Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 29, 2018
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 | (IRS Employer Identification No.) |
incorporation or organization) | |
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8000 S. Federal Way, Boise, Idaho | 83716-9632 |
(Address of principal executive offices) | (Zip Code) |
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Registrant's telephone number, including area code | (208) 368-4000 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer x | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company o | Emerging Growth Company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of outstanding shares of the registrant's common stock as of December 12, 2018 was 1,121,046,809.
Definitions of Commonly Used Terms
As used herein, "we," "our," "us," and similar terms include Micron Technology, Inc. and our consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:
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Term | | Definition | | Term | | Definition |
2022 Term Loan B | | Senior Secured Term Loan B due 2022 | | MMJ Group | | MMJ and its subsidiaries |
2025 Notes | | 5.50% Senior Notes due 2025 | | MMT | | Micron Memory Taiwan Co., Ltd. |
2032D Notes | | 3.13% Convertible Senior Notes due 2032 | | MTTW | | Micron Technology Taiwan, Inc. |
2033F Notes | | 2.13% Convertible Senior Notes due 2033 | | Qimonda | | Qimonda AG |
2043G Notes | | 3.00% Convertible Senior Notes due 2043 | | R&D | | Research and Development |
IMFT | | IM Flash Technologies, LLC | | SG&A | | Selling, General, and Administrative |
Inotera | | Inotera Memories, Inc. | | SSD | | Solid-State Drive |
Intel | | Intel Corporation | | TLC | | Triple-Level Cell |
Micron | | Micron Technology, Inc. (Parent Company) | | VIE | | Variable Interest Entity |
MMJ | | Micron Memory Japan, Inc. | | | | |
The following Micron subsidiaries appear throughout this report:
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Micron Consumer Products Group, Inc | | Micron Semiconductor Products, Inc. |
Micron Europe Limited | | Micron Semiconductor (Shanghai) Co. Ltd. |
Micron Semiconductor B.V., | | Micron Semiconductor (Xi’an) Co., Ltd. |
Micron Semiconductor (Deutschland) GmbH | | |
Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands - Micron®, Crucial®, and Ballistix® – our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash, and 3D XPoint memory, is transforming how the world uses information to enrich life. Backed by 40 years of technology leadership, our memory and storage solutions enable disruptive trends, including artificial intelligence, machine learning, and autonomous vehicles, in key market segments like cloud, data center, networking, mobile, and automotive.
Micron, Crucial, Ballistix, any associated logos, and all other Micron trademarks are the property of Micron. 3D XPoint is a trademark of Intel in the United States and/or other countries. Other product names or trademarks that are not owned by Micron are for identification purposes only and may be the registered or unregistered trademarks of their respective owners.
Forward-Looking Statements
This Form 10-Q 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 regarding our expected NAND and 3D XPointTM development activities with Intel; our expectation to exercise our call option to purchase Intel's interest in IMFT and the amount we expect to pay for the transaction; our expectation, from time to time, to engage in additional financing transactions; the sufficiency of our cash and investments, cash flows from operations, and available financing to meet our requirements at least through the next 12 months; and capital spending in 2019. We are under no obligation to update these forward-looking statements. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "Part II, Other Information – Item 1A. Risk Factors."
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
(Unaudited)
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| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Revenue | | $ | 7,913 |
| | $ | 6,803 |
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Cost of goods sold | | 3,298 |
| | 3,056 |
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Gross margin | | 4,615 |
| | 3,747 |
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Selling, general, and administrative | | 209 |
| | 191 |
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Research and development | | 611 |
| | 448 |
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Other operating (income) expense, net | | 36 |
| | 11 |
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Operating income | | 3,759 |
| | 3,097 |
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Interest income | | 38 |
| | 23 |
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Interest expense | | (33 | ) | | (124 | ) |
Other non-operating income (expense), net | | 9 |
| | (204 | ) |
| | 3,773 |
| | 2,792 |
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Income tax provision | | (477 | ) | | (114 | ) |
Net income | | 3,296 |
| | 2,678 |
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Net income attributable to noncontrolling interests | | (3 | ) | | — |
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Net income attributable to Micron | | $ | 3,293 |
| | $ | 2,678 |
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Earnings per share | | | | |
Basic | | $ | 2.91 |
| | $ | 2.36 |
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Diluted | | 2.81 |
| | 2.19 |
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Number of shares used in per share calculations | | | | |
Basic | | 1,133 |
| | 1,134 |
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Diluted | | 1,174 |
| | 1,225 |
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See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
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Quarter ended | | November 29, 2018 | | November 30, 2017 |
Net income | | $ | 3,296 |
| | $ | 2,678 |
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| | | | |
Other comprehensive income (loss), net of tax | | | | |
Gains (losses) on derivative instruments | | (12 | ) | | (3 | ) |
Unrealized gains (losses) on investments | | (3 | ) | | (1 | ) |
Pension liability adjustments | | — |
| | (1 | ) |
Other comprehensive income (loss) | | (15 | ) | | (5 | ) |
Total comprehensive income | | 3,281 |
| | 2,673 |
|
Comprehensive income attributable to noncontrolling interests | | (3 | ) | | — |
|
Comprehensive income attributable to Micron | | $ | 3,278 |
| | $ | 2,673 |
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See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
(Unaudited)
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As of | | November 29, 2018 | | August 30, 2018 |
Assets | | | | |
Cash and equivalents | | $ | 4,447 |
| | $ | 6,506 |
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Short-term investments | | 1,116 |
| | 296 |
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Receivables | | 5,418 |
| | 5,478 |
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Inventories | | 3,876 |
| | 3,595 |
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Other current assets | | 182 |
| | 164 |
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Total current assets | | 15,039 |
| | 16,039 |
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Long-term marketable investments | | 1,565 |
| | 473 |
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Property, plant, and equipment | | 24,807 |
| | 23,672 |
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Intangible assets | | 356 |
| | 331 |
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Deferred tax assets | | 842 |
| | 1,022 |
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Goodwill | | 1,228 |
| | 1,228 |
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Other noncurrent assets | | 758 |
| | 611 |
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Total assets | | $ | 44,595 |
| | $ | 43,376 |
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Liabilities and equity | | | | |
Accounts payable and accrued expenses | | $ | 4,200 |
| | $ | 4,374 |
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Current debt | | 398 |
| | 859 |
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Other current liabilities | | 591 |
| | 521 |
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Total current liabilities | | 5,189 |
| | 5,754 |
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Long-term debt | | 3,734 |
| | 3,777 |
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Other noncurrent liabilities | | 834 |
| | 581 |
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Total liabilities | | 9,757 |
| | 10,112 |
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Commitments and contingencies | |
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Redeemable convertible notes | | 2 |
| | 3 |
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Redeemable noncontrolling interest | | 97 |
| | 97 |
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Micron shareholders' equity | | | | |
Common stock, $0.10 par value, 3,000 shares authorized, 1,172 shares issued and 1,120 outstanding (1,170 shares issued and 1,161 outstanding as of August 30, 2018) | 117 |
| | 117 |
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Additional capital | | 8,350 |
| | 8,201 |
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Retained earnings | | 27,769 |
| | 24,395 |
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Treasury stock, 52 shares held (9 shares as of August 30, 2018) | | (2,362 | ) | | (429 | ) |
Accumulated other comprehensive income (loss) | | (5 | ) | | 10 |
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Total Micron shareholders' equity | | 33,869 |
| | 32,294 |
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Noncontrolling interests in subsidiaries | | 870 |
| | 870 |
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Total equity | | 34,739 |
| | 33,164 |
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Total liabilities and equity | | $ | 44,595 |
| | $ | 43,376 |
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See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
(Unaudited)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Micron Shareholders | | | | |
| | Common Stock | | Additional Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Micron Shareholders' Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
| | Number of Shares | | Amount | | | | | | | |
Balance at August 30, 2018 | | 1,170 |
| | $ | 117 |
| | $ | 8,201 |
| | $ | 24,395 |
| | $ | (429 | ) | | $ | 10 |
| | $ | 32,294 |
| | $ | 870 |
| | $ | 33,164 |
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Cumulative effect of adopting new accounting standards | | | | | | | | 92 |
| | | | | | 92 |
| | | | 92 |
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Net income | | | | | | | | 3,293 |
| | | | | | 3,293 |
| | — |
| | 3,293 |
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Other comprehensive income (loss), net | | | | | | | | | | | | (15 | ) | | (15 | ) | | | | (15 | ) |
Stock issued under stock plans | | 3 |
| | — |
| | 15 |
| | | | | | | | 15 |
| | | | 15 |
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Stock-based compensation expense | | | | | | 61 |
| | | | | | | | 61 |
| | | | 61 |
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Repurchase of stock | | (1 | ) | | — |
| | 108 |
| | (11 | ) | | (1,933 | ) | | | | (1,836 | ) | | | | (1,836 | ) |
Reclassification of redeemable convertible notes, net | | | | | | 1 |
| | | | | | | | 1 |
| | | | 1 |
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Conversion and repurchase of convertible notes | | | | | | (36 | ) | | | | | | | | (36 | ) | | | | (36 | ) |
Balance at November 29, 2018 | | 1,172 |
| | $ | 117 |
| | $ | 8,350 |
| | $ | 27,769 |
| | $ | (2,362 | ) | | $ | (5 | ) | | $ | 33,869 |
| | $ | 870 |
| | $ | 34,739 |
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| | Micron Shareholders | | | | |
| | Common Stock | | Additional Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total Micron Shareholders' Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
| | Number of Shares | | Amount | | | | | | | |
Balance at August 31, 2017 | | 1,116 |
| | $ | 112 |
| | $ | 8,287 |
| | $ | 10,260 |
| | $ | (67 | ) | | $ | 29 |
| | $ | 18,621 |
| | $ | 849 |
| | $ | 19,470 |
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Net income | | | | | | | | 2,678 |
| | | | | | 2,678 |
| | — |
| | 2,678 |
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Other comprehensive income (loss), net | | | | | | | | | | | | (5 | ) | | (5 | ) | | | | (5 | ) |
Contributions from noncontrolling interests | | | | | | | | | | | | | | | | 18 |
| | 18 |
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Stock issued in public offering | | 34 |
| | 3 |
| | 1,363 |
| | | | | | | | 1,366 |
| | | | 1,366 |
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Stock issued under stock plans | | 9 |
| | 1 |
| | 105 |
| | | | | | | | 106 |
| | | | 106 |
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Stock-based compensation expense | | | | | | 51 |
| | | | | | | | 51 |
| | | | 51 |
|
Repurchase of stock | | (1 | ) | | — |
| | (90 | ) | | | | 67 |
| | | | (23 | ) | | | | (23 | ) |
Reclassification of redeemable convertible notes, net | | | | | | 3 |
| | | | | | | | 3 |
| | | | 3 |
|
Conversion and repurchase of convertible notes | | | | | | (271 | ) | | | | | | | | (271 | ) | | | | (271 | ) |
Balance at November 30, 2017 | | 1,158 |
| | $ | 116 |
| | $ | 9,448 |
| | $ | 12,938 |
| | $ | — |
| | $ | 24 |
| | $ | 22,526 |
| | $ | 867 |
| | $ | 23,393 |
|
See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
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Quarter ended | | November 29, 2018 | | November 30, 2017 |
Cash flows from operating activities | | | | |
Net income | | $ | 3,296 |
| | $ | 2,678 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | |
| | |
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Depreciation expense and amortization of intangible assets | | 1,335 |
| | 1,090 |
|
Amortization of debt discount and other costs | | 18 |
| | 29 |
|
Stock-based compensation | | 61 |
| | 51 |
|
(Gain) loss on debt prepayments, repurchases, and conversions | | (14 | ) | | 195 |
|
Change in operating assets and liabilities | | |
| | |
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Receivables | | 189 |
| | (121 | ) |
Inventories | | (286 | ) | | (37 | ) |
Deferred tax assets | | 192 |
| | 37 |
|
Accounts payable and accrued expenses | | (46 | ) | | (230 | ) |
Other | | 65 |
| | (56 | ) |
Net cash provided by operating activities | | 4,810 |
| | 3,636 |
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Cash flows from investing activities | | |
| | |
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Expenditures for property, plant, and equipment | | (2,700 | ) | | (1,956 | ) |
Purchases of available-for-sale securities | | (2,047 | ) | | (186 | ) |
Proceeds from government incentives | | 236 |
| | — |
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Proceeds from sales of available-for-sale securities | | 77 |
| | 554 |
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Proceeds from maturities of available-for-sale securities | | 60 |
| | 85 |
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Other | | (53 | ) | | 69 |
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Net cash provided by (used for) investing activities | | (4,427 | ) | | (1,434 | ) |
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Cash flows from financing activities | | |
| | |
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Payments to acquire treasury stock | | (1,836 | ) | | (23 | ) |
Repayments of debt | | (577 | ) | | (2,744 | ) |
Payments on equipment purchase contracts | | (20 | ) | | (133 | ) |
Proceeds from issuance of stock | | 15 |
| | 1,472 |
|
Proceeds from issuance of debt | | — |
| | 150 |
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Other | | (17 | ) | | (4 | ) |
Net cash provided by (used for) financing activities | | (2,435 | ) | | (1,282 | ) |
| | | | |
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | | (10 | ) | | (6 | ) |
| | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | (2,062 | ) | | 914 |
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Cash, cash equivalents, and restricted cash at beginning of period | | 6,587 |
| | 5,216 |
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Cash, cash equivalents, and restricted cash at end of period | | $ | 4,525 |
| | $ | 6,130 |
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See accompanying notes to consolidated financial statements.
MICRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions except per share amounts)
(Unaudited)
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Micron and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended August 30, 2018, except for changes related to recently adopted accounting standards. See "Recently Adopted Accounting Standards" note. Prior year information is presented in accordance with the accounting guidance in effect during that period and has not been recast for recently adopted accounting standards. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.
Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal years 2019 and 2018 each contain 52 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended August 30, 2018.
Variable Interest Entities
We have interests in entities that are VIEs. If we are the primary beneficiary of a VIE, we are required to consolidate it. To determine if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of our VIEs require significant assumptions and judgments.
Unconsolidated VIEs
PTI Xi'an: Powertech Technology Inc. Xi'an ("PTI Xi'an") is a wholly-owned subsidiary of Powertech Technology Inc. ("PTI") and was created to provide assembly services to us at our manufacturing site in Xi'an, China. We do not have an equity interest in PTI Xi'an. PTI Xi'an is a VIE because of the terms of its service agreement with us and its dependency on PTI to finance its operations. We have determined that we do not have the power to direct the activities of PTI Xi'an that most significantly impact its economic performance, primarily because we have no governance rights. Therefore, we do not consolidate PTI Xi'an. In connection with our assembly services with PTI, we had capital lease obligations and net property, plant, and equipment of $60 million and $61 million, respectively, as of November 29, 2018 and $63 million and $63 million, respectively, as of August 30, 2018.
Consolidated VIE
IMFT: IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase agreements and because IMFT is dependent upon us or Intel for additional cash requirements. The primary activities of IMFT are driven by the constant introduction of product and process technology. Because we perform a significant majority of the technology development, we have the power to direct its key activities. We consolidate IMFT because we have the power to direct the activities of IMFT that most significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to it. At any time through December 2018, Intel can exercise its option to require us to purchase, and from January 2019 through December 2021, we can exercise our option to purchase from Intel, Intel's interest in IMFT. On October 18, 2018, we announced our intent to exercise our option to acquire Intel's interest in IMFT. Upon such exercise, Intel can elect to set the closing date of the transaction to be any time between six months and one year from the date we exercise our option. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)
Recently Adopted Accounting Standards
In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-16 – Intra-Entity Transfers Other Than Inventory ("ASU 2016-16"), which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted this ASU in the first quarter of 2019 under the modified retrospective method and, in connection therewith, made certain adjustments as noted in the table below.
In January 2016, the FASB issued ASU 2016-01 – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. We adopted this ASU in the first quarter of 2019 under the modified retrospective method, with prospective adoption for amendments related to equity securities without readily determinable fair values. The adoption of this ASU did not have a material impact on our financial statements.
In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers (as amended, "ASC 606"), which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of ASC 606 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. We adopted ASC 606 in the first quarter of 2019 under the modified retrospective method and, in connection therewith, made certain adjustments as noted in the table below.
The following table summarizes the effects of adopting ASU 2016-16 and ASC 606.
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| | | Adjustments from: | |
| Ending Balance as of August 30, 2018 | | ASU 2016-16 | | ASC 606 | | Opening Balance as of August 31, 2018 |
Receivables | $ | 5,478 |
| | $ | — |
| | $ | 114 |
| | $ | 5,592 |
|
Inventories | 3,595 |
| | — |
| | (5 | ) | | 3,590 |
|
Other current assets | 164 |
| | (14 | ) | | 30 |
| | 180 |
|
Deferred tax assets | 1,022 |
| | 56 |
| | (92 | ) | | 986 |
|
Other current liabilities | 521 |
| | — |
| | (4 | ) | | 517 |
|
Other noncurrent liabilities | 581 |
| | — |
| | 1 |
| | 582 |
|
Retained earnings | 24,395 |
| | 42 |
| | 50 |
| | 24,487 |
|
As a result of the adoption of ASC 606, the opening balances as of August 31, 2018 for receivables, other current assets, and other current liabilities increased as a result of the reclassification of allowances for rebates, pricing adjustments, and returns to conform to the new presentation requirements. The margin from previously deferred sales to distributors was reclassified from other current liabilities to retained earnings. The tax effects of the adoption of ASC 606 were recorded primarily as a reduction of net deferred tax assets, substantially as a result of recognizing income for accounting purposes earlier under ASC 606 than for tax purposes in various jurisdictions.
The effects of ASC 606 to our consolidated statement of operations and balance sheet were as follows:
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| | | | | | | | | | | | |
Quarter ended November 29, 2018 | | As Reported | | Adjustments | | Amounts Without the Effects of Adoption of ASC 606 |
Revenue | | $ | 7,913 |
| | $ | (95 | ) | | $ | 7,818 |
|
Cost of goods sold | | 3,298 |
| | (41 | ) | | 3,257 |
|
Interest expense | | (33 | ) | | 2 |
| | (31 | ) |
Income tax provision | | (477 | ) | | 3 |
| | (474 | ) |
Net income attributable to Micron | | 3,293 |
| | (49 | ) | | 3,244 |
|
|
| | | | | | | | | | | | |
As of November 29, 2018 | | As Reported | | Adjustments | | Amounts Without the Effects of Adoption of ASC 606 |
Receivables | | $ | 5,418 |
| | $ | (161 | ) | | $ | 5,257 |
|
Other current assets | | 182 |
| | (41 | ) | | 141 |
|
Deferred tax assets | | 842 |
| | 92 |
| | 934 |
|
Accounts payable and accrued expenses | | 4,200 |
| | (2 | ) | | 4,198 |
|
Other current liabilities | | 591 |
| | (8 | ) | | 583 |
|
Other noncurrent liabilities | | 834 |
| | (1 | ) | | 833 |
|
Retained earnings | | 27,769 |
| | (99 | ) | | 27,670 |
|
Recently Issued Accounting Standards Not Yet Adopted
In November 2018, the FASB issued ASU 2018-18 – Collaborative Arrangements, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU will be effective for us in the first quarter of 2021 with early adoption permitted. This ASU requires retrospective adoption to the date we adopted ASC 606, August 31, 2018, by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.
In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost. This ASU will be effective for us in the first quarter of 2021 with adoption permitted as early as the first quarter of 2020. This ASU requires modified retrospective adoption, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.
In February 2016, the FASB issued ASU 2016-02 – Leases, which amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of- use asset and corresponding liability, measured at the present value of lease payments. This ASU, as amended, will be effective for us in the first quarter of 2020 with early adoption permitted and allows for either a modified retrospective adoption or a retrospective adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The adoption of this ASU will result in an increase to our consolidated balance sheets for these right-of-use assets and corresponding liabilities. We are evaluating the timing and other effects of our adoption of this ASU on our financial statements.
Cash and Investments
Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
| | Cash and Equivalents | | Short-term Investments | | Long-term Marketable Investments(1) | | Total Fair Value | | Cash and Equivalents | | Short-term Investments | | Long-term Marketable Investments(1) | | Total Fair Value |
Cash | | $ | 2,073 |
| | $ | — |
| | $ | — |
| | $ | 2,073 |
| | $ | 3,223 |
| | $ | — |
| | $ | — |
| | $ | 3,223 |
|
Level 1(2) | | | | | | | | | | | | | | | | |
Money market funds | | 2,014 |
| | — |
| | — |
| | 2,014 |
| | 2,443 |
| | — |
| | — |
| | 2,443 |
|
Level 2(3) | | | | | | | | | | | | | | | | |
Corporate bonds | | 56 |
| | 588 |
| | 943 |
| | 1,587 |
| | 3 |
| | 172 |
| | 272 |
| | 447 |
|
Government securities | | 158 |
| | 309 |
| | 243 |
| | 710 |
| | 5 |
| | 63 |
| | 103 |
| | 171 |
|
Asset-backed securities | | 2 |
| | 78 |
| | 369 |
| | 449 |
| | — |
| | 34 |
| | 96 |
| | 130 |
|
Commercial paper | | 74 |
| | 82 |
| | — |
| | 156 |
| | 26 |
| | 16 |
| | — |
| | 42 |
|
Certificates of deposit | | 70 |
| | 59 |
| | 10 |
| | 139 |
| | 806 |
| | 11 |
| | 2 |
| | 819 |
|
| | 4,447 |
| | $ | 1,116 |
| | $ | 1,565 |
| | $ | 7,128 |
| | 6,506 |
| | $ | 296 |
| | $ | 473 |
| | $ | 7,275 |
|
Restricted cash(4) | | 78 |
| | | | | | | | 81 |
| | | | | | |
Cash, cash equivalents, and restricted cash | | $ | 4,525 |
| | | | | | | | $ | 6,587 |
| | | | | | |
| |
(1) | The maturities of long-term marketable securities range from one to four years. |
| |
(2) | The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets. |
| |
(3) | The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analyses to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of November 29, 2018 or August 30, 2018. |
| |
(4) | Restricted cash is included in other noncurrent assets and primarily consisted of balances related to the MMJ Creditor Payments. The restrictions on the MMJ Creditor Payments lapse upon approval by the trustees and/or Tokyo District Court. |
Gross realized gains and losses from sales of available-for-sale securities were not material for any period presented. As of November 29, 2018, there were no available-for-sale securities that had been in a loss position for longer than 12 months.
Receivables
|
| | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
Trade receivables | | $ | 4,980 |
| | $ | 5,056 |
|
Income and other taxes | | 226 |
| | 161 |
|
Other | | 212 |
| | 261 |
|
| | $ | 5,418 |
| | $ | 5,478 |
|
Inventories
|
| | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
Finished goods | | $ | 745 |
| | $ | 815 |
|
Work in process | | 2,643 |
| | 2,357 |
|
Raw materials and supplies | | 488 |
| | 423 |
|
| | $ | 3,876 |
| | $ | 3,595 |
|
Property, Plant, and Equipment
|
| | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
Land | | $ | 346 |
| | $ | 345 |
|
Buildings | | 9,006 |
| | 8,680 |
|
Equipment(1) | | 39,652 |
| | 38,249 |
|
Construction in progress(2) | | 1,467 |
| | 1,162 |
|
Software | | 732 |
| | 655 |
|
| | 51,203 |
| | 49,091 |
|
Accumulated depreciation | | (26,396 | ) | | (25,419 | ) |
| | $ | 24,807 |
| | $ | 23,672 |
|
| |
(1) | Included costs related to equipment not placed into service of $1.85 billion and $1.73 billion, as of November 29, 2018 and August 30, 2018, respectively. |
| |
(2) | Included building-related construction, tool installation, and software costs for assets not yet placed into service. |
Intangible Assets and Goodwill
|
| | | | | | | | | | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
| | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
Amortizing assets | | | | | | | | |
Product and process technology | | $ | 713 |
| | $ | (357 | ) | | $ | 567 |
| | $ | (344 | ) |
Non-amortizing assets | | | | | | | | |
In-process R&D | | — |
| | — |
| | 108 |
| | — |
|
| | | | | | | | |
Total intangible assets | | $ | 713 |
| | $ | (357 | ) | | $ | 675 |
| | $ | (344 | ) |
| | | | | | | | |
Goodwill | | $ | 1,228 |
| | | | $ | 1,228 |
| | |
In the first quarters of 2019 and 2018, we capitalized $49 million and $9 million, respectively, for product and process technology with weighted-average useful lives of 7 years and 10 years, respectively, and placed in service $108 million of in-process R&D in the first quarter of 2019, which is being amortized on a straight-line basis over 6 years. Expected amortization expense is $55 million for the remainder of 2019, $64 million for 2020, $58 million for 2021, $47 million for 2022, and $40 million for 2023.
Accounts Payable and Accrued Expenses
|
| | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
Accounts payable | | $ | 1,683 |
| | $ | 1,692 |
|
Property, plant, and equipment payables | | 1,213 |
| | 1,238 |
|
Income and other taxes | | 569 |
| | 402 |
|
Salaries, wages, and benefits | | 550 |
| | 841 |
|
Other | | 185 |
| | 201 |
|
| | $ | 4,200 |
| | $ | 4,374 |
|
Debt
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
| | | | | | Net Carrying Amount | | Net Carrying Amount |
Instrument | | Stated Rate | | Effective Rate | | Current | | Long-Term | | Total | | Current | | Long-Term | | Total |
IMFT Member Debt | | N/A |
| | N/A |
| | $ | — |
| | $ | 1,009 |
| | $ | 1,009 |
| | $ | — |
| | $ | 1,009 |
| | $ | 1,009 |
|
Capital lease obligations | | N/A |
| | 4.03 | % | | 289 |
| | 509 |
| | 798 |
| | 310 |
| | 536 |
| | 846 |
|
MMJ Creditor Payments | | N/A |
| | 9.76 | % | | 1 |
| | 172 |
| | 173 |
| | 309 |
| | 183 |
| | 492 |
|
2022 Term Loan B | | 4.06 | % | | 4.47 | % | | 5 |
| | 719 |
| | 724 |
| | 5 |
| | 720 |
| | 725 |
|
2025 Notes | | 5.50 | % | | 5.56 | % | | — |
| | 515 |
| | 515 |
| | — |
| | 515 |
| | 515 |
|
2032D Notes(1)(2) | | 3.13 | % | | 6.33 | % | | 36 |
| | 124 |
| | 160 |
| | — |
| | 132 |
| | 132 |
|
2033F Notes(1)(3) | | 2.13 | % | | 4.93 | % | | 67 |
| | — |
| | 67 |
| | 235 |
| | — |
| | 235 |
|
2043G Notes(1) | | 3.00 | % | | 6.76 | % | | — |
| | 686 |
| | 686 |
| | — |
| | 682 |
| | 682 |
|
| | | | | | $ | 398 |
| | $ | 3,734 |
| | $ | 4,132 |
| | $ | 859 |
| | $ | 3,777 |
| | $ | 4,636 |
|
| |
(1) | Since the closing price of our common stock exceeded 130% of the conversion price per share for at least 20 trading days in the 30 trading day period ended on September 30, 2018, these notes are convertible by the holders at any time through the calendar quarter ended December 31, 2018. Additionally, the closing price of our common stock also exceeded the thresholds for our 2032D Notes and 2033F Notes for the calendar quarter ended December 31, 2018; therefore, such notes are convertible by the holders at any time through March 31, 2019. |
| |
(2) | Current debt as of November 29, 2018 included an aggregate of $36 million for the settlement obligation (including principal and amounts in excess of principal) for conversions of our 2032D Notes that will settle in cash in the second quarter of 2019. |
| |
(3) | The 2033F Notes were classified as current as of November 29, 2018 because the terms of these notes require us to pay cash for the principal amount of any converted notes and holders of these notes had the right to convert their notes as of that date. |
Convertible Senior Notes
As of November 29, 2018, the trading price of our common stock was higher than the initial conversion prices of our convertible notes and, as a result, the aggregate conversion value of $2.11 billion exceeded the aggregate principal amount of $1.23 billion by $877 million.
Available Revolving Credit Facility
On November 27, 2018, we increased the amount available to draw under our existing revolving credit facility expiring in July 2023 from $2.0 billion to $2.5 billion. As of November 29, 2018, there were no outstanding amounts drawn under this facility.
Debt Conversions
During the first quarter of 2019, we settled conversions of debt with an aggregate principal amount of $38 million. When we receive a notice of conversion for any of our convertible notes and elect to settle in cash any amount of the conversion obligation in excess of the principal amount, the cash settlement obligations become derivative debt liabilities subject to mark-to-market accounting treatment based on the volume-weighted-average price of our common stock over a period of 20 consecutive trading days. Accordingly, at the date of our election to settle a conversion in cash, we reclassify the fair value of the equity component of the converted notes from additional capital to derivative debt liability within current debt in our consolidated balance sheet.
The following table presents the effects of conversions and settlements of debt in the first three months of 2019:
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| | | | | | | | | | | | | | | | | | | | |
Three months ended November 29, 2018 | | Decrease in Principal | | Increase (Decrease) in Carrying Value | | Decrease in Cash | | Decrease in Equity | | Gain (Loss) |
Settled conversions | | | | | | | | | | |
2033F Notes | | $ | (38 | ) | | $ | (169 | ) | | $ | (164 | ) | | $ | (8 | ) | | $ | 13 |
|
Conversions not settled | | | | | | | | | | |
2032D Notes(1) | | — |
| | 27 |
| | — |
| | (28 | ) | | 1 |
|
| | $ | (38 | ) | | $ | (142 | ) | | $ | (164 | ) | | $ | (36 | ) | | $ | 14 |
|
| |
(1) | As of November 29, 2018, an aggregate of $10 million principal amount of our 20332D Notes (with a carrying value of $36 million) had converted but not settled. These notes will settle in the second quarter of 2019 in cash. |
Contingencies
We have accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which is expected to have a material adverse effect on our business, results of operations, or financial condition.
Patent Matters
As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.
On November 21, 2014, Elm 3DS Innovations, LLC ("Elm") filed a patent infringement action against Micron; Micron Semiconductor Products, Inc.; and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys' fees, and costs.
On December 15, 2014, Innovative Memory Solutions, Inc. ("IMS") filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs. On July 23, 2018, IMS served a patent infringement complaint on Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited alleging that products including our SSDs infringe a European patent. The complaint seeks unspecified damages and an order forbidding Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited from offering to sell, using, and importing the accused products. On August 31, 2018, Micron was served with a complaint filed by IMS in Shenzhen Intermediate People's Court in Guangdong Province, China. The complaint alleges that certain of our NAND flash products infringe a Chinese patent. The complaint seeks an order requiring Micron to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 1 million Chinese yuan plus expenses.
On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. ("MXA") was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua") in the Fuzhou Intermediate People’s Court in Fujian Province, China (the "Fuzhou Court"). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. ("MSS") was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial
DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 98 million Chinese yuan plus court fees incurred.
On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation ("UMC") in the Fuzhou Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 90 million Chinese yuan plus court fees incurred.
On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips.
On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and Ballistic-branded DRAM modules and solid-state drives in China. The affected products make up slightly more than 1% of our annualized revenues. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision.
Among other things, the above lawsuits pertain to substantially all of our DRAM, NAND, and other memory and storage products we manufacture, which account for a significant portion of our revenue.
We are unable to predict the outcome of assertions of infringement made against us and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Qimonda
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda's insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares as of November 29, 2018, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda's claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by
Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court.
We are unable to predict the outcome of the matter and therefore cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operation, or financial condition.
Antitrust Matters
On April 27, 2018, a purported class-action lawsuit was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California asserting claims based on alleged price-fixing of DRAM products during the period from June 1, 2016 to February 1, 2018. Similar cases were subsequently filed in federal court in the United States, as well as in Canadian courts in Quebec, Montreal and Toronto, Ontario. The complaints seek treble monetary damages, costs, interest, attorneys' fees, and other injunctive and equitable relief. We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition.
On May 15, 2018, the Chinese State Administration for Market Regulation ("SAMR") notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.
Other
On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California's Uniform Trade Secrets Act by misappropriating Micron's trade secrets and other misconduct. Micron's complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief.
In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.
Equity
Micron Shareholders' Equity
Common Stock Repurchases: Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock beginning in our fiscal 2019. We may purchase shares on a discretionary basis through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans, subject to market conditions and our ongoing determination of the best use of available cash. The repurchase authorization does not obligate us to acquire any common stock.
In the first quarter of 2019, we repurchased an aggregate of 42 million shares of our common stock for $1.80 billion under an accelerated share repurchase agreement, a Rule 10b5-1 plan, and through open market repurchases. The shares were recorded as treasury stock.
On November 5, 2018, we entered into Rule 10b5-1 plans under which our brokers have authority to purchase our common stock on our behalf in our second quarter (with such purchases beginning on December 20, 2018), third quarter, and fourth quarter of 2019. We may cancel any of the plans at any time at our option.
Noncontrolling Interests in Subsidiaries
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| | | | | | | | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
| | Balance | | Percentage | | Balance | | Percentage |
IMFT | | $ | 853 |
| | 49 | % | | $ | 853 |
| | 49 | % |
Other | | 17 |
| | Various |
| | 17 |
| | Various |
|
| | $ | 870 |
| | | | $ | 870 |
| | |
IMFT: Since 2006, we have owned 51% of IMFT, a joint venture between us and Intel. IMFT is governed by a Board of Managers, for which the number of managers appointed by each member varies based on the members' respective ownership interests. IMFT manufactures semiconductor products exclusively for its members under a long-term supply agreement at prices approximating cost. In the first quarter of 2018, IMFT discontinued production of NAND and subsequent to that time has been entirely focused on 3D XPoint memory production. Through our IMFT joint venture, we continue to jointly develop 3D XPoint technologies with Intel through the second generation of 3D XPoint technology, which is expected to be completed in the second half of 2019. To better optimize the 3D XPoint technology for our product roadmap and maximize the benefits for our customers and shareholders, in the fourth quarter of 2018, we announced that we will no longer jointly develop with Intel subsequent generations of 3D XPoint technology. IMFT will continue to manufacture memory based on 3D XPoint technology at the fabrication facility in Lehi, Utah for its members. IMFT sales to Intel were $175 million and $112 million, in the first quarters of 2019 and 2018, respectively.
The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. At any time through December 2018, Intel can exercise its option to require us to purchase, and from January 2019 through December 2021, we can exercise our option to purchase from Intel, Intel's interest in IMFT, in either case, for a price that approximates Intel's interest in the net book value of IMFT plus member debt at the time of the closing. If Intel exercises its option, we can elect to set the closing date of the transaction any time between six months and two years following such election by Intel and we can elect to receive financing of the purchase price from Intel for one to two years from the closing date. On October 18, 2018, we announced our intent to exercise our option to acquire Intel's interest in IMFT. Upon such exercise, Intel can elect to set the closing date of the transaction to be any time between six months and one year from the date we exercise our option. Following the closing date resulting from exercise of either option, we will continue to supply to Intel for a period of up to one year, at a margin that varies depending on which option was exercised. For the first six months of such one-year period, Intel can receive supply ranging from 50% to 100%, at Intel's choice, of the volume supplied to Intel by IMFT in the six-month period immediately prior to the closing date. For the second six months of such one-year period, Intel can receive supply ranging from 0% to 100%, at Intel's choice, of the volume supplied to Intel by IMFT in the first six-month period.
IMFT's capital requirements are generally determined based on an annual plan approved by the members, and capital contributions to IMFT are requested as needed. Capital requests are made to the members in proportion to their then-current ownership interest. Members may elect to not contribute their proportional share, and in such event, the contributing member may elect to contribute any amount of the capital request, either in the form of an equity contribution or member debt financing. Under the supply agreement, the members have rights and obligations to the capacity of IMFT in proportion to their investment, including member debt financing. Any capital contribution or member debt financing results in a proportionate adjustment to the sharing of output on an eight-month lag. Members pay their proportionate share of fixed costs associated with IMFT's capacity.
Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets. The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:
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| | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
Assets | | | | |
Cash and equivalents | | $ | 169 |
| | $ | 91 |
|
Receivables | | 120 |
| | 126 |
|
Inventories | | 105 |
| | 114 |
|
Other current assets | | 3 |
| | 8 |
|
Total current assets | | 397 |
| | 339 |
|
Property, plant, and equipment | | 2,539 |
| | 2,641 |
|
Other noncurrent assets | | 46 |
| | 45 |
|
Total assets | | $ | 2,982 |
| | $ | 3,025 |
|
| | | | |
Liabilities | | |
| | |
|
Accounts payable and accrued expenses | | $ | 102 |
| | $ | 138 |
|
Current debt | | 16 |
| | 20 |
|
Other current liabilities | | 8 |
| | 9 |
|
Total current liabilities | | 126 |
| | 167 |
|
Long-term debt | | 1,064 |
| | 1,064 |
|
Other noncurrent liabilities | | 71 |
| | 74 |
|
Total liabilities | | $ | 1,261 |
| | $ | 1,305 |
|
Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.
Fair Value Measurements
All of our marketable debt and equity investments were classified as available-for-sale and carried at fair value as of the dates noted below. The estimated fair values of our convertible and other notes in the table below were determined based on Level 2 inputs, and together with the carrying value of our outstanding debt instruments (excluding the carrying value of equity and mezzanine equity components of our convertible notes) were as follows:
|
| | | | | | | | | | | | | | | | |
As of | | November 29, 2018 | | August 30, 2018 |
| | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Notes and MMJ Creditor Payments | $ | 2,459 |
| | $ | 2,421 |
| | $ | 2,798 |
| | $ | 2,741 |
|
Convertible notes | | 2,125 |
| | 913 |
| | 3,124 |
| | 1,049 |
|
Derivative Instruments
|
| | | | | | | | | | | | |
| | Gross Notional Amount(1) | | Fair Value of |
Current Assets(2) | | Current Liabilities(3) |
As of November 29, 2018 | | | | | | |
Derivative instruments with hedge accounting designation | | | | | | |
Cash flow currency hedges | | $ | 417 |
| | $ | — |
| | $ | (10 | ) |
| | | | | | |
Derivative instruments without hedge accounting designation | | | | | | |
Non-designated currency hedges | | 2,555 |
| | 12 |
| | (17 | ) |
Convertible notes settlement obligation(4) | | | | — |
| | (37 | ) |
| | | | 12 |
| | (54 | ) |
| | | | | | |
| | | | $ | 12 |
| | $ | (64 | ) |
| | | | | | |
As of August 30, 2018 | | | | | | |
Derivative instruments with hedge accounting designation | | | | | | |
Cash flow currency hedges | | $ | 538 |
| | $ | — |
| | $ | (13 | ) |
| | | | | | |
Derivative instruments without hedge accounting designation | | | | | | |
Non-designated currency hedges | | 1,919 |
| | 14 |
| | (10 | ) |
Convertible notes settlement obligation(4) | | | | — |
| | (167 | ) |
| |
|
| | 14 |
| | (177 | ) |
| | | | | | |
| | | | $ | 14 |
| | $ | (190 | ) |
| |
(1) | Notional amounts of currency hedge contracts in U.S. dollars. |
| |
(2) | Included in receivables – other. |
| |
(3) | Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations. |
| |
(4) | Notional amounts of convertible notes settlement obligations as of November 29, 2018 and August 30, 2018 were 1 million and 3 million shares of our common stock, respectively. |
Derivative Instruments with Hedge Accounting Designation
We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.
Cash Flow Hedges: We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures. For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income. Amounts in accumulated other comprehensive income are reclassified into earnings in the same line items and in the same periods in which the underlying transactions affect earnings. For the periods presented prior to the second quarter of 2018, the ineffective and excluded portion of the realized and unrealized gain or loss was included in other non-operating income (expense). As a result of adopting ASU 2017-12, beginning in the second quarter of 2018, the excluded portion of such amounts is included in the same line item in which the underlying transactions affect earnings and the ineffective portion of the realized and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income.
We recognized losses of $13 million and $4 million for the first quarters of 2019 and 2018, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were material in the first
quarters of 2019 or 2018. The amounts from cash flow hedges included in accumulated other comprehensive income that are expected to be reclassified into earnings in the next 12 months were also not material.
Derivative Instruments without Hedge Accounting Designation
Currency Derivatives: We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, we recognized losses of $11 million in the first quarter of 2019 and amounts recognized were not material in the first quarter 2018.
Convertible Notes Settlement Obligations: For settlement obligations associated with our convertible notes subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts were based on the volume-weighted-average trading price of our common stock (Level 2). (See "Debt" note.) We recognized gains of $16 million in the first quarter of 2019 and amounts recognized were not material in the first quarter of 2018 in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations.
Equity Plans
As of November 29, 2018, 115 million shares of our common stock were available for future awards under our equity plans.
Stock Options
Stock options granted and assumptions used in the Black-Scholes option valuation model were as follows:
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Stock options granted | | — |
| | 1 |
|
Weighted-average grant-date fair value per share | | $ | 19.50 |
| | $ | 17.67 |
|
Average expected life in years | | 5.4 |
| | 5.6 |
|
Weighted-average expected volatility | | 44 | % | | 44 | % |
Weighted-average risk-free interest rate | | 2.9 | % | | 2.1 | % |
Expected dividend yield | | 0.0 | % | | 0.0 | % |
Restricted Stock and Restricted Stock Units ("Restricted Stock Awards")
Restricted Stock Awards activity is summarized as follows:
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Restricted stock award shares granted | | 6 |
| | 2 |
|
Weighted-average grant-date fair value per share | | $ | 39.02 |
| | $ | 39.01 |
|
Stock-based Compensation Expense
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Stock-based compensation expense by caption | | | | |
Cost of goods sold | | $ | 26 |
| | $ | 20 |
|
Selling, general, and administrative | | 19 |
| | 18 |
|
Research and development | | 16 |
| | 13 |
|
| | $ | 61 |
| | $ | 51 |
|
| | | | |
Stock-based compensation expense by type of award | | | | |
Restricted stock awards | | $ | 41 |
| | $ | 34 |
|
Stock options | | 12 |
| | 17 |
|
Employee Stock Purchase Plan | | 8 |
| | — |
|
| | $ | 61 |
| | $ | 51 |
|
Income tax benefits related to share-based payment arrangements were $23 million and $57 million for the first quarters of 2019 and 2018, respectively. Income tax benefits related to share-based compensation for the first quarter of 2018 were offset by an increase in the U.S. valuation allowance. As of November 29, 2018, $498 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the first quarter of 2023, resulting in a weighted-average period of 1.4 years.
Revenue and Contract Liabilities
Our revenues are primarily recognized at a point in time, when control of the promised goods is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Contracts with our customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. We estimate a liability for returns using the expected value method based on historical rates of return. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price. We estimate the amount of consideration we expect to be entitled to from sales to distributors, using the expected value method, based on historical price adjustments and current pricing trends. Differences between the estimated and actual amounts are recognized as adjustments to revenue. (See "Segment and Other Information" note for disclosure of disaggregated revenue.)
Contract Liabilities
|
| | | | | | | | |
As of | | November 29, 2018 | | Opening Balance as of August 31, 2018 |
Contract liabilities from customer advances | | $ | 183 |
| | $ | 235 |
|
Other contract liabilities | | 115 |
| | 113 |
|
| | $ | 298 |
| | $ | 348 |
|
Our contract liabilities are for advance payments received from customers to secure product in future periods and for other arrangements where we have received amounts in advance of satisfying performance obligations and are reported in the accompanying consolidated balance sheets within other current liabilities and other noncurrent liabilities. Revenue and interest expense associated with contract liabilities for the time value of advance payments was not material in any period presented. As of November 29, 2018, our future performance obligations beyond one year were not material.
Changes in contract liabilities were as follows:
|
| | | |
Contract liabilities balance as of August 31, 2018 | $ | 348 |
|
Revenue recognized from beginning balance | (117 | ) |
Additions and other activity | 67 |
|
Contract liabilities balance as of November 29, 2018 | $ | 298 |
|
Contract liabilities increase as a result of receiving new advance payments from customers and decrease as revenue is recognized from customers purchasing product under advance payment arrangements. Additions and other activity included new customer advances, payments received from license and other arrangements in advance of performance, and interest accrued for financing components on advance payments. Revenue recognized in the first quarter of 2019 included $112 million from shipments against customer advances and $5 million in revenue recognized upon meeting other performance obligations.
Consideration Payable to Customers
As of November 29, 2018, other current liabilities included $332 million for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.
Research and Development
We share the cost of certain product and process development activities with development partners. Our R&D expenses were reduced by $30 million and $56 million, for the first quarters of 2019 and 2018, respectively, pursuant to reimbursements under these arrangements.
We have agreements to jointly develop NAND and 3D XPoint technologies with Intel. We continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be completed in the second half of 2019. In the second quarter of 2018, we and Intel agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for our respective business needs. We continue to jointly develop 3D XPoint technologies with Intel through the second generation of 3D XPoint technology, which is expected to be completed in the second half of 2019. To better optimize 3D XPoint technology for our product roadmap and maximize the benefits for our customers and shareholders, in the fourth quarter of 2018, we announced that we will no longer jointly develop with Intel subsequent generations of 3D XPoint technology.
Other Operating (Income) Expense, Net
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Restructure and asset impairments | | $ | 33 |
| | $ | 6 |
|
Other | | 3 |
| | 5 |
|
| | $ | 36 |
| | $ | 11 |
|
Restructure and asset impairments in the first quarter of 2019 included cost of $16 million primarily as a result of our continued emphasis to centralize certain key functions and impairment losses of $16 million to write-off the carrying value of certain property, plant, and equipment.
Other Non-Operating Income (Expense), Net
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Gain (loss) on debt prepayments, repurchases, and conversions | | $ | 14 |
| | $ | (195 | ) |
Loss from changes in currency exchange rates | | (5 | ) | | (9 | ) |
| | $ | 9 |
| | $ | (204 | ) |
For the first quarter of 2018, loss on debt prepayments, repurchases, and conversions was primarily due to losses recognized in connection with the repurchase of our 2023 Secured Notes and our 2023 Notes.
Income Taxes
On December 22, 2017, the United States enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") which imposed a one-time transition tax in 2018 (the "Repatriation Tax") and, beginning in 2019, created a new minimum tax on certain foreign earnings (the "Foreign Minimum Tax"). SEC Staff Accounting Bulletin No. 118 ("SAB 118") allows the use of provisional amounts (reasonable estimates) if the analyses of the impacts of the Tax Act have not been completed when financial statements are issued. During the first quarter of 2019, we finalized the computations of the income tax effects of the Tax Act. As such, in accordance with SAB 118, our accounting for the effects of the Tax Act is complete.
Our income tax provision consisted of the following:
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Income tax provision, excluding items below | | $ | (378 | ) | | $ | (88 | ) |
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | | (52 | ) | | (26 | ) |
Repatriation Tax, net of adjustments related to uncertain tax positions | | (47 | ) | | — |
|
| | $ | (477 | ) | | $ | (114 | ) |
As of November 29, 2018, we had gross unrecognized income tax benefits of $268 million, substantially all of which would affect our effective tax rate in the future, if recognized. The amount accrued for interest and penalties related to uncertain tax positions was not material for any period presented.
We operate in a number of tax jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2031, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements reduced our tax provision by $427 million (benefiting our diluted earnings per share by $0.36) for the first quarter of 2019 and by $391 million ($0.32 per diluted share) for the first quarter of 2018.
Earnings Per Share
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Net income attributable to Micron – Basic and Diluted | | $ | 3,293 |
| | $ | 2,678 |
|
| | | | |
Weighted-average common shares outstanding – Basic | | 1,133 |
| | 1,134 |
|
Dilutive effect of equity plans and convertible notes | | 41 |
| | 91 |
|
Weighted-average common shares outstanding – Diluted | | 1,174 |
| | 1,225 |
|
| | | | |
Earnings per share | | | | |
Basic | | $ | 2.91 |
| | $ | 2.36 |
|
Diluted | | 2.81 |
| | 2.19 |
|
Antidilutive potential common stock shares that could dilute basic earnings per share in the future were 6 million and 2 million for the first quarters of 2019 and 2018, respectively.
Segment and Other Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"): Includes memory products sold into cloud server, enterprise, client, graphics, and networking markets.
Mobile Business Unit ("MBU"): Includes memory products sold into smartphone and other mobile-device markets.
Storage Business Unit ("SBU"): Includes SSDs and other storage products, including component-level solutions sold into enterprise and cloud, client, and consumer SSD markets, other discrete storage products sold in component and wafer forms to the removable storage markets, and sales of 3D XPoint memory.
Embedded Business Unit ("EBU"): Includes memory and storage products sold into automotive, industrial, medical, and consumer markets.
Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments.
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
Revenue | | | | |
CNBU | | $ | 3,604 |
| | $ | 3,212 |
|
MBU | | 2,212 |
| | 1,365 |
|
SBU | | 1,143 |
| | 1,383 |
|
EBU | | 933 |
| | 830 |
|
All Other | | 21 |
| | 13 |
|
| | $ | 7,913 |
| | $ | 6,803 |
|
| | | | |
Operating income (loss) | | | | |
CNBU | | $ | 2,211 |
| | $ | 1,914 |
|
MBU | | 1,203 |
| | 505 |
|
SBU | | 80 |
| | 400 |
|
EBU | | 387 |
| | 342 |
|
All Other | | 6 |
| | (4 | ) |
| | 3,887 |
| | 3,157 |
|
| | | | |
Unallocated | | | | |
Stock-based compensation | | (61 | ) | | (51 | ) |
Restructure and asset impairments | | (30 | ) | | (6 | ) |
Employee severance, start-up costs, and other | | (37 | ) | | (3 | ) |
| | (128 | ) | | $ | (60 | ) |
| | | | |
Operating income | | $ | 3,759 |
|
| $ | 3,097 |
|
Revenue by product type was as follows:
|
| | | | | | | | |
Quarter ended | | November 29, 2018 | | November 30, 2017 |
DRAM | | $ | 5,373 |
| | $ | 4,562 |
|
NAND | | |