, and HMCs. We assemble many products in-house and, in some cases, outsource assembly services where we can reduce costs and minimize our capital investment. We contract with independent foundries and assembly and testing companies to manufacture NAND Flash media products such as memory cards and USB devices.
In recent years, we have produced an increasingly broad portfolio of products, which enhances our ability to allocate resources to our most profitable products but also increases the complexity of our manufacturing operations. Although our product lines generally use similar manufacturing processes, our overall cost efficiency can be affected by frequent conversions to new products, the allocation of manufacturing capacity to more complex, smaller-volume parts, and the reallocation of manufacturing capacity across various product lines.
Availability of Raw Materials
Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our raw materials; however, only a limited number of suppliers are capable of delivering certain raw materials that meet our standards. In some cases, materials are provided by a single supplier. Various factors could reduce the availability and increase the cost of raw materials such as silicon wafers, photomasks, chemicals, gases, photoresist, lead frames, and molding compound. Shortages may occur from time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials is disrupted or our lead times extended, our business, results of operations, or financial condition could be materially adversely affected.
Marketing and Customers
Our products are sold into compute and graphics, mobile, SSD and other storage, automotive, industrial, medical, and other embedded and server markets. Market concentrations from 2015 net sales were approximately as follows: 25% for compute and graphics (including desktop PCs, notebooks, and workstations); 25% for mobile; 20% for SSD and other storage; 15% for server; and 10% for automotive, industrial, medical, and other embedded. Sales to Kingston, primarily DRAM, were 11% of our net sales in 2015 and 10% of our net sales in 2014. Sales to Intel, primarily NAND Flash products through IMFT were 8% of our net sales in 2015, 8% of our net sales in 2014, and 10% of our net sales in 2013. Sales to HP, primarily DRAM, were 7% of our net sales in 2015, 9% of our net sales in 2014, and 10% of our net sales in 2013.
Our semiconductor memory products are offered under the Micron®, Lexar, Crucial®, SpecTek®, and Elpida® brand names and private labels. We market our semiconductor memory products primarily through our own direct sales force and maintain sales or representative offices in our primary markets around the world. We sell Lexar-branded NAND Flash memory products primarily through retail channels and our Crucial-branded products through a web-based customer direct sales channel as well as through channel and distribution partners. Our products are also offered through independent sales representatives and distributors. Independent sales representatives obtain orders subject to final acceptance by us and are compensated on a commission basis. We make shipments against these orders directly to the customer. Distributors carry our products in inventory and typically sell a variety of other semiconductor products, including competitors' products. We maintain inventory at locations in close proximity to certain key customers to facilitate rapid delivery of products. Many of our customers require a thorough review or qualification of semiconductor products, which may take several months.
Backlog
Because of volatile industry conditions, customers are reluctant to enter into long-term, fixed-price contracts. Accordingly, new order volumes for our semiconductor products fluctuate significantly. We typically accept orders with acknowledgment that the terms may be adjusted to reflect market conditions at the date of shipment. For these reasons, we do not believe that our order backlog as of any particular date is a reliable indicator of actual sales for any succeeding period.
Product Warranty
Because the design and manufacturing process for semiconductor products is highly complex, it is possible that we may produce products that do not comply with customer specifications, contain defects, or are otherwise incompatible with end uses. In accordance with industry practice, we generally provide a limited warranty that our products are in compliance with our specifications existing at the time of delivery. Under our general terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that provided under our general terms and conditions.
Competition
We face intense competition in the semiconductor memory market from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; and Toshiba Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which we compete, invest in technology, and capitalize on growth opportunities. Our competitors seek to increase silicon capacity, improve yields, reduce die size, and minimize mask levels in their product designs resulting in significantly increased worldwide supply and downward pressure on prices. Many of our high-volume memory products are manufactured to industry standard specifications and as such have similar performance characteristics to those of our competitors. For these high-volume memory products, the principal competitive factors are generally price and performance characteristics including: operating speed, power consumption, reliability, compatibility, size, and form factors. For our other memory products, the aforementioned performance characteristics generally take precedence over pricing.
Research and Development
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies, as well as new, fundamentally different memory structures, materials, and packages, which are designed to facilitate our transition to next generation memory products. Additional process technology R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage our core semiconductor expertise, and the development of new manufacturing materials. Product design and development efforts include our high density DDR3 and DDR4 DRAM and LPDRAM products as well as high density and mobile NAND Flash memory (including 3D NAND and MLC and TLC technologies), 3D XPoint memory, NOR Flash memory, specialty memory, SSDs, HMCs, and other memory technologies and systems.
Our R&D expenses were $1.54 billion, $1.37 billion, and $931 million in 2015, 2014, and 2013, respectively. We generally share with Intel the costs of product design and process development activities for NAND Flash memory and 3D XPoint memory. Our R&D expenses reflect net reductions of $231 million, $162 million, and $176 million in 2015, 2014, and 2013, respectively, as a result of reimbursements under our Intel and other cost-sharing arrangements.
To compete in the semiconductor memory industry, we must continue to develop technologically advanced products and processes. We believe that expansion of our semiconductor product offerings is necessary to meet expected market demand for specific memory solutions. Our process, design, and package development efforts occur at multiple locations across the world, with our largest R&D center located in Boise, Idaho, and other significant R&D centers in Japan, China, and other sites in the U.S. In addition, we develop photolithography mask technology at our MP Mask joint venture facility in Boise.
R&D expenses vary primarily with the number of development wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. We deem development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.
Geographic Information
Sales to customers outside the United States totaled $13.63 billion for 2015 and included sales of $6.66 billion in China, $2.24 billion in Taiwan, $1.25 billion in Europe, $1.03 billion in Japan, and $2.04 billion in the rest of the Asia Pacific region (excluding China, Japan, and Taiwan). Sales to customers outside the United States totaled $13.81 billion for 2014 and $7.56 billion for 2013. As of September 3, 2015, we had net property, plant, and equipment of $3.64 billion in the United States, $3.24 billion in Singapore, $2.17 billion in Japan, $1.07 billion in Taiwan, $331 million in China, and $96 million in other countries. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information" and "Item 1A. Risk Factors.")
Patents and Licenses
In recent years, we have been recognized as a leader in per capita and quality of patents issued. As of September 3, 2015, we owned approximately 16,800 U.S. patents and 4,200 foreign patents. In addition, we have thousands of U.S. and foreign patent applications pending. Our patents have various terms expiring through 2034.
We have a number of patent and intellectual property license agreements and have from time to time licensed or sold our intellectual property to third parties. Some of these license agreements require us to make one-time or periodic payments while others have resulted in us receiving payments. We may need to obtain additional patent licenses or renew existing license agreements in the future and we may enter into additional sales or licenses of intellectual property and partnering arrangements. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
Employees
As of September 3, 2015, we had approximately 31,800 employees.
Environmental Compliance
Government regulations impose various environmental controls on raw materials and discharges, emissions, and solid wastes from our manufacturing processes. In 2015, our wafer fabrication facilities continued to conform to the requirements of ISO 14001 certification. To continue certification, we must meet annual requirements in environmental policy, compliance, planning, management, structure and responsibility, training, communication, document control, operational control, emergency preparedness and response, record keeping, and management review. While we have not experienced any material adverse effects to our operations from environmental regulations, changes in the regulations could necessitate additional capital expenditures, modification of our operations, or other compliance actions.
Directors and Executive Officers of the Registrant
Our executive officers are appointed annually by the Board of Directors and our directors are elected annually by our shareholders. Any directors appointed by the Board of Directors to fill vacancies on the Board serve until the next election by the shareholders. All officers and directors serve until their successors are duly chosen or elected and qualified, except in the case of earlier death, resignation, or removal.
As of September 3, 2015, the following executive officers and directors were subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
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| | | | |
Name | | Age | | Position |
Mark W. Adams | | 51 | | President |
April S. Arnzen | | 44 | | Vice President, Human Resources |
Scott J. DeBoer | | 49 | | Vice President, Research & Development |
D. Mark Durcan | | 54 | | Director and Chief Executive Officer |
Ernest E. Maddock | | 57 | | Chief Financial Officer and Vice President, Finance |
Joel L. Poppen | | 51 | | Vice President, Legal Affairs, General Counsel, and Corporate Secretary |
Brian M. Shirley | | 46 | | Vice President, Memory Technology and Solutions |
Steven L. Thorsen, Jr. | | 50 | | Vice President, Worldwide Sales |
Robert L. Bailey | | 58 | | Director |
Richard M. Beyer | | 66 | | Director |
Patrick J. Byrne | | 54 | | Director |
D. Warren A. East | | 53 | | Director |
Mercedes Johnson | | 61 | | Director |
Lawrence N. Mondry | | 55 | | Director |
Robert E. Switz | | 68 | | Chairman |
Mark W. Adams joined us in June 2006 and served as our Vice President of Digital Media and Vice President of Worldwide Sales before being appointed our President in February 2012. Mr. Adams also served as our interim Chief Financial Officer from March 2015 through May 2015. From January 2006, until he joined us, Mr. Adams was the Chief Operating Officer of Lexar Media, Inc. Mr. Adams served as the Vice President of Sales and Marketing for Creative Labs, Inc. from December 2002 to January 2006. From March 2000 to September 2002, Mr. Adams was the Chief Executive Officer of Coresma, Inc. Mr. Adams currently serves as a member of the Board of Directors for Cadence Design Systems, Inc. Mr. Adams holds a BA in Economics from Boston College and an MBA from Harvard Business School.
April S. Arnzen joined us in December 1996 and has served in various leadership positions since that time. Ms. Arnzen was appointed our Vice President, Human Resources in January 2015. Ms. Arnzen holds a BS in Human Resource Management and Marketing from the University of Idaho.
Scott J. DeBoer joined us in February 1995 and has served in various leadership positions since that time. Dr. DeBoer became an officer in May 2007 and, in January 2013, he was appointed our Vice President, Research & Development. Dr. DeBoer holds a PhD in Electrical Engineering and an MS in Physics from Iowa State University. He completed his undergraduate degree at Hastings College.
D. Mark Durcan joined us in June 1984 and has served in various positions since that time. Mr. Durcan was appointed our Chief Operating Officer in February 2006, President in June 2007, and Director and Chief Executive Officer in February 2012. Mr. Durcan has been an officer since 1996. Mr. Durcan is a member of the Board of Directors of AmerisourceBergen Corporation and Freescale Semiconductor, Inc. Mr. Durcan holds a BS and MChE in Chemical Engineering from Rice University.
Ernest E. Maddock joined us in June 2015 as our Chief Financial Officer and Vice President, Finance. From April 2013 until he joined us, Mr. Maddock served as Executive Vice President and Chief Financial Officer of Riverbed Technology. From October 2008 to April 2013, Mr. Maddock served as Executive Vice President and Chief Financial Officer of Lam Research Corporation after serving as Lam's Vice President of Global Operations from October 2003 to September 2008. Mr. Maddock currently serves as a member of the Board of Directors for Intersil Corporation. Mr. Maddock holds a BS in Industrial Management from the Georgia Institute of Technology and an MBA from Georgia State University.
Joel L. Poppen joined us in October 1995 and has held various leadership positions since that time. He was appointed to his current position in December 2013. Mr. Poppen holds a BS in Electrical Engineering from the University of Illinois and a JD from the Duke University School of Law.
Brian M. Shirley joined us in August 1992 and has served in various leadership positions since that time. Mr. Shirley became Vice President of Memory in February 2006, Vice President of DRAM Solutions in June 2010 and has served as Vice President, Memory Technology and Solutions since April 2014. Mr. Shirley holds a BS in Electrical Engineering from Stanford University.
Steven L. Thorsen, Jr. joined us in September 1988 and has served in various leadership positions since that time including Vice President and Chief Procurement Officer. Mr. Thorsen became Vice President, Worldwide Sales in April 2012. Mr. Thorsen holds a BA in Business Administration from Washington State University.
Robert L. Bailey was the Chairman of the Board of Directors of PMC-Sierra, Inc. from 2005 until May 2011 and also served as PMC's Chairman from February 2000 until February 2003. Mr. Bailey served as a director of PMC from October 1996 to May 2011. He also served as the Chief Executive Officer of PMC from July 1997 until May 2008. PMC is a leading provider of broadband communication and semiconductor storage solutions for the next-generation Internet. Mr. Bailey holds a BS in Electrical Engineering from the University of Bridgeport and an MBA from the University of Dallas. Mr. Bailey has served on our Board of Directors since 2007.
Richard M. Beyer was Chairman and CEO of Freescale Semiconductor, Inc. from 2008 through June 2012 and served as a director with Freescale until April 2013. Prior to Freescale, Mr. Beyer was President, Chief Executive Officer and a Director of Intersil Corporation from 2002 to 2008. He has also previously served in executive management roles at FVC.com, VLSI Technology, and National Semiconductor Corporation. He currently serves on the Board of Directors of Dialog Semiconductor and Analog Devices, Inc. Mr. Beyer served three years as an officer in the United States Marine Corps. He holds a BA and an MA in Russian from Georgetown University and an MBA in Marketing and International Business from Columbia University Graduate School of Business. Mr. Beyer has served on our Board of Directors since 2013.
Patrick J. Byrne has served as the President of Tektronix, a subsidiary of Danaher Corporation, since July 2014. Mr. Byrne was Vice President of Strategy and Business Development and Chief Technical Officer of Danaher from November 2012 to July 2014. Danaher designs, manufactures, and markets innovative products and services to professional, medical, industrial, and commercial customers. Prior to that, Mr. Byrne served as Director, President and Chief Executive Officer of Intermec, Inc. from 2007 to May 2012. Mr. Byrne was with Agilent Technologies, Inc. from 1999 to 2007 and served in various management positions. Mr. Byrne holds a BS in Electrical Engineering from the University of California, Berkeley, and an MS in Electrical Engineering from Stanford University. Mr. Byrne has served on our Board of Directors since 2011.
D. Warren A. East has served as CEO of Rolls-Royce Holdings plc since July 2015. Mr. East was the CEO of ARM Holdings PLC from October 2001 to July 2013. He originally joined ARM in 1994, and served in various roles prior to being appointed CEO. He currently serves on the Board of Directors of Rolls-Royce plc. Mr. East is a chartered engineer, Distinguished Fellow of the British Computer Society, Fellow of the Institution of Engineering and Technology, Fellow of the Royal Academy of Engineering, and a Companion of the Chartered Management Institute. Mr. East holds a BA BSc(Eng) and an MBA MEng in Engineering Science from Oxford University and an MBA and honorary doctorate from Cranfield University. Mr. East has served on our Board of Directors since 2013.
Mercedes Johnson was the Senior Vice President and Chief Financial Officer of Avago Technologies Limited, a supplier of analog interface components for communications, industrial and consumer applications, from December 2005 to August 2008. She also served as the Senior Vice President, Finance, of Lam Research Corporation from June 2004 to January 2005 and as Lam's Chief Financial Officer from May 1997 to May 2004. Ms. Johnson holds a degree in Accounting from the University of Buenos Aires and currently serves on the Board of Directors for Intersil Corporation, Juniper Networks, Inc., and Teradyne, Inc. Ms. Johnson is the Chairman of the Board's Audit Committee and has served on our Board of Directors since 2005.
Lawrence N. Mondry was the Chief Executive Officer of Apollo Brands, a consumer products portfolio company, from February 2014 to February 2015. Mr. Mondry was the Chief Executive Officer of Flexi Compras Corporation, a rent-to-own retailer, from June 2013 to February 2014. Mr. Mondry was the President and Chief Executive Officer of CSK Auto Corporation, a specialty retailer of automotive aftermarket parts, from August 2007 to July 2008. Prior to his appointment at CSK, Mr. Mondry served as the Chief Executive Officer of CompUSA Inc. from November 2003 to May 2006. Mr. Mondry joined CompUSA in 1990. Mr. Mondry holds a BA degree from Boston University. Mr. Mondry is the Chairman of the Board's Compensation Committee and Governance Committee and has served on our Board of Directors since 2005.
Robert E. Switz was the Chairman, President and Chief Executive Officer of ADC Telecommunications, Inc., a supplier of network infrastructure products and services from August 2003 until December 2010, when Tyco Electronics Ltd. acquired ADC. Mr. Switz joined ADC in 1994 and throughout his career there held numerous leadership positions. Mr. Switz holds an MBA from the University of Bridgeport and a BS in Business Administration from Quinnipiac University. Mr. Switz also serves on the Board of Directors for Broadcom Corporation, GT Advanced Technologies, and Gigamon Inc. Mr. Switz was appointed Chairman of the Board in 2012 and has served on our Board of Directors since 2006.
There are no family relationships between any of our directors or executive officers.
Additional Information
Micron, Lexar, Crucial, SpecTek, Elpida, JumpDrive, any associated logos, and all other Micron trademarks are the property of Micron. 3D XPoint is a trademark of Intel in the U.S. and/or other countries. Other product names or trademarks that are not owned by Micron are for identification purposes only and may be the registered or unregistered trademarks of their respective owners.
ITEM 1A. RISK FACTORS
In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of us.
We have experienced dramatic declines in average selling prices for our semiconductor memory products which have adversely affected our business.
If average selling prices for our memory products decrease faster than we can decrease per gigabit costs, our business, results of operations, or financial condition could be materially adversely affected. We have experienced significant decreases in our average selling prices per gigabit in previous years as noted in the table below and may continue to experience such decreases in the future. In some prior periods, average selling prices for our memory products have been below our manufacturing costs and we may experience such circumstances in the future.
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| | DRAM | | Trade NAND Flash* |
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| | (percentage change in average selling prices) |
2015 from 2014 | | (11 | )% | | (17 | )% |
2014 from 2013 | | 6 | % | | (23 | )% |
2013 from 2012 | | (11 | )% | | (18 | )% |
2012 from 2011 | | (45 | )% | | (55 | )% |
2011 from 2010 | | (39 | )% | | (12 | )% |
* Trade NAND Flash excludes sales to Intel from IMFT. | | | | |
We may be unable to maintain or improve gross margins.
Our gross margins are dependent upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs, including, but not limited to, process line-width, architecture, number of mask layers, number of fabrication steps, and yield. In future periods, we may be unable to reduce our per gigabit manufacturing costs at sufficient levels to maintain or improve gross margins. Factors that may limit our ability to reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, difficulty in transitioning to smaller line-width process technologies, technological barriers, and changes in process technologies or products that may require relatively larger die sizes. Per gigabit manufacturing costs may also be affected by the relatively smaller production quantities and shorter product lifecycles of certain specialty memory products.
The semiconductor memory industry is highly competitive.
We face intense competition in the semiconductor memory market from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SanDisk Corporation; SK Hynix Inc.; and Toshiba Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments, such as China, have provided, and may continue to provide, significant financial assistance to some of our competitors or to new entrants. Our competitors seek to increase silicon capacity, improve yields, reduce die size, and minimize mask levels in their product designs. Transitions to smaller line-width process technologies and product and process improvements have resulted in significant increases in the worldwide supply of semiconductor memory. Increases in worldwide supply of semiconductor memory also result from semiconductor memory fab capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. In recent periods, we and some of our competitors have begun construction on or announced plans to build new fabrication facilities. Increases in worldwide supply of semiconductor memory, if not accompanied by commensurate increases in demand, would lead to further declines in average selling prices for our products and would materially adversely affect our business, results of operations, or financial condition.
Debt obligations could adversely affect our financial condition.
In recent periods, our debt levels have increased due to the capital intensive nature of our business, business acquisitions, and restructuring of our capital structure. As of September 3, 2015, we had debt with a carrying value of $7.34 billion. In addition, the conversion value in excess of principal amount for our convertible notes outstanding as of September 3, 2015 was $553 million. In 2015, we paid $1.43 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of $489 million. In 2014, we paid $2.30 billion to repurchase and settle conversion obligations for convertible notes with a principal amount of $1.09 billion. As of September 3, 2015, we had (1) revolving credit facilities available that provide for up to $842 million of additional financing and (2) a term loan agreement available to obtain financing collateralized by certain property, plant, and equipment in the amount of 6.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $213 million as of September 3, 2015), of which we drew $40 million in 2015. The availability of these revolving and other facilities is subject to certain conditions, including outstanding balances of trade receivables; inventories; collateralization of certain property, plant, and equipment; and other conditions. Events and circumstances may occur which would cause us to not be able to satisfy these applicable drawdown conditions and utilize these facilities. We have in the past and expect in the future to continue to incur additional debt to finance our capital investments, business acquisitions, and restructuring of our capital structure.
Our debt obligations could adversely impact us. For example, these obligations could:
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• | require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities; |
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• | continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; |
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• | require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share; |
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• | limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements; |
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• | adversely impact our credit rating, which could increase future borrowing costs; and |
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• | increase our vulnerability to adverse economic and semiconductor memory industry conditions. |
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and make adequate capital investments.
Our cash flows from operations depend primarily on the volume of semiconductor memory sold, average selling prices, and manufacturing costs. To develop new product and process technologies, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology. We estimate that cash expenditures in 2016 for property, plant, and equipment will be approximately $5.3 billion to $5.8 billion. Investments in capital expenditures for 2015 were $4.12 billion. In addition, as a result of the MMJ acquisition and our capacity expansion in Singapore, we expect our future capital spending will be higher than our historical levels. As of September 3, 2015, we had cash and marketable investments of $5.63 billion, which included $748 million held by the MMJ Group and $134 million held by IMFT, none of which is generally available to finance our other operations.
As a result of the Japan Proceedings, for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions would also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends to us in respect of the shares of such subsidiaries owned by the MMJ Companies, as any such dividends would have to be first paid to the MMJ Companies which are prohibited from repaying those amounts to us as dividends under the plans of reorganization. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ Companies may be considered outside of the ordinary course of business and subject to approval of the legal trustees and Japan Court. As a result, the assets of the MMJ Companies and their subsidiaries, while available to satisfy the MMJ Companies' installment payments and the other obligations, capital expenditures, and other operating needs of the MMJ Companies and their subsidiaries, are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us. There can be no assurance that we will be able to generate sufficient cash flows, use cash held by MMJ to fund its capital expenditures, access capital markets or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do the foregoing could have a material adverse effect on our business, results of operations, or financial conditions.
The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void under Section 133 of the German Insolvency Act a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008 pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera Memories, Inc. (the "Inotera Shares"), representing approximately 55% of our total shares in Inotera as of September 3, 2015, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate under Sections 103 or 133 of the German Insolvency Code a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the Court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on such shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by it and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by it from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court. The next hearing on the matter has not yet been scheduled.
We are unable to predict the outcome of the matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operation, or financial condition. As of September 3, 2015, the Inotera Shares had a carrying value for purposes of our financial reporting of $683 million and a market value of $846 million.
Our future success depends on our ability to develop and produce competitive new memory technologies.
Our key semiconductor memory technologies of DRAM, NAND Flash, and NOR Flash face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on the ability to shrink products in order to reduce costs, meet higher density requirements, and improve power consumption and reliability. To meet these requirements, we expect that new memory technologies will be developed by the semiconductor memory industry. Our competitors are working to develop new memory technologies that may offer performance and/or cost advantages to our existing memory technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory technologies. There can be no assurance of the following:
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• | that we will be successful in developing competitive new semiconductor memory technologies; |
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• | that we will be able to cost-effectively manufacture new products; |
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• | that we will be able to successfully market these technologies; and |
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• | that margins generated from sales of these products will allow us to recover costs of development efforts. |
In the fourth quarter of 2015, we announced the development of new 3D XPoint technology, which is an entirely new class of non-volatile memory. There is no assurance that our efforts to develop and market this new product technology will be successful. If our efforts to develop new semiconductor memory technologies are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.
New product development may be unsuccessful.
We are developing new products, including system-level memory products, that complement our traditional memory products or leverage their underlying design or process technology. We have made significant investments in product and process technologies and anticipate expending significant resources for new semiconductor product development over the next several years. The process to develop DRAM, NAND Flash, NOR Flash, and certain specialty memory products, requires us to demonstrate advanced functionality and performance, many times well in advance of a planned ramp of production, in order to secure design wins with our customers. There can be no assurance of the following:
•that our product development efforts will be successful;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.
If our efforts to develop new products are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.
Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time we experience problems with nonconforming, defective or incompatible products after we have shipped such products. In recent periods we have further diversified and expanded our product offerings which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. As a result of these problems we could be adversely affected in several ways, including the following:
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• | we may be required to compensate customers for costs incurred or damages caused by defective or incompatible product or replace products; |
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• | we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and |
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• | we may encounter adverse publicity, which could cause a decrease in sales of our products. |
A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could materially adversely affect our business, results of operations, or financial condition.
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe their intellectual property rights. We are unable to predict the outcome of assertions of infringement made against us. A determination that our products or manufacturing processes infringe the intellectual property rights of others, or entering a license agreement covering such intellectual property, could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. (See "Part II. Financial Information – Item 8. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.")
We have a number of intellectual property license agreements. Some of these license agreements require us to make one time or periodic payments. We may need to obtain additional patent licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
Our joint ventures and strategic relationships involve numerous risks.
We have entered into strategic relationships to manufacture products and develop new manufacturing process technologies and products. These relationships include our IMFT joint venture with Intel, our Inotera joint venture with Nanya, and our MP Mask joint venture with Photronics. These joint ventures and strategic relationships are subject to various risks that could adversely affect the value of our investments and our results of operations. These risks include the following:
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• | our interests could diverge from our partners or we may not be able to agree with partners on ongoing manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint venture; |
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• | our joint venture partners' products may compete with our products; |
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• | we may experience difficulties in transferring technology to joint ventures; |
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• | we may experience difficulties and delays in ramping production at joint ventures; |
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• | our control over the operations of our joint ventures is limited; |
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• | we may recognize losses from our equity method investments; |
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• | due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them; |
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• | due to differing business models or long-term business goals, our partners may decide not to join us in funding capital investment in our joint ventures, which may result in higher levels of cash expenditures by us; |
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• | cash flows may be inadequate to fund increased capital requirements; |
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• | we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners; |
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• | the terms of our partnering arrangements may turn out to be unfavorable; and |
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• | changes in tax, legal, or regulatory requirements may necessitate changes in the agreements with our partners. |
If our joint ventures and strategic relationships are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected.
If our manufacturing process is disrupted, our business, results of operations, or financial condition could be materially adversely affected.
We manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We maintain operations and continuously implement new product and process technology at our manufacturing operations which are widely dispersed in multiple locations in several countries including the U.S., Singapore, Taiwan, Japan, Malaysia, and China. Additionally, our control over operations at IMFT, Inotera, MP Mask, and Tera Probe is limited by our agreements with our partners. From time to time, we have experienced disruptions in our manufacturing process as a result of power outages, improperly functioning equipment, equipment failures, earthquakes, or other environmental events. If production at a fabrication facility is disrupted for any reason, manufacturing yields may be adversely affected or we may be unable to meet our customers' requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs, loss of revenues, or damage to customer relationships, any of which could materially adversely affect our business, results of operations, or financial condition.
The operations of the MMJ Companies are subject to continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings.
Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of our acquisition of MMJ, the Japan Proceedings are continuing, and the MMJ Companies remain subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the Japan Proceedings. The Japan Proceedings and oversight of the Japan Court are expected to continue until the final creditor payment is made under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. Although we may be able to petition the court to terminate the Japan Proceedings once two-thirds of all payments under the plans of reorganization are made, there can be no assurance that the Japan Court will grant any such petition.
During the pendency of the Japan Proceedings, the MMJ Companies are obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of the MMJ Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of the plans of reorganization of the MMJ Companies. Accordingly, during the pendency of the Japan Proceedings, our ability to effectively integrate the MMJ Companies as part of our global operations or to cause the MMJ Companies to take certain actions that we deem advisable for their businesses could be adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to the MMJ Companies.
Our Inotera supply agreements involves numerous risks.
Since January 2013, we have purchased all of Inotera's DRAM output at a price reflecting a discount from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. Our Inotera supply agreements involve numerous risks including the following:
| |
• | higher costs for supply obtained under the Inotera supply agreements as compared to our wholly-owned facilities; |
| |
• | difficulties and delays in ramping production at Inotera; |
| |
• | difficulties in transferring technology to Inotera; and |
| |
• | difficulties in coming to an agreement with Nanya regarding major corporate decisions, such as capital expenditures or capital structure. |
In 2015 and in 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. For 2015, we purchased $2.37 billion of DRAM products from Inotera and our supply from Inotera accounted for 35% of our aggregate DRAM gigabit production. If our supply of DRAM from Inotera is impacted, our business, results of operations, or financial condition could be materially adversely affected.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, there are transactions and balances denominated in currencies other than the U.S. dollar (our reporting currency), primarily the British pound, euro, shekel, Singapore dollar, New Taiwan dollar, yen, and yuan. We recorded net losses from changes in currency exchange rates of $27 million for 2015, $28 million for 2014, and $229 million for 2013. Based on our foreign currency exposures from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $3 million as of September 3, 2015. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. In the event that exchange rates for the U.S. dollar adversely change against our foreign currency exposures, our results of operations or financial condition may be adversely affected.
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks including the following:
| |
• | integrating the operations, technologies, and products of acquired or newly formed entities into our operations; |
| |
• | increasing capital expenditures to upgrade and maintain facilities; |
| |
• | the assumption of unknown or underestimated liabilities; |
| |
• | the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities; |
| |
• | diverting management's attention from daily operations; |
| |
• | managing larger or more complex operations and facilities and employees in separate and diverse geographic areas; |
| |
• | hiring and retaining key employees; |
| |
• | requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business; |
| |
• | inability to realize synergies or other expected benefits; |
| |
• | failure to maintain customer, vendor, and other relationships; |
| |
• | inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and |
| |
• | impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business. |
In previous years, supply of memory products has significantly exceeded customer demand resulting in significant declines in average selling prices for DRAM, NAND Flash, and NOR Flash products. Resulting operating losses have led to the deterioration in the financial condition of a number of industry participants, including the liquidation of Qimonda and the 2012 bankruptcy filing by Elpida (now known as MMJ). These types of proceedings often lead to court-directed processes involving the sale of related businesses or assets. We believe the global memory industry is experiencing a period of consolidation as a result of these market conditions and other factors, and we may engage in discussions regarding potential acquisitions and similar opportunities arising out of these industry conditions. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, high-technology companies are inherently risky and may not be successful and may materially adversely affect our business, results of operations, or financial condition.
Breaches of our network security could expose us to losses.
We manage and store on our network systems various proprietary information and sensitive or confidential data relating to our operations. We also process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized users may be able to gain access to our network system and steal proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Attacks on our network systems could result in significant losses and damage our reputation with customers, and could expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised.
Compliance with regulations regarding the use of conflict minerals could limit the supply and increase the cost of certain metals used in manufacturing our products.
Increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and its implementing Securities and Exchange Commission regulations. The Dodd-Frank Act imposes supply chain diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and finance or benefit local armed groups. These "conflict minerals" are commonly found in materials used in the manufacture of semiconductors. The implementation of these new regulations may limit the sourcing and availability of some of these materials. This in turn may affect our ability to obtain materials necessary for the manufacture of our products in sufficient quantities and may affect related material pricing. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products are DRC conflict free.
We may incur additional tax expense or become subject to additional tax exposure.
We operate in a number of locations outside the U.S., including in Singapore, and, to a lesser extent, Taiwan, where we have tax incentive agreements that are, in part, conditional upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the distribution of our earnings among these different jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax structure, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, failure to meet performance obligations with respect to tax incentive agreements, and changes in tax laws and regulations. We file income tax returns with the U.S. federal government, various U.S. states, and various other jurisdictions throughout the world. Our U.S. federal and state tax returns remain open to examination for 2011 through 2015. In addition, tax returns open to examination in multiple other taxing jurisdictions range from the years 2007 to 2015. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability.
We may not utilize all of our net deferred tax assets.
We have substantial deferred tax assets, which include, among others, net operating loss and credit carryforwards. As of September 3, 2015, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $4.02 billion and $2.05 billion, respectively, which, if not utilized, will expire at various dates from 2016 through 2035. As of September 3, 2015, our foreign net operating loss carryforwards were $5.15 billion, including $3.81 billion pertaining to Japan, which, if not utilized, substantially all will expire at various dates from 2017 through 2025. As of September 3, 2015, we had valuation allowances of $1.16 billion and $710 million against our net deferred tax assets in the U.S. and Japan, respectively.
The limited availability of raw materials, supplies, or capital equipment could materially adversely affect our business, results of operations, or financial condition.
Our operations require raw materials, and in certain cases, third party services, that meet exacting standards. We generally have multiple sources of supply for our raw materials and services. However, only a limited number of suppliers are capable of delivering certain raw materials and services that meet our standards. In some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of raw materials or components such as silicon wafers, controllers, photomasks, chemicals, gases, photoresist, lead frames, and molding compound. Shortages may occur from time to time in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials or services is disrupted or our lead times extended, our business, results of operations, or financial condition could be materially adversely affected.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time we have experienced difficulties in obtaining some equipment on a timely basis due to the supplier's limited capacity. Our inability to obtain this equipment timely could adversely affect our ability to transition to next generation manufacturing processes and reduce costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and increase our overall costs of the ramp. If we are unable to obtain advanced semiconductor manufacturing equipment in a timely manner, our business, results of operations, or financial condition could be materially adversely affected.
A downturn in the worldwide economy may harm our business.
Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, mobile devices, solid-state drives, and servers. Reduced demand for these products could result in significant decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of loss on our accounts receivables due to credit defaults. As a result, our business, results of operations, or financial condition could be materially adversely affected.
Our results of operations could be affected by natural disasters and other events in the locations in which we or our customers or suppliers operate.
We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events including earthquakes or tsunamis that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may materially adversely affect our business, results of operations, or financial condition.
We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.
Sales to customers outside the United States approximated 84% of our consolidated net sales for 2015. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, and Japan. Our international sales and operations are subject to a variety of risks, including:
| |
• | export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds; |
| |
• | compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act, export and import laws, and similar rules and regulations; |
| |
• | protection of intellectual property; |
| |
• | political and economic instability; |
| |
• | problems with the transportation or delivery of our products; |
| |
• | issues arising from cultural or language differences and labor unrest; |
| |
• | longer payment cycles and greater difficulty in collecting accounts receivable; |
| |
• | compliance with trade, technical standards, and other laws in a variety of jurisdictions; |
| |
• | contractual and regulatory limitations on our ability to maintain flexibility with our staffing levels; |
| |
• | disruptions to our manufacturing operations as a result of actions imposed by foreign governments; |
| |
• | changes in economic policies of foreign governments; and |
| |
• | difficulties in staffing and managing international operations. |
These factors may materially adversely affect our business, results of operations, or financial condition.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, capped-call contracts on our stock, and derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A counterparty may not comply with their contractual commitments which could then lead to their defaulting on their obligations with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceeding. In the event of such default, we could incur significant losses, which could adversely impact our business, results of operations, or financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Boise, Idaho. The following is a summary of our principal facilities as of September 3, 2015:
|
| | |
Location | | Principal Operations |
Boise, Idaho | | R&D, including wafer fabrication; reticle manufacturing; test and module assembly |
Lehi, Utah | | Wafer fabrication |
Manassas, Virginia | | Wafer fabrication |
Singapore | | Three wafer fabrication facilities and a test, assembly and module assembly facility |
Xi’an, China | | Module assembly and test |
Muar, Malaysia | | Assembly and test |
Taichung City, Taiwan | | Wafer fabrication |
Hiroshima, Japan | | Wafer fabrication and R&D |
Akita, Japan | | Module assembly and test |
Substantially all of the capacity of the facilities listed above is fully utilized. Our Inotera joint venture has a 300mm wafer fabrication facility in Kueishan, Taiwan. Under our supply agreement with Inotera, we purchase all of the output of Inotera. We also own and lease a number of other facilities in locations throughout the world that are used for design, R&D, and sales and marketing activities.
Our facility in Lehi is owned and operated by our IMFT joint venture with Intel. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – IMFT.")
In December 2014, we announced plans to add approximately 255,000 square feet of clean room space to our fabrication facility in Singapore to implement 3D NAND Flash production. Construction of the additional space began in 2015 with initial manufacturing output likely in 2017.
We believe that our existing facilities are suitable and adequate for our present purposes. We do not identify or allocate assets by operating segment. (See "Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Geographic Information.")
ITEM 3. LEGAL PROCEEDINGS
Reorganization Proceedings of the MMJ Companies
On July 31, 2013, we completed the acquisition of Elpida, now known as MMJ, a Japanese corporation, pursuant to the terms and conditions of an Agreement on Support for Reorganization Companies (as amended, the "Sponsor Agreement") that we entered into on July 2, 2012 with the trustees of the MMJ Companies' pending corporate reorganization proceedings under the Corporate Reorganization Act of Japan.
The MMJ Companies filed petitions for commencement of corporate reorganization proceedings with the Japan Court under the Corporate Reorganization Act of Japan on February 27, 2012, and the Japan Court issued an order to commence the reorganization proceedings (the "Japan Proceedings") on March 23, 2012. On July 2, 2012, we entered into the Sponsor Agreement with the legal trustees of the MMJ Companies and the Japan Court approved the Sponsor Agreement. Under the Sponsor Agreement, we agreed to provide certain support for the reorganization of the MMJ Companies and the trustees agreed to prepare and seek approval from the Japan Court and the MMJ Companies' creditors of plans of reorganization consistent with such support.
The trustees initially submitted the proposed plans of reorganization for the MMJ Companies to the Japan Court on August 21, 2012 and submitted final proposed plans on October 29, 2012. On October 31, 2012, the Japan Court approved submission of the trustees' proposed plans of reorganization to creditors for approval. On February 26, 2013, the MMJ Companies' creditors approved the reorganization plans and on February 28, 2013, the Japan Court issued an order approving the plans of reorganization. Appeals filed by certain creditors of MMJ in Japan challenging the plan approval order issued by the Japan Court were denied.
In a related action, MMJ filed a Verified Petition for Recognition and Chapter 15 Relief in the United States Bankruptcy Court for the District of Delaware (the "U.S. Court") on March 19, 2012 and, on April 24, 2012, the U.S. Court entered an order that, among other things, recognized MMJ's corporate reorganization proceeding as a foreign main proceeding pursuant to 11 U.S.C. § 1517(b). On June 25, 2013, the U.S. Court issued a recognition order, which recognized the order of the Japan Court approving MMJ's plan of reorganization. On November 19, 2013, the U.S. Court closed the U.S. Chapter 15 proceeding.
The plans of reorganization provide for payments by the MMJ Companies to their secured and unsecured creditors in an aggregate amount of 200 billion yen, less certain expenses of the reorganization proceedings and certain other items. The plans of reorganization also provided for the investment by us pursuant to the Sponsor Agreement of 60 billion yen ($615 million) paid at closing in cash into MMJ in exchange for 100% ownership of MMJ's equity and the use of such investment to fund the initial installment payment by the MMJ Companies to their creditors of 60 billion yen, subject to reduction for certain items specified in the Sponsor Agreement and plans of reorganization.
Under MMJ's plan of reorganization, secured creditors will recover 100% of the amount of their fixed claims and unsecured creditors will recover at least 17.4% of the amount of their fixed claims. The actual recovery of unsecured creditors will be higher, however, based, in part, on events and circumstances occurring following the plan approval. The remaining portion of the unsecured claims will be discharged, without payment, over the period that payments are made pursuant to the plans of reorganization. The secured creditors will be paid in full on or before the sixth installment payment date, while the unsecured creditors will be paid in seven installments. MAI's plan of reorganization provides that secured creditors will recover 100% of the amount of their claims, whereas unsecured creditors will recover 19% of the amount of their claims. The secured creditors of MAI were paid in full on the first installment payment date, while the unsecured creditors will be paid in seven installments.
Because the plans of reorganization of the MMJ Companies provide for ongoing payments to creditors following the closing of the MMJ acquisition, the Japan Proceedings are continuing and the MMJ Companies remain subject to the oversight of the Japan Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Japan Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee makes decisions in relation to the operation of the businesses of the MMJ Companies, other than decisions in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. The Japan Proceedings and oversight of the Japan Court will continue until the final creditor payment is made under the MMJ Companies' plans of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. The MMJ Companies may petition the Japan Court for an early termination of the Japan Proceedings once two-thirds of all payments under the plans of reorganization are made. Although such early terminations are customarily granted, there can be no assurance that the Japan Court will grant any such petition in these particular cases.
During the pendency of the Japan Proceedings, the MMJ Companies are obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan Court prior to taking a number of significant actions relating to their businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of the MMJ Companies and their subsidiaries or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of the plans of reorganization of the MMJ Companies. Accordingly, during the pendency of the Japan Proceedings, our ability to effectively integrate the MMJ Companies as part of our global operations or to cause the MMJ Companies to take certain actions that we deem advisable for their businesses could be adversely affected if the Japan Court or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to the MMJ Companies.
For a discussion of other legal proceedings, see "Part II Financial Information – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Contingencies" and "Item 1A. Risk Factors."
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol "MU." The following table represents the high and low closing sales prices for our common stock for each quarter of 2015 and 2014, as reported by Bloomberg L.P.:
|
| | | | | | | | | | | | | | | | |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
2015: | | | | | | | | |
High | | $ | 26.59 |
| | $ | 29.52 |
| | $ | 36.49 |
| | $ | 36.10 |
|
Low | | 14.27 |
| | 26.31 |
| | 28.35 |
| | 27.03 |
|
| | | | | | | | |
2014: | | | | | | | | |
High | | $ | 34.64 |
| | $ | 28.61 |
| | $ | 25.49 |
| | $ | 21.17 |
|
Low | | 28.59 |
| | 21.13 |
| | 20.67 |
| | 13.57 |
|
Holders of Record
As of October 21, 2015, there were 2,378 shareholders of record of our common stock.
Dividends
We have not declared or paid cash dividends since 1996 and do not intend to pay cash dividends for the foreseeable future.
As a result of the Japan Proceedings, for so long as such proceedings continue, the MMJ Group is subject to certain restrictions on dividends, loans, and advances. Our ability to access IMFT's cash and other assets through dividends, loans, or advances, including to finance our other operations, is subject to agreement by Intel.
Equity Compensation Plan Information
The information required by this item is incorporated by reference from the information to be set forth in our 2015 Proxy Statement under the section entitled "Equity Compensation Plan Information," which will be filed with the Securities and Exchange Commission within 120 days after September 3, 2015.
Issuer Purchases of Equity Securities
Since the first quarter of 2015, our Board of Directors authorized the repurchase of up to $1.25 billion of our common stock, $250 million of which was authorized in the first quarter of 2016. Any repurchases under the authorization may be made in open market purchases, block trades, privately negotiated transactions, and/or derivative transactions, subject to market conditions and our ongoing determination that it is the best use of available cash. During the fourth quarter of 2015, we purchased 35,495,175 shares of our common stock through open market transactions.
During the fourth quarter of 2015, we also received 2,685,482 shares of our common stock from the share settlement for a portion of our 2031 Capped Calls.
|
| | | | | | | | | | | | | | | | |
Period | | (a) Total number of shares purchased | | (b) Average price paid per share(1) | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs(2) |
June 5, 2015 | – | July 9, 2015 | | 2,196,500 |
| | $ | 18.67 |
| | 2,196,500 |
| | $ | 766,818,080 |
|
July 10, 2015 | – | August 6, 2015 | | 19,961,832 |
| | 18.21 |
| | 18,507,698 |
| | 430,818,357 |
|
August 7, 2015 | – | September 3, 2015 | | 16,022,325 |
| | 17.69 |
| | 14,790,977 |
| | 169,836,046 |
|
| | | | 38,180,657 |
| | 18.02 |
| | 35,495,175 |
| | |
(1) Excludes commissions.
(2) Does not include $250 million repurchase authorization received in the first quarter of 2016.
In our consolidated financial statements, we also treat shares of common stock withheld as payment of withholding taxes or exercise prices in connection with the vesting or exercise of equity awards as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchases under an authorized common stock repurchase plan and accordingly are excluded from the above table.
Performance Graph
The following graph illustrates a five-year comparison of cumulative total returns for our common stock, the S&P 500 Composite Index, and the Philadelphia Semiconductor Index (SOX) from August 31, 2010, through August 31, 2015. We operate on a 52 or 53 week fiscal year which ends on the Thursday closest to August 31. Accordingly, the last day of our fiscal year varies. For consistent presentation and comparison to the industry indices shown herein, we have calculated our stock performance graph assuming an August 31 year end.
Note: Management cautions that the stock price performance information shown in the graph above is provided as of August 31 for the years presented and may not be indicative of current stock price levels or future stock price performance.
The performance graph above assumes $100 was invested on August 31, 2010 in common stock of Micron Technology, Inc., the S&P 500 Composite Index, and the Philadelphia Semiconductor Index (SOX). Any dividends paid during the period presented were assumed to be reinvested. The performance was plotted using the following data:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 |
Micron Technology, Inc. | | $ | 100 |
| | $ | 92 |
| | $ | 96 |
| | $ | 210 |
| | $ | 505 |
| | $ | 254 |
|
S&P 500 Composite Index | | 100 |
| | 119 |
| | 140 |
| | 166 |
| | 208 |
| | 209 |
|
Philadelphia Semiconductor Index (SOX) | | 100 |
| | 117 |
| | 132 |
| | 156 |
| | 223 |
| | 217 |
|
ITEM 6. SELECTED FINANCIAL DATA
|
| | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | | | | | | | | | |
| | (in millions except per share amounts) |
Net sales | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
| | $ | 8,234 |
| | $ | 8,788 |
|
Gross margin | | 5,215 |
| | 5,437 |
| | 1,847 |
| | 968 |
| | 1,758 |
|
Operating income (loss) | | 2,998 |
| | 3,087 |
| | 236 |
| | (612 | ) | | 761 |
|
Net income (loss) | | 2,899 |
| | 3,079 |
| | 1,194 |
| | (1,031 | ) | | 190 |
|
Net income (loss) attributable to Micron | | 2,899 |
| | 3,045 |
| | 1,190 |
| | (1,032 | ) | | 167 |
|
Diluted earnings (loss) per share | | 2.47 |
| | 2.54 |
| | 1.13 |
| | (1.04 | ) | | 0.17 |
|
| | | | | | | | | | |
Cash and short-term investments | | 3,521 |
| | 4,534 |
| | 3,101 |
| | 2,559 |
| | 2,160 |
|
Total current assets | | 8,596 |
| | 10,245 |
| | 8,911 |
| | 5,758 |
| | 5,832 |
|
Property, plant and equipment, net | | 10,554 |
| | 8,682 |
| | 7,626 |
| | 7,103 |
| | 7,555 |
|
Total assets | | 24,143 |
| | 22,416 |
| | 19,068 |
| | 14,295 |
| | 14,730 |
|
Total current liabilities | | 3,905 |
| | 4,791 |
| | 4,122 |
| | 2,243 |
| | 2,480 |
|
Long-term debt | | 6,252 |
| | 4,893 |
| | 4,406 |
| | 3,005 |
| | 1,839 |
|
Redeemable convertible notes | | 49 |
| | 68 |
| | — |
| | — |
| | — |
|
Total Micron shareholders’ equity | | 12,302 |
| | 10,760 |
| | 9,142 |
| | 7,700 |
| | 8,470 |
|
Noncontrolling interests in subsidiaries | | 937 |
| | 802 |
| | 864 |
| | 717 |
| | 1,382 |
|
Total equity | | 13,239 |
| | 11,562 |
| | 10,006 |
| | 8,417 |
| | 9,852 |
|
On July 31, 2013, we completed the MMJ Acquisition, in which we acquired Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT. The MMJ Group's products include mobile DRAM targeted to mobile phones and tablets and computing DRAM targeted to desktop PCs, servers, notebooks, and workstations. The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan, and an assembly and test facility located in Akita, Japan. In connection with the MMJ Acquisition, we recorded net assets of $2.60 billion, noncontrolling interests of $168 million, and a gain on the transaction of $1.48 billion in 2013. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc.")
We entered into a joint venture relationship with Intel to form IMFT in 2006 and IM Flash Singapore, LLP ("IMFS") in 2007 to manufacture NAND Flash memory products for the exclusive use of the members. We have owned 51% of IMFT from inception through September 3, 2015. Our ownership percentage of IMFS had increased from 51% at inception to 82% as of April 6, 2012 due to a series of contributions by us that were not fully matched by Intel. On April 6, 2012, we entered into a series of agreements with Intel to restructure IMFT and IMFS, in which we acquired Intel's remaining 18% interest in IMFS for $466 million. In addition, we acquired IMFT's assets located at our Virginia wafer fabrication facility, for which Intel received a distribution from IMFT of $139 million. For both transactions, the amounts Intel received approximated the book values of Intel's interests in the assets acquired. We consolidate IMFT (and IMFS through April 6, 2012) and report Intel's ownership interests as noncontrolling interests in subsidiaries. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Noncontrolling Interests in Subsidiaries – IMFT.")
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in "Liquidity and Capital Resources" regarding our pursuit of additional financing and debt restructuring, regarding capital spending in 2016, regarding the expansion of our clean room space in Singapore, regarding the sufficiency of our cash and investments, cash flows from operations, and available financing to meet our requirements for at least the next 12 months, and regarding the timing of payments for certain contractual obligations; and in "Recently Issued Accounting Standards" regarding the impact of adopting these new standards. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Part I, Item 1A. Risk Factors." This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended September 3, 2015. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Our fiscal 2015 contains 53 weeks and our fiscal 2014 and fiscal 2013 each contained 52 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions except per share amounts.
Our Management's Discussion and Analysis ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
| |
• | Overview: Overview of our operations and business. |
| |
• | Results of Operations: An analysis of our financial results consisting of the following: |
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◦ | Operating results by business segment; |
| |
◦ | Operating results by product; and |
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◦ | Operating expenses and other. |
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• | Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and potential sources of liquidity. |
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• | Off-Balance Sheet Arrangements: Description of off-balance sheet arrangements. |
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• | Critical Accounting Estimates: Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
| |
• | Recently Adopted and Issued Accounting Standards |
Overview
For an overview of our business, see "Part I – Item 1. – Business – Overview."
Results of Operations
Consolidated Results
|
| | | | | | | | | | | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Net sales | | $ | 16,192 |
| | 100 | % | | $ | 16,358 |
| | 100 | % | | $ | 9,073 |
| | 100 | % |
Cost of goods sold | | 10,977 |
| | 68 | % | | 10,921 |
| | 67 | % | | 7,226 |
| | 80 | % |
Gross margin | | 5,215 |
| | 32 | % | | 5,437 |
| | 33 | % | | 1,847 |
| | 20 | % |
| | | | | | | | | | | | |
Selling, general and administrative | | 719 |
| | 4 | % | | 707 |
| | 4 | % | | 562 |
| | 6 | % |
Research and development | | 1,540 |
| | 10 | % | | 1,371 |
| | 8 | % | | 931 |
| | 10 | % |
Restructure and asset impairments | | 3 |
| | — | % | | 40 |
| | — | % | | 126 |
| | 1 | % |
Other operating (income) expense, net | | (45 | ) | | — | % | | 232 |
| | 1 | % | | (8 | ) | | — | % |
Operating income | | 2,998 |
| | 19 | % | | 3,087 |
| | 19 | % | | 236 |
| | 3 | % |
| | | |
|
| | | | | | | | |
Interest income (expense), net | | (336 | ) | | (2 | )% | | (329 | ) | | (2 | )% | | (217 | ) | | (2 | )% |
Gain on MMJ Acquisition | | — |
| | — | % | | (33 | ) | | — | % | | 1,484 |
| | 16 | % |
Other non-operating income (expense), net | | (53 | ) | | — | % | | 8 |
| | — | % | | (218 | ) | | (2 | )% |
Income tax (provision) benefit | | (157 | ) | | (1 | )% | | (128 | ) | | (1 | )% | | (8 | ) | | — | % |
Equity in net income (loss) of equity method investees | | 447 |
| | 3 | % | | 474 |
| | 3 | % | | (83 | ) | | (1 | )% |
Net income attributable to noncontrolling interests | | — |
| | — | % | | (34 | ) | | — | % | | (4 | ) | | — | % |
Net income attributable to Micron | | $ | 2,899 |
| | 18 | % | | $ | 3,045 |
| | 19 | % | | $ | 1,190 |
| | 13 | % |
Business Segments
We have the following four business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"): Includes memory products sold into compute, networking, graphics, and cloud server markets.
Mobile Business Unit ("MBU"): Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Storage Business Unit ("SBU"): Includes memory products sold into enterprise, client, cloud, and removable storage markets. SBU also includes products sold to Intel through our IMFT joint venture.
Embedded Business Unit ("EBU"): Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.
Acquisition of Micron Memory Japan, Inc.
On July 31, 2013, we completed the MMJ Acquisition, in which we acquired Elpida, now known as MMJ, and a controlling interest in Rexchip, now known as MMT. In 2014, we purchased additional interests in MMT, increasing our ownership interest to 99.5%. In connection with the MMJ Acquisition, we recorded net assets of $2.60 billion, noncontrolling interests of $168 million and a gain on the transaction of $1.48 billion in 2013. In the second quarter of 2014, the provisional amounts recorded in connection with the MMJ Acquisition were adjusted, primarily for pre-petition liabilities. As a result, other non-operating expense for 2014 included these measurement period adjustments of $33 million. (See "Item 8. Financial Statements – Notes to Consolidated Financial Statements – Micron Memory Japan, Inc.")
The MMJ Acquisition included a 300mm DRAM wafer fabrication facility located in Hiroshima, Japan, a 300mm DRAM wafer fabrication facility in Taichung City, Taiwan, and an assembly and test facility located in Akita, Japan. These wafer fabrication facilities together represented approximately 30% of our total wafer capacity for 2015. The MMJ Group's products include mobile DRAM targeted to mobile phones and tablets, and computing DRAM targeted to desktop PCs, servers, notebooks, and workstations. The operations from the MMJ Acquisition are included primarily in the MBU and CNBU segments.
Net Sales
|
| | | | | | | | | | | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
CNBU | | $ | 6,725 |
| | 42 | % | | $ | 7,333 |
| | 45 | % | | $ | 3,462 |
| | 38 | % |
MBU | | 3,692 |
| | 23 | % | | 3,627 |
| | 22 | % | | 1,214 |
| | 13 | % |
SBU | | 3,687 |
| | 23 | % | | 3,480 |
| | 21 | % | | 2,824 |
| | 31 | % |
EBU | | 1,999 |
| | 12 | % | | 1,774 |
| | 11 | % | | 1,275 |
| | 14 | % |
All Other | | 89 |
| | 1 | % | | 144 |
| | 1 | % | | 298 |
| | 3 | % |
| | $ | 16,192 |
| |
| | $ | 16,358 |
| |
|
| | $ | 9,073 |
| |
|
|
Percentages reflect rounding and may not total 100%.
Total net sales for 2015 decreased 1% as compared to 2014 primarily due to lower CNBU sales as a result of decreases in DRAM sales as declines in average selling prices outpaced increases in gigabit sales volumes. SBU and MBU sales for 2015 increased as compared to 2014 as a result of higher NAND Flash sales due to increases in gigabit sales volumes partially offset by declines in average selling prices. EBU sales for 2015 increased as compared to 2014 due to higher sales volumes as a result of increases in market demand. The increases in gigabit sales volumes for 2015 were primarily attributable to higher manufacturing output due to improvements in product and process technologies.
Total net sales for 2014 increased 80% as compared to 2013 primarily due to higher CNBU and MBU sales resulting from the MMJ Acquisition. Net sales for all segments in 2014 also benefitted, as compared to 2013, from increases in DRAM and NAND Flash sales volumes driven primarily by higher manufacturing output as a result of improvements in product and process technology and an increased share of output from Inotera.
Gross Margin
Our overall gross margin percentage declined to 32% for 2015 from 33% for 2014 primarily due to declines in average selling prices partially offset by manufacturing cost reductions. CNBU and SBU experienced declines in gross margin percentage for 2015 as compared to 2014 as declines in average selling price outpaced manufacturing cost reductions. MBU's gross margin percentage for 2015 improved as compared to 2014 as manufacturing cost reductions outpaced declines in average selling prices.
Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting discounts from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed a supply agreement, to be effective beginning on January 1, 2016 (the "2016 Supply Agreement"), which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. In 2015 and 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. Under the market conditions prevailing in the fourth quarter of 2015, costs of products purchased under the current agreement were higher than they would have been under the pricing formula of the 2016 Supply Agreement. We purchased $2.37 billion, $2.68 billion, and $1.26 billion of DRAM products from Inotera in 2015, 2014, and 2013, respectively.
Our overall gross margin percentage improved to 33% for 2014 from 20% for 2013 primarily due to improvements in the gross margin percentage for CNBU and MBU as a result of higher margins for DRAM products. The gross margin improvements for CNBU and MBU for 2014 as compared to 2013 resulted primarily from the MMJ Acquisition, manufacturing cost reductions, and higher average selling prices for CNBU. Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process technologies and the comparatively lower manufacturing costs of the MMJ Group, partially offset by higher costs for product obtained under the Inotera supply agreement. For 2014 and the fourth quarter of 2013, our costs of goods sold for DRAM products included the sale of the MMJ Group's inventories recorded at fair value in the MMJ Acquisition, which was higher than the manufacturing cost of such inventories. This increased our costs of goods sold by approximately $153 million for 2014 and $41 million for 2013.
Operating Results by Business Segments
CNBU
|
| | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Net sales | | $ | 6,725 |
| | $ | 7,333 |
| | $ | 3,462 |
|
Operating income | | 1,481 |
| | 1,957 |
| | 160 |
|
CNBU sales and operating results are significantly impacted by average selling prices, gigabit sales volumes, and cost per gigabit of our DRAM products. (See "Operating Results by Product – DRAM" for further detail.) CNBU sales for 2015 decreased 8% as compared to 2014 primarily due to declines in average selling prices as a result of continued weakness in the PC sector, partially offset by increases in gigabits sold. CNBU operating income for 2015 declined from 2014 as decreases in average selling prices outpaced manufacturing cost reductions.
CNBU sales for 2014 increased 112% as compared to 2013 primarily due to (1) the MMJ Acquisition, (2) higher average selling prices, (3) increased DRAM supply from Inotera as a result of the restructuring of our supply agreement, and (4) higher output due to improvements in product and process technologies. CNBU sales for 2014 as compared to 2013 were adversely impacted by the transition of production at one of our Singapore wafer fabrication facilities from DRAM to NAND Flash. CNBU operating income for 2014 improved from 2013 primarily due to the MMJ Acquisition, higher average selling prices, and manufacturing cost reductions.
MBU
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| | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Net sales | | $ | 3,692 |
| | $ | 3,627 |
| | $ | 1,214 |
|
Operating income (loss) | | 1,126 |
| | 683 |
| | (265 | ) |
In 2015 and 2014, MBU sales were comprised primarily of DRAM, NAND Flash, and NOR Flash, in decreasing order of revenue, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for 2015 increased 2% as compared to 2014 primarily due to significant increases in gigabit sales volumes for managed NAND Flash and MCP products partially offset by lower sales of mobile DRAM products as a result of declines in average selling prices and sales volumes. MBU operating income for 2015 improved from 2014 as manufacturing cost reductions outpaced declines in average selling prices.
MBU sales for 2014 increased 199% as compared to 2013 primarily due to significant increases in mobile DRAM sales as a result of the MMJ Acquisition. MBU operating margin for 2014 also improved from 2013 primarily due to the MMJ Acquisition and manufacturing cost reductions, which significantly outpaced declines in average selling prices.
SBU
|
| | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Net sales | | $ | 3,687 |
| | $ | 3,480 |
| | $ | 2,824 |
|
Operating income (loss) | | (89 | ) | | 255 |
| | 173 |
|
SBU sales and operating results are significantly impacted by average selling prices, gigabit sales volumes, and cost per gigabit of our NAND Flash products. (See "Operating Results by Product – Non-Volatile Memory" for further details.) SBU sales for 2015 increased 6% from 2014 primarily due to increases in gigabits sold partially offset by declines in average selling prices. SBU sells a portion of its products to Intel through our IMFT joint venture at long-term negotiated prices approximating cost. SBU sales of products to Intel under this arrangement were $420 million, $423 million, and $387 million for 2015, 2014, and 2013, respectively. All other SBU products are sold to OEMs, resellers, retailers, and other customers (including Intel), which we collectively refer to as "trade customers."
SBU sales of NAND Flash products to trade customers for 2015 increased 7% as compared to 2014 primarily due to increases in gigabits sold partially offset by declines in average selling prices. Increases in gigabits sold for 2015 as compared to 2014 were primarily due to higher manufacturing output. SBU operating margin for 2015 declined from 2014 as decreases in average selling prices outpaced manufacturing cost reductions and R&D costs increased in connection with increased spending on controllers, firmware, and engineering for SSDs and managed NAND Flash products.
SBU sales for 2014 increased 23% from 2013 primarily due to increases in gigabits sold partially offset by declines in average selling prices. Increases in gigabits sold for 2014 were primarily due to the transition in 2014 of production at one of our wafer fabrication facilities in Singapore from DRAM to NAND Flash and improvements in product and process technologies. SBU sales of NAND Flash products to trade customers for 2014 increased 26% as compared to 2013 primarily due to an increase in gigabits sold partially offset by declines in average selling prices. SBU operating income for 2014 improved from 2013 primarily due to higher gigabit sales volumes as manufacturing cost reductions were essentially offset by declines in average selling prices.
EBU
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| | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Net sales | | $ | 1,999 |
| | $ | 1,774 |
| | $ | 1,275 |
|
Operating income | | 435 |
| | 331 |
| | 227 |
|
In 2015 and 2014, EBU sales were comprised of DRAM, NAND Flash, and NOR Flash in decreasing order of revenue. EBU sales for 2015 increased 13% as compared to 2014 primarily due to higher sales volumes of DRAM and NAND Flash products as a result of increases in demand. EBU operating income for 2015 improved as compared to 2014 primarily due to the higher sales volumes.
EBU sales for 2014 increased 39% as compared to 2013 primarily due to increased sales volumes of DRAM and NAND Flash products partially offset by declines in average selling prices. EBU operating income for 2014 improved as compared to 2013 primarily due to higher margins on sales of DRAM and NAND Flash products as a result of the increase in sales and cost reductions.
Operating Results by Product
Net Sales by Product
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| | | | | | | | | | | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
DRAM | | $ | 10,339 |
| | 64 | % | | $ | 11,164 |
| | 68 | % | | $ | 4,361 |
| | 48 | % |
Non-Volatile Memory | | 5,274 |
| | 33 | % | | 4,468 |
| | 27 | % | | 3,589 |
| | 40 | % |
Other | | 579 |
| | 4 | % | | 726 |
| | 4 | % | | 1,123 |
| | 12 | % |
| | $ | 16,192 |
| | | | $ | 16,358 |
| | | | $ | 9,073 |
| | |
Percentages reflect rounding and may not total 100%.
Non-Volatile Memory includes NAND Flash and 3D XPoint memory. Through 2015, substantially all of our Non-Volatile Memory sales were from NAND Flash products. Sales of NOR Flash products are included in Other. Information regarding our MCP products, which combine both NAND Flash and DRAM components, is reported within Non-Volatile Memory.
DRAM
|
| | | | | | |
For the year ended | | 2015 | | 2014 |
| | | | |
| | (percentage change from prior period) |
Net sales | | (7 | )% | | 156 | % |
Average selling prices per gigabit | | (11 | )% | | 6 | % |
Gigabits sold | | 4 | % | | 142 | % |
Cost per gigabit | | (12 | )% | | (20 | )% |
The increase in gigabit sales volumes of DRAM products for 2015 as compared to 2014 was primarily due to increases in gigabit production despite our continued preparation of fabrication facilities for production of the next technology node, which constrained output. DRAM gigabit production growth in 2015 was also impacted by a shift to a higher mix of mobile and DDR4 products, which have larger die sizes and therefore produce fewer bits per wafer. The increase in gigabit sales of DRAM products for 2014 as compared to 2013 was primarily due to higher production volumes resulting from the MMJ Acquisition, increased supply under the Inotera supply agreement, and improved product and process technologies, partially offset by the transition of one of our wafer fabrication facilities in Singapore from DRAM to NAND Flash. In 2014, DRAM products produced by facilities acquired in the MMJ Acquisition constituted 54% of our aggregate DRAM gigabit production as compared to 9% in 2013.
In 2015 and 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. Under the market conditions prevailing in the fourth quarter of 2015, costs of products purchased under the current agreement were higher than they would have been under the pricing formula of the 2016 Supply Agreement. DRAM products acquired from Inotera accounted for 35% of our aggregate DRAM gigabit production for 2015 as compared to 38% for 2014 and 54% for 2013.
Our gross margin percentage on sales of DRAM products for 2015 improved from 2014 as manufacturing cost reductions outpaced declines in average selling prices. Our gross margin percentage on sales of DRAM products for 2014 improved from 2013 primarily due to reductions in costs and increases in average selling prices. Cost reductions for 2014 primarily reflected improvements in product and process technologies and the comparatively lower manufacturing costs of the MMJ Group partially offset by higher costs for product obtained under the Inotera supply agreement and the sale of the MMJ Group's inventories recorded in the MMJ Acquisition.
Non-Volatile Memory
The following discussion focuses on sales of NAND Flash products which constituted substantially all of Non-Volatile Memory sales through 2015. This discussion of NAND Flash excludes NAND Flash products manufactured and sold to Intel through IMFT at long-term negotiated prices approximating cost.
|
| | | | | | |
For the year ended | | 2015 | | 2014 |
| | | | |
| | (percentage change from prior period) |
Sales to trade customers: | | | | |
Net sales | | 20 | % | | 27 | % |
Average selling prices per gigabit | | (17 | )% | | (23 | )% |
Gigabits sold | | 45 | % | | 65 | % |
Cost per gigabit | | (10 | )% | | (23 | )% |
The increase in NAND Flash gigabits sold to trade customers for 2015 as compared to 2014 was primarily due to higher production from improved product and process technologies and the transition of our wafer fabrication facility in Singapore from DRAM to NAND Flash production. Increases in gigabit production of NAND Flash products for 2015 as compared to 2014 were limited by a shift in product mix to higher levels of managed NAND Flash and MCP products, which have both higher average selling prices and costs per gigabit. Increases in NAND Flash gigabits sold to trade customers for 2014 as compared to 2013 were primarily due to the transition of our wafer fabrication facility in Singapore from DRAM to NAND Flash production and improvements in product and process technologies.
Our gross margin percentage on sales of trade NAND Flash products for 2015 declined from 2014 as the declines in average selling prices outpaced manufacturing cost reductions resulting from improvements in product and process technologies. Our gross margin percentage on sales of trade NAND Flash products for 2014 was relatively unchanged from 2013 as manufacturing cost reductions offset declines in average selling prices. Manufacturing cost reductions for 2014 as compared to 2013 primarily resulted from improvements in product and process technologies.
Operating Expenses and Other
Selling, General and Administrative
SG&A expenses for 2015 increased 2% as compared to 2014 primarily due to an additional week in 2015 and higher legal costs.
SG&A expenses for 2014 increased 26% as compared to 2013 primarily due to the incremental costs resulting from the MMJ Acquisition and higher payroll costs resulting primarily from the reinstatement of variable pay plans.
Research and Development
R&D expenses for 2015 increased 12% from 2014 primarily due to a higher volume of development wafers processed, an increase in depreciation expense due to R&D capital expenditures, higher payroll costs, higher subcontracted engineering and other professional service costs, and an additional week in 2015. Increases in R&D expenses for 2015 as compared to 2014 were partly attributable to increased spending on controllers, firmware, and engineering to support system level products, including SSD, managed NAND Flash, and HMC products.
R&D expenses for 2014 increased 47% from 2013 primarily due to the incremental costs resulting from the MMJ Acquisition, higher payroll costs resulting primarily from the reinstatement of variable pay plans, and increased resources dedicated to development efforts.
We generally share with Intel the costs of product design and process development activities for NAND Flash memory and 3D XPoint memory. Our R&D expenses reflect net reductions of $231 million, $162 million, and $176 million in 2015, 2014, and 2013, respectively, as a result of reimbursements under our Intel and other cost-sharing arrangements.
Our process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies which are designed to facilitate our transition to next generation memory products. Additional process technology R&D efforts focus on the enablement of advanced computing and mobile memory architectures, the investigation of new opportunities that leverage our core semiconductor expertise, and the development of new manufacturing materials. Product design and development efforts include our high density DDR3 and DDR4 DRAM, Mobile LPDRAM products, high density NAND Flash memory (including 3D NAND and MLC and TLC technologies), 3D XPoint memory, SSDs, Hybrid Memory Cubes, specialty memory, NOR Flash memory, and other memory technologies and systems.
Restructure and Asset Impairments
|
| | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Loss on impairment of LED assets | | $ | 1 |
| | $ | (6 | ) | | $ | 33 |
|
Loss on impairment of MIT assets | | — |
| | (5 | ) | | 62 |
|
Gain on termination of lease to Transform | | — |
| | — |
| | (25 | ) |
Loss on restructure of ST consortium agreement | | — |
| | — |
| | 26 |
|
Other | | 2 |
| | 51 |
| | 30 |
|
| | $ | 3 |
| | $ | 40 |
| | $ | 126 |
|
In order to optimize operations, improve efficiency, and increase our focus on our core memory operations, we have entered into various restructure activities. For 2014 and 2013, other restructure included charges associated with our efforts to wind down our 200mm operations primarily in Agrate, Italy and Kiryat Gat, Israel and charges associated with workforce optimization activities, primarily related to our MBU and EBU operating segments. As of September 3, 2015, we do not anticipate incurring any significant additional costs for these restructure activities. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Restructure and Asset Impairments.")
Interest Income (Expense)
Net interest expense for 2015, 2014, and 2013, included aggregate amounts of amortization of debt discount and other costs of $138 million, $167 million, and $122 million, respectively.
Income Taxes
Our effective tax rates were 6.0%, 4.7%, and 0.6% for 2015, 2014, and 2013, respectively. Our effective tax rates reflect the following:
| |
• | operations in tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and the effective tax rates in these jurisdictions are significantly lower than the U.S. statutory rate; |
| |
• | operations outside the U.S., including Singapore and, to a lesser extent Taiwan, where we have tax incentive arrangements that decrease our effective tax rates; and |
| |
• | a valuation allowance against substantially all of our U.S. net deferred tax assets. |
Income taxes for 2015 and 2014 included $80 million and $59 million, respectively, related to changes in amounts of net deferred tax assets associated with the MMJ Group. Income taxes for 2013 included benefits of $19 million from the favorable resolution of prior year tax matters and a change in tax laws applicable to prior years. The remaining tax provision for 2015, 2014, and 2013 primarily reflects taxes on our other non-U.S. operations. Income taxes on U.S. operations for 2015, 2014, and 2013 were substantially offset by changes in the valuation allowance.
We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. Management continues to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowances. The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.
We operate in a number of locations outside the U.S., including Singapore and, to a lesser extent, Taiwan, where we have tax incentive agreements that are conditional upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements, which expire in whole or in part at various dates through 2030, reduced our tax provision for 2015, 2014, and 2013 by $338 million (benefitting our diluted earnings per share by $0.29), $286 million ($0.24 per diluted share), and $141 million ($0.13 per diluted share), respectively.
(See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes.")
Equity in Net Income (Loss) of Equity Method Investees
We recognize our share of earnings or losses from equity method investments, generally on a two-month lag. Equity in net income (loss) of equity method investees, net of tax, included the following:
|
| | | | | | | | | | | | |
For the year ended | | 2015 | | 2014 | | 2013 |
Inotera | | $ | 445 |
| | $ | 465 |
| | $ | (79 | ) |
Tera Probe | | 1 |
| | 11 |
| | — |
|
Other | | 1 |
| | (2 | ) | | (4 | ) |
| | $ | 447 |
| | $ | 474 |
| | $ | (83 | ) |
Our share of earnings for 2015 included $49 million for the net effect of Inotera's full release of its valuation allowance against net deferred tax assets related to its net operating loss carryforward and the resulting tax provision in subsequent periods. As a result of the release, Inotera's future net income is subject to tax provisions. Our equity in net income of Inotera declined for 2015 as compared to 2014 due to a decrease in Inotera's operating results as a result of declines in average selling prices.
Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting a discount from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed the 2016 Supply Agreement, to be effective beginning on January 1, 2016, which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. In 2015 and in 2014, our cost of products purchased from Inotera was significantly higher than our cost of similar products manufactured in our wholly-owned facilities, due to the pricing formula of the current agreement and strong market conditions. Under the market conditions prevailing in the fourth quarter of 2015, costs of products purchased under the current agreement were higher than they would have been under the pricing formula of the 2016 Supply Agreement.
Other Operating and Non-Operating
In 2014, we settled all pending litigation between us and Rambus, including all antitrust and patent matters, and entered into a patent cross-license agreement. As a result, other operating expense for 2014 included a $233 million charge to accrue a liability, which reflects the discounted value of amounts due under this arrangement.
Other non-operating expense for 2015, 2014, and 2013 included losses from the restructure of our debt of $49 million, $184 million, and $31 million, respectively. (See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.")
Other non-operating expense included losses from changes in currency exchange rates of $27 million, $28 million, and $229 million for 2015, 2014, and 2013, respectively. The loss for 2013 included a $228 million loss for currency contracts to hedge our yen-denominated obligations in connection with the MMJ Acquisition.
On August 15, 2014, ON Semiconductor Corporation acquired Aptina for approximately $433 million and we recognized a non-operating gain of $119 million on the sale of our shares based on our diluted ownership interest of approximately 27%.
On May 15, 2014, Inotera issued 400 million common shares in a public offering at a price equal to 31.50 New Taiwan dollars per share, which was in excess of our carrying value per share. As a result of the issuance, our ownership interest decreased from 35% to 33% and we recognized a non-operating gain of $93 million in 2014. On May 28, 2013, Inotera issued 634 million common shares to Nanya and certain of its affiliates in a private placement at a price equal to 9.47 New Taiwan dollars per share, which was in excess of our carrying value per share. As a result of the issuance, our ownership interest decreased from 40% to 35% and we recognized a non-operating gain of $48 million in 2013.
Further discussion of other operating and non-operating income and expenses can be found in the following notes contained in "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements":
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• | Other Operating (Income) Expense, Net |
| |
• | Other Non-Operating Income (Expense), Net |
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets. We generated cash from operations of $5.21 billion in 2015 and $5.70 billion in 2014. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We obtained $2.50 billion from debt and lease financing in 2015 and $2.23 billion in 2014. As of September 3, 2015, we had (1) revolving credit facilities available that provide for up to $842 million of additional financing based on eligible receivables and inventories and (2) a term loan agreement available to obtain financing collateralized by certain property, plant, and equipment in the amount of 6.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $213 million as of September 3, 2015), of which we drew $40 million on June 18, 2015. We are continuously evaluating alternatives for efficiently funding capital expenditures, dilution-management activities (including repurchases of convertible notes and our common stock), and ongoing operations. We expect, from time to time in the future, to engage in a variety of transactions for such purposes, including the issuance or incurrence of secured and unsecured debt and the refinancing and restructuring of existing debt.
To develop new product and process technologies, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. As a result of the MMJ acquisition and our expansion in Singapore, we expect our future capital spending will be higher than our historical levels. We estimate that cash expenditures in 2016 for property, plant, and equipment will be approximately $5.3 billion to $5.8 billion, which includes amounts we expect to be funded by our partners. The actual amounts for 2016 will vary depending on market conditions. Investments in capital expenditures for 2015 were $4.12 billion. Total additions to property, plant, and equipment were $4.46 billion, which, in comparison to cash expenditures, reflects differences in timing of receipts and payments for equipment as well as non-cash additions such as equipment leases. As of September 3, 2015, we had commitments of approximately $1.62 billion for the acquisition of property, plant, and equipment, substantially all of which is expected to be paid within one year.
In December 2014, we announced plans to add approximately 255,000 square feet of clean room space to our fabrication facility in Singapore. This expansion facilitates efficient implementation of 3D NAND Flash production at the Singapore facility and gives us the flexibility to gradually add incremental capacity in response to market requirements. Construction of the additional space began in 2015 with initial manufacturing output likely in 2017. Subject to market conditions, we estimate capital expenditures of approximately $1.93 billion in 2016 related to this facility.
Since the first quarter of 2015, our Board of Directors has authorized the discretionary repurchase of up to $1.25 billion of our outstanding common stock, $250 million of which was authorized in the first quarter of 2016. Any repurchases under the authorization may be made in open market purchases, block trades, privately-negotiated transactions, and/or derivative transactions. Repurchases are subject to market conditions and our ongoing determination of the best use of available cash. During 2015, we repurchased 42 million shares for $831 million (including commissions) in the open market.
We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months.
|
| | | | | | | | |
As of | | 2015 | | 2014 |
Cash and equivalents and short-term investments: | | | | |
Bank deposits | | $ | 1,684 |
| | $ | 2,445 |
|
Corporate bonds | | 618 |
| | 154 |
|
Government securities | | 449 |
| | 136 |
|
Certificates of deposit | | 339 |
| | 410 |
|
Commercial paper | | 255 |
| | 107 |
|
Money market funds | | 168 |
| | 1,281 |
|
Asset-backed securities | | 8 |
| | 1 |
|
| | $ | 3,521 |
| | $ | 4,534 |
|
| | | | |
Long-term marketable investments | | $ | 2,113 |
| | $ | 819 |
|
As of September 3, 2015, $2.17 billion of our cash and equivalents and short-term investments was held by foreign subsidiaries, of which $149 million was denominated in currencies other than the U.S. dollar. To mitigate credit risk, we invest through high-credit-quality financial institutions and, by policy, generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor.
Limitations on the Use of Cash and Investments
MMJ Group: Cash and equivalents and short-term investments in the table above included an aggregate of $748 million held by the MMJ Group as of September 3, 2015. As a result of the corporate reorganization proceedings of the MMJ Companies entered into in March 2012 and for so long as such proceedings are continuing, the MMJ Companies and their subsidiaries are subject to certain restrictions on dividends, loans, and advances. The plans of reorganization of the MMJ Companies prohibit the MMJ Companies from paying dividends, including any cash dividends, to us and require that excess earnings be used in their businesses or to fund the MMJ Companies' installment payments. These prohibitions also effectively prevent the subsidiaries of the MMJ Companies from paying cash dividends. In addition, pursuant to an order of the Japan Court, the MMJ Companies cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Japan Court. Moreover, loans or advances by subsidiaries of the MMJ Companies may be considered outside of the ordinary course of business and subject to approval of the legal trustee and Japan Court. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Moreover, certain uses of the assets of the MMJ Group, including investments in certain capital expenditures and in MMT, may require consent of MMJ's trustees and/or the Japan Court.
IMFT: Cash and equivalents and short-term investments in the table above included $134 million held by IMFT as of September 3, 2015. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
Indefinitely Reinvested: As of September 3, 2015, we had $1.48 billion of cash and equivalents and short-term investments, including substantially all of the amounts held by the MMJ Group, that were held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested and repatriation of these funds to the U.S. would subject these funds to U.S. federal income taxes. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Operating Activities
Net cash provided by operating activities was $5.21 billion for 2015. Cash provided by operating activities was due primarily to net income generated by our operations, adjusted for certain non-cash items.
Investing Activities
Net cash used for investing activities was $6.23 billion for 2015, which consisted primarily of cash expenditures of $4.02 billion for property, plant, and equipment and $2.14 billion of net outflows for investments in available-for-sale securities.
Financing Activities
Net cash used by financing activities was $718 million for 2015, which included outflows of $2.33 billion for repayments of debt (including $932 million for the amount in excess of principal of our convertible notes), $831 million for the open-market repurchases of 42 million shares of our common stock, and $95 million of payments on equipment purchase contracts. Cash outflows for financing activities in 2015 were partially offset by inflows of $2.00 billion in aggregate from the issuance of the 2023 Notes, 2024 Notes, and 2026 Notes, $291 million from the proceeds of sale-leaseback transactions, $125 million from draws on our revolving credit facilities, and $87 million from term loans.
2015 Debt Activity
Throughout 2015, we reduced the dilutive effects of our convertible notes through conversions and repurchases. As a result, we eliminated convertible notes that were convertible into approximately 37 million shares of our common stock. The following table summarized our debt restructure activities in 2015.
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| | | | | | | | | | | | | | | | | | | | |
| | Increase (Decrease) in Principal | | Increase (Decrease) in Carrying Value | | Increase (Decrease) in Cash | | (Decrease) in Equity | | Loss(1) |
Conversions and settlements | | $ | (121 | ) | | $ | (367 | ) | | $ | (408 | ) | | $ | (15 | ) | | $ | (22 | ) |
Repurchases | | (368 | ) | | (319 | ) | | (1,019 | ) | | (676 | ) | | (22 | ) |
Issuances | | 2,000 |
| | 1,979 |
| | 1,979 |
| | — |
| | — |
|
Early repayment | | (121 | ) | | (115 | ) | | (122 | ) | | — |
| | (5 | ) |
| | $ | 1,390 |
| | $ | 1,178 |
| | $ | 430 |
| | $ | (691 | ) | | $ | (49 | ) |
| |
(1) | Included in other non-operating expense. |
Potential Settlement Obligations of Convertible Notes
Since the closing price of our common stock for at least 20 trading days in the 30 trading day period ended September 30, 2015 exceeded 130% of the conversion price per share of our 2032 Notes and 2033 Notes, holders of those notes have the right to convert their notes at any time through December 31, 2015. For all of our convertible notes, we have either: (1) the requirement to pay cash for the principal amount and the option to pay either cash, shares of our common stock, or any combination thereof for any remaining conversion obligation, or (2) the option to pay cash, issue shares of common stock, or any combination thereof for the aggregate amount due upon conversion.
The following table summarizes the potential settlements, as of September 3, 2015, that we could be required to make if all holders converted their 2032 Notes and 2033 Notes:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Conversion Price Per Share | | Settlement Option for Principal Amount | | Outstanding Principal | | If Settled With Minimum Cash Required(1) | | If Settled Entirely With Cash(2) |
| | | | | Cash | | Remainder in Shares | | Cash |
2032C Notes | | $ | 9.63 |
| | Cash and/or shares | | $ | 224 |
| | $ | — |
| | 23 |
| | $ | 385 |
|
2032D Notes | | 9.98 |
| | Cash and/or shares | | 177 |
| | — |
| | 18 |
| | 294 |
|
2033E Notes | | 10.93 |
| | Cash | | 233 |
| | 233 |
| | 7 |
| | 354 |
|
2033F Notes | | 10.93 |
| | Cash | | 297 |
| | 297 |
| | 9 |
| | 451 |
|
| | | | | | $ | 931 |
| | $ | 530 |
| | 57 |
| | $ | 1,484 |
|
| |
(1) | We are required to settle the principal amount of the 2033 Notes in cash. The remaining conversion obligation paid in shares is based on our closing share price of $16.59 as of September 3, 2015. |
| |
(2) | Based on our closing share price of $16.59 as of September 3, 2015. Assumes we elect cash settlement for the entire obligation. |
Contractual Obligations
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
As of September 3, 2015 | | Total | | Less than 1 year | | 1-3 years |
| | 3-5 years |
| | More than 5 years |
Notes payable(1)(2) | | $ | 9,429 |
| | $ | 556 |
| | $ | 1,315 |
| | $ | 1,712 |
| | $ | 5,846 |
|
Capital lease obligations(2) | | 852 |
| | 349 |
| | 304 |
| | 123 |
| | 76 |
|
Operating leases(3) | | 682 |
| | 218 |
| | 402 |
| | 27 |
| | 35 |
|
Purchase obligations | | 2,545 |
| | 2,189 |
| | 335 |
| | 11 |
| | 10 |
|
Other long-term liabilities(4) | | 716 |
| | 222 |
| | 304 |
| | 152 |
| | 38 |
|
Total | | $ | 14,224 |
| | $ | 3,534 |
| | $ | 2,660 |
| | $ | 2,025 |
| | $ | 6,005 |
|
(1) Amounts include MMJ Creditor Installment Payments, convertible notes, and other notes. Any future redemptions, repurchases, or conversions of convertible debt could impact the amount and timing of our cash payments.
(2) Amounts include principal and interest.
(3) Amounts include contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year.
(4) Amounts represent future cash payments to satisfy other long-term liabilities recorded on our consolidated balance sheet, including $222 million for the current portion of these long-term liabilities. We are unable to reliably estimate the timing of future payments related to uncertain tax positions and noncurrent deferred tax liabilities; therefore, $91 million in aggregate of long-term income taxes payable and noncurrent deferred tax liabilities has been excluded from the preceding table. However, other noncurrent liabilities recorded on our consolidated balance sheet included these uncertain tax positions and noncurrent deferred tax liabilities.
The expected timing of payment amounts of the obligations discussed above is estimated based on current information. Timing and actual amounts paid may differ depending on the timing of receipt of goods or services, market prices, changes to agreed-upon amounts, or timing of certain events for some obligations. The contractual obligations in the table above include the current portions of the related long-term obligations. All other current liabilities are excluded.
Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that meet any of the following criteria: (1) they are noncancelable, (2) we would incur a penalty if the agreement was canceled, or (3) we must make specified minimum payments even if we do not take delivery of the contracted products or services ("take-or-pay"). If the obligation to purchase goods or services is noncancelable, the entire value of the contract was included in the above table. If the obligation is cancelable, but we would incur a penalty if canceled, the dollar amount of the penalty was included as a purchase obligation. Contracted minimum amounts specified in take-or-pay contracts are also included in the above table as they represent the portion of each contract that is a firm commitment.
Inotera Supply Agreements: Since January 2013, we have purchased all of Inotera's DRAM output at prices reflecting discounts from market prices for our comparable components under a supply agreement. In the second quarter of 2015, we executed the 2016 Supply Agreement, to be effective beginning on January 1, 2016, which will replace the current agreement. Under the 2016 Supply Agreement, the price for DRAM products sold to us will be based on a formula that equally shares margin between Inotera and us. The 2016 Supply Agreement has an initial two-year term, followed by a three-year wind-down period, and contemplates negotiations in late 2016 with respect to a two-year extension, and annual negotiations thereafter with respect to successive one-year extensions. Upon termination of the initial two-year term of the 2016 Supply Agreement, or any extensions, we would purchase DRAM from Inotera during the wind-down period. Our share of Inotera's capacity would decline over the wind-down period. We purchased $2.37 billion of DRAM products from Inotera in 2015 under the current agreement. The current agreement does not contain a fixed or minimum purchase quantity as quantities are based on qualified production output and pricing fluctuates as it is based on market prices. Therefore, we did not include any amounts under the current agreement in the contractual obligations table above. Under the 2016 Supply Agreement, payments are primarily based on fluctuating quantities and prices, but a portion of the expected costs under the agreement meet the criteria of a minimum lease payment under an operating lease and are included in the table above.
Off-Balance Sheet Arrangements
We have entered into capped calls, which are intended to reduce the effect of potential dilution from our convertible notes. The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our stock is above a specified initial strike price at the expiration dates. The amounts receivable varies based on the trading price of our stock, up to specified cap prices. The dollar value of the cash or shares that we would receive from the capped calls on their expiration dates ranges from $0 if the trading price of our stock is below the initial strike price for all of the capped calls to $814 million if the trading price of our stock is at or above the cap price for all of the capped calls. We paid $57 million in 2011, $103 million in 2012, and $48 million in 2013 to purchase capped calls. The amounts paid were recorded as charges to additional capital. For further details of our capped call arrangements, see "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Equity – Micron Shareholders' Equity – Capped Calls."
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and requires management's most difficult, subjective, or complex judgments.
Business Acquisitions: Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, which involves a number of judgments, assumptions, and estimates that could materially affect the amount and timing of costs recognized. Accounting for acquisitions can also involve significant judgment to determine when control of the acquired entity is transferred. We typically obtain independent third party valuation studies to assist in determining fair values, including assistance in determining future cash flows, appropriate discount rates, and comparable market values. The items involving the most significant assumptions, estimates, and judgments included determining the fair value of the following:
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• | Property, plant, and equipment, including determination of values in a continued-use model; |
| |
• | Deferred tax assets, including projections of future taxable income and tax rates; |
| |
• | Inventory, including estimated future selling prices, timing of product sales, and completion costs for work in process; |
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• | Debt, including discount rate and timing of payments; and |
| |
• | Intangible assets, including valuation methodology, estimations of future revenue and costs, profit allocation rates attributable to the acquired technology, and discount rates. |
Consolidations: We have interests in joint venture entities that are VIEs. Determining whether to consolidate a VIE requires judgment in assessing whether an entity is a VIE and if we are the entity's primary beneficiary. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessment of whether we are the primary beneficiary of our VIEs requires significant assumptions and judgment.
Contingencies: We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We accrue a liability and charge operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date. In accounting for the resolution of contingencies, considerable judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution, and amounts related to future periods.
Income Taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve numerous judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.
Inventories: Inventories are stated at the lower of average cost or net realizable value. Cost includes depreciation, labor, material and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves numerous judgments, including projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories. To project average selling prices and sales volumes, we review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends, and other information. When these analyses reflect estimated net realizable value below our manufacturing costs, we record a charge to cost of goods sold in advance of when the inventory is actually sold. Differences in forecasted average selling prices used in calculating lower of cost or net realizable value adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our memory inventory by approximately $195 million as of September 3, 2015. Due to the volatile nature of the semiconductor memory industry, actual selling prices and volumes often vary significantly from projected prices and volumes; as a result, the timing of when product costs are charged to operations can vary significantly.
U.S. GAAP provides for products to be grouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. Inventories are primarily categorized as memory (including DRAM, non-volatile, and other memory) for purposes of determining lower of average cost or net realizable value. The major characteristics we consider in determining inventory categories are product type and markets.
Property, Plant and Equipment: We review the carrying value of property, plant, and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future cash flows involves numerous assumptions which require judgment by us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products and future production and sales volumes. In addition, judgment is required in determining the groups of assets for which impairment tests are separately performed.
Research and Development: Costs related to the conceptual formulation and design of products and processes are expensed as R&D as incurred. Determining when product development is complete requires judgment by us. We deem development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability. Subsequent to product qualification, product costs are valued in inventory.
Stock-based Compensation: Stock-based compensation is estimated at the grant date based on the fair value of the award and is recognized as expense using the straight-line amortization method over the requisite service period. For performance-based stock awards, the expense recognized is dependent on the probability of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires considerable judgment.
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life, and forfeiture rates. We develop these estimates based on historical data and market information which can change significantly over time. A small change in the estimates used can result in a relatively large change in the estimated valuation. We use the Black-Scholes option valuation model to value employee stock awards. We estimate stock price volatility based on an average of its historical volatility and the implied volatility derived from traded options on our stock.
Recently Adopted Accounting Standards
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards."
Recently Issued Accounting Standards
See "Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk related to our indebtedness and our investment portfolio. Substantially all of our indebtedness is at fixed interest rates. As a result, the fair value of our debt fluctuates based on changes in market interest rates. We estimate that, as of September 3, 2015 and August 28, 2014, a hypothetical decrease in market interest rates of 1% would increase the fair value of our notes payable by approximately $366 million and $250 million, respectively. The increase in interest expense caused by a 1% increase in the interest rates of our variable-rate debt would not be significant.
As of September 3, 2015 and August 24, 2014, we held debt securities of $3.83 billion and $1.65 billion, respectively, that were subject to interest rate risk. We estimate that a 0.5% increase in market interest rates would decrease the fair value of these instruments by approximately $13 million as of September 3, 2015 and $6 million as of August 28, 2014.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with the information related to changes in the currency exchange rates in "Part I – Item 1A. Risk Factors." Changes in currency exchange rates could materially adversely affect our results of operations or financial condition.
The functional currency for all of our consolidated subsidiaries is the U.S. dollar. The substantial majority of our revenues are transacted in the U.S. dollar; however, significant amounts of our operating expenditures and capital purchases are incurred in or exposed to other currencies, primarily the British pound, the euro, the shekel, the Singapore dollar, the New Taiwan dollar, the yen, and the yuan. We have established currency risk management programs for our operating expenditures and capital purchases to hedge against fluctuations in the fair value and volatility of future cash flows caused by changes in currency exchange rates. We utilize currency forward and option contracts in these hedging programs, which reduce, but do not always entirely eliminate, the impact of currency exchange rate movements. We do not use derivative financial instruments for trading or speculative purposes.
To hedge our exposure to changes in currency exchange rates from our monetary assets and liabilities, we utilize a rolling hedge strategy for our primary currency exposures with currency forward contracts that generally mature within 35 days. Based on our foreign currency exposures from monetary assets and liabilities, offset by balance sheet hedges, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $3 million as of September 3, 2015 and $7 million as of August 28, 2014. To hedge the exposure of changes in cash flows from changes in currency exchange rates for certain capital expenditures, we utilize currency forward contracts that generally mature within 12 months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
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| Page |
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Consolidated Financial Statements as of September 3, 2015 and August 28, 2014 and for the fiscal years ended September 3, 2015, August 28, 2014, and August 29, 2013: | |
| |
Consolidated Statements of Operations | |
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Consolidated Statements of Comprehensive Income | |
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Consolidated Balance Sheets | |
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Consolidated Statements of Changes in Equity | |
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Consolidated Statements of Cash Flows | |
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Notes to Consolidated Financial Statements | |
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Report of Independent Registered Public Accounting Firm | |
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Financial Statement Schedules: | |
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Schedule I – Condensed Financial Information of the Registrant | |
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Schedule II – Valuation and Qualifying Accounts | |
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
|
| | | | | | | | | | | | |
For the year ended | | September 3, 2015 | | August 28, 2014 | | August 29, 2013 |
Net sales | | $ | 16,192 |
| | $ | 16,358 |
| | $ | 9,073 |
|
Cost of goods sold | | 10,977 |
| | 10,921 |
| | 7,226 |
|
Gross margin | | 5,215 |
| | 5,437 |
| | 1,847 |
|
| | | | | | |
Selling, general and administrative | | 719 |
| | 707 |
| | 562 |
|
Research and development | | 1,540 |
| | 1,371 |
| | 931 |
|
Restructure and asset impairments | | 3 |
| | 40 |
| | 126 |
|
Other operating (income) expense, net | | (45 | ) | | 232 |
| | (8 | ) |
Operating income | | 2,998 |
| | 3,087 |
| | 236 |
|
| | | | | | |
Interest income | | 35 |
| | 23 |
| | 14 |
|
Interest expense | | (371 | ) | | (352 | ) | | (231 | ) |
Gain on MMJ Acquisition | | — |
| | (33 | ) | | 1,484 |
|
Other non-operating income (expense), net | | (53 | ) | | 8 |
| | (218 | ) |
| | 2,609 |
| | 2,733 |
| | 1,285 |
|
| | | | | | |
Income tax (provision) benefit | | (157 | ) | | (128 | ) | | (8 | ) |
Equity in net income (loss) of equity method investees | | 447 |
| | 474 |
| | (83 | ) |
Net income | | 2,899 |
| | 3,079 |
| | 1,194 |
|
| | | | | | |
Net income attributable to noncontrolling interests | | — |
| | (34 | ) | | (4 | ) |
Net income attributable to Micron | | $ | 2,899 |
| | $ | 3,045 |
| | $ | 1,190 |
|
| | | | | | |
Earnings per share: | | | | | | |
Basic | | $ | 2.71 |
| | $ | 2.87 |
| | $ | 1.16 |
|
Diluted | | 2.47 |
| | 2.54 |
| | 1.13 |
|
| | | | | | |
Number of shares used in per share calculations: | | | | | | |
Basic | | 1,070 |
| | 1,060 |
| | 1,022 |
|
Diluted | | 1,170 |
| | 1,198 |
| | 1,057 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
|
| | | | | | | | | | | | |
For the year ended | | September 3, 2015 | | August 28, 2014 | | August 29, 2013 |
Net income | | $ | 2,899 |
| | $ | 3,079 |
| | $ | 1,194 |
|
| | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | |
Foreign currency translation adjustments | | (42 | ) | | (2 | ) | | (5 | ) |
Gain (loss) on derivatives, net | | (18 | ) | | (9 | ) | | (9 | ) |
Gain (loss) on investments, net | | (4 | ) | | 1 |
| | (1 | ) |
Pension liability adjustments | | 20 |
| | 3 |
| | (1 | ) |
Other comprehensive income (loss) | | (44 | ) | | (7 | ) | | (16 | ) |
Total comprehensive income | | 2,855 |
| | 3,072 |
| | 1,178 |
|
Comprehensive (income) loss attributable to noncontrolling interests | | 1 |
| | (34 | ) | | (5 | ) |
Comprehensive income attributable to Micron | | $ | 2,856 |
| | $ | 3,038 |
| | $ | 1,173 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
|
| | | | | | | | |
As of | | September 3, 2015 | | August 28, 2014 |
Assets | | | | |
Cash and equivalents | | $ | 2,287 |
| | $ | 4,150 |
|
Short-term investments | | 1,234 |
| | 384 |
|
Receivables | | 2,507 |
| |