Micron Technology, Inc.
MICRON TECHNOLOGY INC (Form: 10-Q, Received: 12/20/2017 14:59:33)



 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
 
Commission file number 1-10658
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
75-1618004
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
 
 
 
8000 S. Federal Way, Boise, Idaho
83716-9632
(Address of principal executive offices)
(Zip Code)
 
 
Registrant's telephone number, including area code
(208) 368-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  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.
Large Accelerated Filer x
Accelerated Filer o
Non-Accelerated Filer o
(Do not check if a smaller reporting company)
Smaller Reporting Company o
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x

The number of outstanding shares of the registrant's common stock as of December 15, 2017 was 1,156,314,972 .
 
 
 
 
 





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 TM memory, is transforming how the world uses information to enrich life. Backed by nearly 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, and mobile.

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 the effect of U.S. tax reform; timing of product introductions; our expectation to engage, from time to time, in additional financing transactions; 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 capital spending in 2018. 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."

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:
Term
 
Definition
 
Term
 
Definition
2021 MSAC Term Loan
 
Variable Rate MSAC Senior Secured Term Loan due 2021
 
Intel
 
Intel Corporation
2021 MSTW Term Loan
 
Variable Rate MSTW Senior Secured Term Loan due 2021
 
Japan Court
 
Tokyo District Court
2022 Term Loan B
 
Senior Secured Term Loan B due 2022
 
LPDRAM
 
Mobile Low-Power DRAM
2023 Notes
 
5.25% Senior Notes due 2023
 
Micron
 
Micron Technology, Inc. (Parent Company)
2023 Secured Notes
 
7.50% Senior Secured Notes due 2023
 
MMJ
 
Micron Memory Japan, Inc.
2024 Notes
 
5.25% Senior Notes due 2024
 
MMJ Group
 
MMJ and its subsidiaries
2025 Notes
 
5.50% Senior Notes due 2025
 
MMT
 
Micron Memory Taiwan Co., Ltd.
2026 Notes
 
5.63% Senior Notes due 2026
 
MSP
 
Micron Semiconductor Products, Inc.
2032 Notes
 
2032C and 2032D Notes
 
MSTW
 
Micron Semiconductor Taiwan Co., Ltd.
2032C Notes
 
2.38% Convertible Senior Notes due 2032
 
MTTW
 
Micron Technology Taiwan, Inc.
2032D Notes
 
3.13% Convertible Senior Notes due 2032
 
Qimonda
 
Qimonda AG
2033 Notes
 
2033E and 2033F Notes
 
R&D
 
Research and Development
2033E Notes
 
1.63% Convertible Senior Notes due 2033
 
SG&A
 
Selling, General, and Administrative
2033F Notes
 
2.13% Convertible Senior Notes due 2033
 
SSD
 
Solid-State Drive
2043G Notes
 
3.00% Convertible Senior Notes due 2043
 
Tera Probe
 
Tera Probe, Inc.
IMFT
 
IM Flash Technologies, LLC
 
TLC
 
Triple-Level Cell
Inotera
 
Inotera Memories, Inc.
 
VIE
 
Variable Interest Entity


1




PART I. FINANCIAL INFORMATION
  
ITEM 1. FINANCIAL STATEMENTS

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
(Unaudited)

Quarter ended
 
November 30,
2017
 
December 1,
2016
Net sales
 
$
6,803

 
$
3,970

Cost of goods sold
 
3,056

 
2,959

Gross margin
 
3,747

 
1,011

 
 
 
 
 
Selling, general, and administrative
 
191

 
159

Research and development
 
448

 
470

Other operating (income) expense, net
 
11

 
23

Operating income
 
3,097

 
359

 
 
 
 
 
Interest income
 
23

 
7

Interest expense
 
(124
)
 
(139
)
Other non-operating income (expense), net
 
(204
)
 
(14
)
 
 
2,792

 
213

 
 
 
 
 
Income tax (provision) benefit
 
(114
)
 
(31
)
Equity in net income (loss) of equity method investees
 

 
(2
)
Net income
 
2,678

 
180

 
 
 
 
 
Net (income) attributable to noncontrolling interests
 

 

Net income attributable to Micron
 
$
2,678

 
$
180

 
 
 
 
 
Earnings per share
 
 
 
 
Basic
 
$
2.36

 
$
0.17

Diluted
 
2.19

 
0.16

 
 
 
 
 
Number of shares used in per share calculations
 
 
 
 
Basic
 
1,134

 
1,040

Diluted
 
1,225

 
1,091











See accompanying notes to consolidated financial statements.

2




MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)

Quarter ended
 
November 30,
2017
 
December 1,
2016
Net income
 
$
2,678

 
$
180

 
 
 
 
 
Other comprehensive income (loss), net of tax
 
 
 
 
Gain (loss) on derivatives, net
 
(3
)
 
(7
)
Pension liability adjustments
 
(1
)
 
(1
)
Gain (loss) on investments, net
 
(1
)
 
(1
)
Foreign currency translation adjustments
 

 
37

Other comprehensive income (loss)
 
(5
)
 
28

Total comprehensive income
 
2,673

 
208

Comprehensive (income) attributable to noncontrolling interests
 

 

Comprehensive income attributable to Micron
 
$
2,673

 
$
208





































See accompanying notes to consolidated financial statements.

3




MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
(Unaudited)

As of
 
November 30,
2017
 
August 31,
2017
Assets
 
 
 
 
Cash and equivalents
 
$
6,008

 
$
5,109

Short-term investments
 
166

 
319

Receivables
 
3,876

 
3,759

Inventories
 
3,160

 
3,123

Other current assets
 
148

 
147

Total current assets
 
13,358

 
12,457

Long-term marketable investments
 
314

 
617

Property, plant, and equipment, net
 
20,723

 
19,431

Intangible assets, net
 
368

 
387

Deferred tax assets
 
731

 
766

Goodwill
 
1,228

 
1,228

Other noncurrent assets
 
469

 
450

Total assets
 
$
37,191

 
$
35,336

 
 
 
 
 
Liabilities and equity
 
 
 
 
Accounts payable and accrued expenses
 
$
3,766

 
$
3,664

Deferred income
 
416

 
408

Current debt
 
1,401

 
1,262

Total current liabilities
 
5,583

 
5,334

Long-term debt
 
7,644

 
9,872

Other noncurrent liabilities
 
553

 
639

Total liabilities
 
13,780

 
15,845

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Redeemable convertible notes
 
18

 
21

 
 
 
 
 
Micron shareholders' equity
 
 
 
 
Common stock, $0.10 par value, 3,000 shares authorized, 1,158 shares issued and outstanding (1,116 shares issued and 1,112 outstanding as of August 31, 2017)
 
116

 
112

Additional capital
 
9,448

 
8,287

Retained earnings
 
12,938

 
10,260

Treasury stock, 4 shares as of August 31, 2017
 

 
(67
)
Accumulated other comprehensive income
 
24

 
29

Total Micron shareholders' equity
 
22,526

 
18,621

Noncontrolling interests in subsidiaries
 
867

 
849

Total equity
 
23,393

 
19,470

Total liabilities and equity
 
$
37,191

 
$
35,336




See accompanying notes to consolidated financial statements.

4




MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Quarter ended
 
November 30,
2017
 
December 1,
2016
Cash flows from operating activities
 
 
 
 
Net income
 
$
2,678

 
$
180

Adjustments to reconcile net income to net cash provided by operating activities
 
 

 
 

Depreciation expense and amortization of intangible assets
 
1,090

 
771

Amortization of debt discount and other costs
 
29

 
32

Loss on debt repurchases and conversions
 
195

 
1

Stock-based compensation
 
51

 
46

Change in operating assets and liabilities
 
 

 
 

Receivables
 
(121
)
 
(401
)
Inventories
 
(37
)
 
139

Accounts payable and accrued expenses
 
(261
)
 
299

Other
 
12

 
71

Net cash provided by operating activities
 
3,636

 
1,138

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Expenditures for property, plant, and equipment
 
(1,956
)
 
(1,264
)
Purchases of available-for-sale securities
 
(186
)
 
(84
)
Payments to settle hedging activities
 
(17
)
 
(173
)
Proceeds from sales of available-for-sale securities
 
554

 
512

Proceeds from maturities of available-for-sale securities
 
85

 
55

Proceeds from settlement of hedging activities
 
28

 
7

Other
 
58

 
11

Net cash provided by (used for) investing activities
 
(1,434
)
 
(936
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Repayments of debt
 
(2,744
)
 
(188
)
Payments on equipment purchase contracts
 
(133
)
 
(24
)
Proceeds from issuance of stock
 
1,472

 
29

Proceeds from issuance of debt
 
150

 
16

Other
 
(27
)
 
(45
)
Net cash provided by (used for) financing activities
 
(1,282
)
 
(212
)
 
 
 
 
 
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash
 
(6
)
 
(42
)
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents, and restricted cash
 
914

 
(52
)
Cash, cash equivalents, and restricted cash at beginning of period
 
5,216

 
4,263

Cash, cash equivalents, and restricted cash at end of period
 
$
6,130

 
$
4,211







See accompanying notes to consolidated financial statements.

5




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 31, 2017. 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 2018 and 2017 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 31, 2017.


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 VIE

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 therewith, we had capital lease obligations and net property, plant, and equipment of $84 million and $81 million , respectively, as of November 30, 2017 , and $80 million and $76 million , respectively, as of August 31, 2017 .

Consolidated VIE

IMFT : IMFT is a VIE because all of its costs are passed to us and its other member, Intel, through product purchase agreements and because IMFT is dependent upon us or Intel for additional cash requirements. The primary activities of IMFT are driven by the constant introduction of product and process technology. Because we perform a significant majority of the technology development, we have the power to direct its key activities. We consolidate IMFT because we have the power to direct the activities of IMFT that most significantly impact its economic performance and because we have the obligation to absorb losses and the right to receive benefits from IMFT that could potentially be significant to it. (See "Equity – Noncontrolling Interests in Subsidiaries – IMFT" note.)


Recently Issued Accounting Standards

In October 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-16 – Intra-Entity Transfers Other Than Inventory , which requires an entity to recognize the income tax consequences of

6




an intra-entity transfer of an asset other than inventory when the transfer occurs. This ASU will be effective for us in the first quarter of 2019 and requires modified retrospective adoption. We are evaluating the effects of our adoption of this ASU on our financial statements.

In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments , which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost. This ASU will be effective for us in the first quarter of 2021 with adoption permitted as early as the first quarter of 2020. This ASU requires modified retrospective adoption, with prospective adoption for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.

In February 2016, the FASB issued ASU 2016-02 – Leases , which amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of- use asset and corresponding liability, measured at the present value of the lease payments. This ASU will be effective for us in the first quarter of 2020 with early adoption permitted and requires modified retrospective adoption. The adoption of this ASU will result in an increase in right-of-use assets and corresponding liabilities. We are evaluating the timing and other effects of our adoption of this ASU on our financial statements.

In January 2016, the FASB issued ASU 2016-01 – Recognition and Measurement of Financial Assets and Financial Liabilities , which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This ASU will be effective for us in the first quarter of 2019 and requires modified retrospective adoption. We are evaluating the effects of our adoption of this ASU on our financial statements.

In May 2014, the FASB issued ASU 2014-09 – Revenue from Contracts with Customers , which supersedes nearly all existing revenue recognition guidance under generally accepted accounting principles in the United States. The core principal of this ASU, as amended, is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. This ASU will be effective for us in the first quarter of 2019 and allows for either full retrospective or modified retrospective adoption. We expect that, as a result of the adoption of this ASU, the timing of recognizing revenue from sales of products to our distributors under agreements allowing rights of return or price protection will be generally earlier than under the existing revenue recognition guidance. Revenue recognized upon resale by our customers under these arrangements was 22% and 23% of our consolidated revenue for the first quarters of 2018 and 2017 , respectively. After adoption, the impact of this change in any reporting period would be the net effect of changes to revenue recognized as of the beginning and end of each period. We are evaluating the method and other effects of our adoption of this ASU on our financial statements.


Acquisition of Inotera

Through December 6, 2016, we held a 33% ownership interest in Inotera, now known as Micron Technology Taiwan, Inc. ("MTTW") and accounted for our ownership interest under the equity method. On December 6, 2016, we acquired the remaining 67% ownership interest in Inotera not owned by us (the "Inotera Acquisition") and began consolidating Inotera's operating results. Inotera manufactures DRAM products at its 300mm wafer fabrication facility in Taoyuan City, Taiwan, and previously sold such products exclusively to us through supply agreements, under which we purchased $504 million of DRAM products in the first quarter of 2017, based on a pricing formula that equally shared margin between Inotera and us.


7




Pro Forma Financial Information

The following pro forma financial information presents the combined results of operations as if the Inotera Acquisition had occurred on September 4, 2015. The pro forma financial information includes the accounting effects of the business combination, including adjustments for depreciation of property, plant, and equipment, interest expense, elimination of intercompany activities, and revaluation of inventories. The pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the Inotera Acquisition occurred on September 4, 2015.
Quarter ended
 
December 1,
2016
Net sales
 
$
3,965

Net income
 
190

Net income attributable to Micron
 
190

Earnings per share
 
 
Basic
 
0.17

Diluted
 
0.17

 
The pro forma financial information for the first quarter of 2017 includes our results for the quarter ended December 1, 2016, the results of Inotera for the three months ended November 30, 2016, and the adjustments described above.


Cash and Investments

Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:
As of
 
November 30, 2017
 
August 31, 2017
 
 
Cash and Equivalents
 
Short-term Investments
 
Long-term Marketable Investments (1)
 
Total Fair Value
 
Cash and Equivalents
 
Short-term Investments
 
Long-term Marketable Investments (1)
 
Total Fair Value
Cash
 
$
1,850

 
$

 
$

 
$
1,850

 
$
2,237

 
$

 
$

 
$
2,237

Level 1 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
3,971

 

 

 
3,971

 
2,332

 

 

 
2,332

Level 2 (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
3

 
96

 
156

 
255

 

 
193

 
315

 
508

Certificates of deposit
 
169

 
7

 
3

 
179

 
483

 
24

 
3

 
510

Government securities
 
5

 
45

 
65

 
115

 
1

 
90

 
126

 
217

Asset-backed securities
 

 
13

 
90

 
103

 

 
2

 
173

 
175

Commercial paper
 
10

 
5

 

 
15

 
56

 
10

 

 
66

 
 
6,008

 
$
166

 
$
314

 
$
6,488

 
5,109

 
$
319

 
$
617

 
$
6,045

Restricted cash (4)
 
122

 
 
 
 
 
 
 
107

 
 
 
 
 
 
Cash, cash equivalents, and restricted cash
 
$
6,130

 
 
 
 
 
 
 
$
5,216

 
 
 
 
 
 
(1)  
The maturities of long-term marketable securities range from one to four years.
(2)  
The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.
(3)  
The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analyses to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of November 30, 2017 or August 31, 2017.
(4)  
Restricted cash is included in other noncurrent assets and primarily represents balances related to the MMJ Creditor Payments and interest reserve balances related to the 2021 MSTW Term Loan.


8




Gross realized gains and losses from sales of available-for-sale securities were not material for any period presented. As of November 30, 2017 , there were no available-for-sale securities that had been in a loss position for longer than 12 months.


Receivables

As of
 
November 30,
2017
 
August 31,
2017
Trade receivables
 
$
3,603

 
$
3,490

Income and other taxes
 
106

 
100

Other
 
167

 
169

 
 
$
3,876

 
$
3,759



Inventories

As of
 
November 30,
2017
 
August 31,
2017
Finished goods
 
$
874

 
$
856

Work in process
 
1,957

 
1,968

Raw materials and supplies
 
329

 
299

 
 
$
3,160

 
$
3,123



Property, Plant, and Equipment

As of
 
November 30,
2017
 
August 31,
2017
Land
 
$
345

 
$
345

Buildings
 
8,134

 
7,958

Equipment (1)
 
33,980

 
32,187

Construction in progress (2)
 
560

 
499

Software
 
579

 
544

 
 
43,598

 
41,533

Accumulated depreciation
 
(22,875
)
 
(22,102
)
 
 
$
20,723

 
$
19,431

(1)  
Included costs related to equipment not placed into service of $2.06 billion and $994 million , as of November 30, 2017 and August 31, 2017 , respectively.
(2)  
Included building-related construction and tool installation costs for assets not placed into service.



9




Intangible Assets and Goodwill

As of
 
November 30, 2017
 
August 31, 2017
 
 
Gross
Amount
 
Accumulated
Amortization
 
Gross
Amount
 
Accumulated
Amortization
Amortizing assets
 
 
 
 
 
 
 
 
Product and process technology
 
$
753

 
$
(493
)
 
$
756

 
$
(477
)
Non-amortizing assets
 
 
 
 
 
 
 
 
In-process R&D
 
108

 

 
108

 

 
 
 
 
 
 
 
 
 
Total intangible assets
 
$
861

 
$
(493
)
 
$
864

 
$
(477
)
 
 
 
 
 
 
 
 
 
Goodwill
 
$
1,228

 
 
 
$
1,228

 
 

During the first quarters of 2018 and 2017 , we capitalized $9 million and $8 million , respectively, for product and process technology with weighted-average useful lives of 10 years and 9 years, respectively. Expected amortization expense is $73 million for the remainder of 2018 , $50 million for 2019 , $33 million for 2020 , $28 million for 2021 , and $19 million for 2022 .


Accounts Payable and Accrued Expenses

As of
 
November 30,
2017
 
August 31,
2017
Accounts payable
 
$
1,209

 
$
1,333

Property, plant, and equipment payables
 
1,314

 
1,018

Salaries, wages, and benefits
 
460

 
603

Income and other taxes
 
233

 
163

Customer advances
 
198

 
197

Other
 
352

 
350

 
 
$
3,766

 
$
3,664




10




Debt

As of
 
November 30, 2017
 
August 31, 2017
Instrument
 
Stated Rate
 
Effective Rate
 
Current
 
Long-Term
 
Total
 
Current
 
Long-Term
 
Total
MMJ Creditor Payments
 
N/A

 
6.52
%
 
$
157

 
$
474

 
$
631

 
$
157

 
$
474

 
$
631

Capital lease obligations
 
N/A

 
3.74
%
 
354

 
759

 
1,113

 
357

 
833

 
1,190

2021 MSAC Term Loan
 
3.72
%
 
3.95
%
 
149

 
648

 
797

 
99

 
697

 
796

2021 MSTW Term Loan
 
2.85
%
 
3.01
%
 

 
2,655

 
2,655

 

 
2,640

 
2,640

2022 Term Loan B
 
3.39
%
 
3.80
%
 
5

 
724

 
729

 
5

 
725

 
730

2023 Notes
 
5.25
%
 
5.43
%
 

 

 

 

 
991

 
991

2023 Secured Notes
 
7.50
%
 
7.69
%
 

 

 

 

 
1,238

 
1,238

2024 Notes
 
5.25
%
 
5.38
%
 

 
546

 
546

 

 
546

 
546

2025 Notes
 
5.50
%
 
5.56
%
 

 
515

 
515

 

 
515

 
515

2026 Notes
 
5.63
%
 
5.73
%
 

 
129

 
129

 

 
128

 
128

2032C Notes (1)
 
2.38
%
 
5.95
%
 
234

 
164

 
398

 

 
211

 
211

2032D Notes (1)
 
3.13
%
 
6.33
%
 

 
160

 
160

 

 
159

 
159

2033E Notes (1)
 
1.63
%
 
4.50
%
 
77

 

 
77

 
202

 

 
202

2033F Notes (1)
 
2.13
%
 
4.93
%
 
280

 

 
280

 
278

 

 
278

2043G Notes
 
3.00
%
 
6.76
%
 

 
675

 
675

 

 
671

 
671

IMFT Member Debt
 
0.00
%
 
0.00
%
 

 
150

 
150

 

 

 

Other notes
 
2.00
%
 
2.56
%
 
145

 
45

 
190

 
164

 
44

 
208

 
 
 
 
 
 
$
1,401

 
$
7,644

 
$
9,045

 
$
1,262

 
$
9,872

 
$
11,134

(1)  
Since the closing price of our common stock exceeded 130% of the conversion price per share for at least 20 trading days in the 30 trading day period ended on September 30, 2017, these notes are convertible by the holders through the calendar quarter ended December 31, 2017. The 2033 Notes were classified as current because the terms of these notes require us to pay cash for the principal amount of any converted notes and holders of these notes had the right to convert their notes as of the dates presented. A portion of the 2032C Notes were classified as current because holders had converted the notes and they were not settled as of November 30, 2017.

Debt Repurchases and Conversions

During the first quarter of 2018, we repurchased or converted an aggregate of $2.36 billion principal amount of our debt.

If we receive a notice of conversion for any of our convertible notes, and we 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.


11




The following table presents the effects of repurchases and conversions of our debt in the first quarter of 2018:
Quarter ended November 30, 2017
 
Decrease in Principal
 
Increase (Decrease) in Carrying Value
 
Decrease in Cash
 
Decrease in Equity
 
Gain (Loss)
Repurchases
 
 
 
 
 
 
 
 
 
 
2023 Secured Notes (1)
 
$
(1,250
)
 
$
(1,238
)
 
$
(1,373
)
 
$

 
$
(135
)
2023 Notes (2)
 
(1,000
)
 
(991
)
 
(1,046
)
 

 
(55
)
Conversions
 
 
 
 
 
 
 
 
 
 
2033E Notes (3)
 
(105
)
 
(125
)
 
(216
)
 
(81
)
 
(10
)
2032C Notes (4)
 

 
186

 

 
(191
)
 
5

 
 
$
(2,355
)
 
$
(2,168
)
 
$
(2,635
)
 
$
(272
)
 
$
(195
)
(1)  
Redeemed $438 million of principal amount on November 13, 2017, which represented 35% of the original principal amount issued and was settled with proceeds from our common stock issuance in October 2017. Also redeemed the remaining $812 million of principal amount on November 16, 2017.
(2)  
Redeemed on November 16, 2017.
(3)  
In August 2017, holders converted an aggregate principal amount of $58 million , which were settled in the first quarter of 2018 for $92 million in cash and 3 million shares of our treasury stock. During the quarter ended November 30, 2017, holders converted an aggregate principal amount of $50 million . For converted notes with an aggregate principal amount of $20 million , we settled the principal amount of the conversion in the first quarter of 2018 with cash of $20 million and the remainder of the conversion amount was settled with 1 million shares of our treasury stock. For the remaining aggregate principal amount of $30 million of conversions in the first quarter of 2018, we elected to settle the conversion obligation in excess of the principal amount in cash. We paid $104 million in the first quarter of 2018 to settle obligations for $27 million of the aggregate principal amount and obligations for the remaining $3 million in principal will settle in the second quarter of 2018.
(4)  
Holders converted an aggregate principal amount of $51 million and we elected to settle the conversion obligation in excess of the principal amount in cash. As a result, the carrying amount as of November 30, 2017 increased for the fair values of the derivative debt liability. The conversion of these notes will settle in the second quarter of 2018.

IMFT Member Debt

In November 2017, Intel provided debt financing (the "IMFT Member Debt") of $150 million to IMFT pursuant to the terms of the IMFT joint venture agreement. Pursuant to the IMFT joint venture agreement, the IMFT Member Debt bears no interest, matures upon the completion of the auction and the sale of assets of IMFT prior to the dissolution, liquidation, or other wind-up of IMFT, and is convertible, at the election of Intel, in whole or in part, into a capital contribution to IMFT. Upon conversion, the IMFT Member Debt would be added to IMFT's capital balance as a contribution from Intel. Additionally, to the extent IMFT distributes cash to its members under the terms of the IMFT joint venture agreement, Intel may, at its option, designate any portion of the distribution to be a repayment of the IMFT Member Debt, without penalty or premium. In the event Intel exercises its right to put its interest in IMFT to us, or if we exercise our right to call from Intel its interest in IMFT, Intel will transfer to Micron any IMFT Member Debt outstanding at the time of the closing of the put or call transaction.

2022 Senior Secured Term Loan B Repricing Amendment

On October 26, 2017, we amended our 2022 Term Loan B, substantially all of which was treated as a debt modification, to reduce the interest rate margins. As of November 30, 2017 , the 2022 Term Loan B bears interest at LIBOR plus 2.00% .
 
Convertible Senior Notes

As of November 30, 2017 , the trading price of our common stock was higher than the initial conversion prices of our convertibles notes. As a result, the conversion values for these notes exceeded the principal amounts by $2.87 billion as of November 30, 2017 .



12




Contingencies

We have accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which are expected to have a material adverse effect on our business, results of operations, or financial condition.

Patent Matters

As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.

On November 21, 2014, Elm 3DS Innovations, LLC ("Elm") filed a patent infringement action against Micron, MSP, and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys' fees, and costs.

On December 15, 2014, Innovative Memory Solutions, Inc. filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys' fees, and costs.

On June 24, 2016, the President and Fellows of Harvard University filed a patent infringement action against Micron in the U.S. District Court for the District of Massachusetts. The complaint alleges that a variety of our DRAM products infringe two U.S. patents and seeks damages, injunctive relief, and other unspecified relief.

Among other things, the above lawsuits pertain to certain of our DDR DRAM, DDR2 DRAM, DDR3 DRAM, DDR4 DRAM, SDR SDRAM, PSRAM, RLDRAM, LPDRAM, NAND, and certain other memory products we manufacture, which account for a significant portion of our net sales.

We are unable to predict the outcome of assertions of infringement made against us and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.

Qimonda

On January 20, 2011, Dr. Michael Jaffé, administrator for 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 30, 2017 , and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.

Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the 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,

13




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.

Other

In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.


Equity

Micron Shareholders' Equity

Common Stock Issuance : In October 2017, we issued 34 million shares of our common stock for $41.00 per share in a public offering for proceeds of $1.36 billion , net of underwriting fees and other offering costs.

Outstanding Capped Calls : In connection with certain of our convertible notes, we entered into capped call transactions, which are intended to reduce the effect of potential dilution. The capped calls provide for our receipt of cash or shares, at our election, from our counterparties if the trading price of our stock is above the strike prices on the expiration dates. As of November 30, 2017 , the dollar value of cash or shares that we would receive from our outstanding capped calls upon their expiration dates range from $0 , if the trading price of our stock is below the strike prices for all capped calls at expiration, to $527 million , if the trading price of our stock is at or above the cap prices for all capped calls. Settlement of the capped calls prior to the expiration dates may be for an amount less than the maximum value at expiration.

Expiration of Capped Calls : Subsequent to the end of our first quarter of 2018, we share-settled expirations of portions of our capped calls, and received 5 million shares (equal to a value of $215 million ) based on the volume-weighted trading stock prices at the expiration dates. The shares received were recorded as treasury stock.

Noncontrolling Interests in Subsidiaries

As of
 
November 30, 2017
 
August 31, 2017
 
 
Noncontrolling Interest Balance
 
Noncontrolling Interest Percentage
 
Noncontrolling Interest Balance
 
Noncontrolling Interest Percentage
IMFT
 
$
850

 
49
%
 
$
832

 
49
%
Other
 
17

 
Various

 
17

 
Various

 
 
$
867

 
 
 
$
849

 
 

IMFT : Since 2006, we have owned 51% of IMFT, a joint venture between us and Intel to manufacture semiconductor products exclusively for its members, who share the output of IMFT generally in proportion to their investment under a long-term supply agreement at prices approximating cost. For the first quarters of 2018 and 2017 , sales to Intel under such agreements were $112 million and $110 million , respectively. In the first quarter of 2018, IMFT discontinued production of NAND and continues to ramp production of 3D XPoint products. IMFT is governed by a Board of Managers, for which the number of managers appointed by each member varies based on the members' respective ownership interests. The IMFT joint venture agreement extends through 2024 and includes certain buy-sell rights. At any time through December 2018, Intel can put to us, and from January 2019 through December 2021, we can call from Intel, Intel's interest in IMFT, in either case, for approximately the net book value of Intel's noncontrolling interest balance at the time of the closing. If Intel exercises its put right, we can elect to set the closing date of the transaction any time between six months and two years following such election by Intel and can elect to receive financing of the purchase price from Intel for one to two years from the closing date. If we

14




exercise our call right, Intel can elect to set the closing date of the transaction to be any time between six months and one year following such election. Following the closing of either the put or the call, we will continue to supply to Intel for a period of one year, at Intel's choice, between 50% and 100% of Intel's immediately preceding six -month period pre-closing volumes of IMFT products for the first six -month period following the closing and, at Intel's choice, between 0% and 100% of Intel's first six -month period following the closing volumes of IMFT products for the second six -month period following the closing, at a margin that varies depending on whether the put or call was exercised. As of November 30, 2017, IMFT had $150 million of IMFT Member Debt outstanding from Intel. Creditors of IMFT have recourse only to IMFT's assets and do not have recourse to any other of our assets. The following table presents the assets and liabilities of IMFT included in our consolidated balance sheets:
As of
 
November 30,
2017
 
August 31,
2017
Assets
 
 
 
 
Cash and equivalents
 
$
117

 
$
87

Receivables
 
79

 
81

Inventories
 
106

 
128

Other current assets
 
4

 
7

Total current assets
 
306

 
303

Property, plant, and equipment, net
 
2,075

 
1,852

Other noncurrent assets
 
49

 
49

Total assets
 
$
2,430

 
$
2,204

 
 
 
 
 
Liabilities
 
 

 
 

Accounts payable and accrued expenses
 
$
351

 
$
299

Deferred income
 
8

 
6

Current debt
 
19

 
19

Total current liabilities
 
378

 
324

Long-term debt
 
220

 
75

Other noncurrent liabilities
 
82

 
88

Total liabilities
 
$
680

 
$
487

Amounts exclude intercompany balances that were eliminated in our consolidated balance sheets.

Restrictions on Net Assets

As a result of the corporate reorganization proceedings of MMJ, the 2021 MSTW Term Loan covenants, and the IMFT joint venture agreement, our total restricted net assets (excluding intercompany balances and noncontrolling interests) as of November 30, 2017 were $3.71 billion for the MMJ Group, $2.35 billion for MSTW and MTTW, and $899 million for IMFT.


Fair Value Measurements

All of our marketable debt and equity investments were classified as available-for-sale and carried at fair value. Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value. The estimated fair value and 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 30, 2017
 
August 31, 2017
 
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
Notes and MMJ Creditor Payments
$
6,484

 
$
6,342

 
$
8,793

 
$
8,423

Convertible notes
 
4,670

 
1,590

 
3,901

 
1,521


The fair values of our convertible notes were determined based on Level 2 inputs, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of our other debt instruments were estimated based on Level 2 inputs, including discounted cash

15




flows, including the trading price of our notes, when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours.


Derivative Instruments

We use derivative instruments to manage our exposure to changes in currency exchange rates from our monetary assets and liabilities denominated in currencies other than the U.S. dollar. We do not use derivative instruments for speculative purpose.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives : To hedge our exposures of monetary assets and liabilities to changes in currency exchange rates, we generally utilize a rolling hedge strategy with currency forward contracts that mature within nine months. In addition, to mitigate the risk of the yen strengthening against the U.S. dollar with respect to our MMJ Creditor Payments due in December 2017 and 2018, as of November 30, 2017, we had forward contracts to purchase 18 billion yen in December 2017 and 28 billion yen in December 2018. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured 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).

Convertible Notes Settlement Obligations : For settlement obligations associated with our convertible notes that become derivative debt liabilities subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts of our convertible note settlement obligations were based on the volume-weighted-average stock price (Level 2). Changes in fair values of the derivative settlement obligations were included in other non-operating income (expense), net.



16




Total notional amounts and gross fair values for derivative instruments without hedge accounting designation were as follows:
 
 
Notional Amount (1)
 
Fair Value of
Current Assets (2)
 
Current Liabilities (3)
 
Noncurrent Assets (4)
 
Noncurrent Liabilities (5)
As of November 30, 2017
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
 
 
 
 
 
 
 
 
 
New Taiwan dollar
 
$
3,388

 
$
31

 
$
(2
)
 
$

 
$

Yen
 
1,733

 
5

 
(4
)
 

 
(4
)
Singapore dollar
 
570

 
2

 

 

 

Euro
 
210

 
1

 

 

 

Other
 
47

 

 
(1
)
 

 

 
 
$
5,948

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible notes settlement obligation
 
6

 

 
(249
)
 

 

 
 
 
 
$
39

 
$
(256
)
 
$

 
$
(4
)
 
 
 
 
 
 
 
 
 
 
 
As of August 31, 2017
 
 
 
 
 
 
 
 
 
 
Currency forward contracts
 
 
 
 
 
 
 
 
 
 
New Taiwan dollar
 
$
2,921

 
$
22

 
$
(2
)
 
$

 
$

Yen
 
1,209

 
5

 

 
1

 

Singapore dollar
 
324

 
1

 

 

 

Euro
 
368

 
5

 
(2
)
 

 

Other
 
25

 
1

 
(1
)
 

 

 
 
$
4,847

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible notes settlement obligation
 
2

 

 
(47
)
 

 

 
 
 
 
$
34

 
$
(52
)
 
$
1

 
$

(1)  
Notional amounts of forward contracts in U.S. dollars and convertible notes settlement obligations in shares.
(2)  
Included in receivables – other.
(3)  
Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations.
(4)  
Included in other noncurrent assets.
(5)  
Included in other noncurrent liabilities.

Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities due to changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, recognized losses were $2 million and $178 million for the first quarters of 2018 and 2017 , respectively.

Derivative Instruments with Cash Flow Hedge Accounting Designation

Currency Derivatives : We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain capital expenditures. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2).


17




For derivative instruments designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the derivatives is included as a component of accumulated other comprehensive income (loss). Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same line items and in the same periods in which the underlying transactions affect earnings. The ineffective and excluded portion of the realized and unrealized gain or loss is included in other non-operating income (expense). Total notional amounts and gross fair values for derivative instruments with cash flow hedge accounting designation were as follows:
 
 
Notional Amount (in U.S. Dollars)
 
Fair Value
 
 
Current Assets (1)
 
Current Liabilities (2)
As of November 30, 2017
 
 
 
 
 
 
Euro
 
$
310

 
$
5

 
$

Yen
 
254

 
1

 
(3
)
 
 
$
564

 
$
6


$
(3
)
As of August 31, 2017
 
 

 
 
 
 

Euro
 
$
198

 
$
13

 
$

Yen
 
258

 
4

 

 
 
$
456

 
$
17


$

(1)  
Included in receivables – other.
(2)  
Included in accounts payable and accrued expenses – other.

We recognized losses of $4 million and $9 million for the first quarters of 2018 and 2017 , respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. Neither the ineffective portions of cash flow hedges recognized in other non-operating income (expense) nor the reclassifications from accumulated other comprehensive income (loss) to earnings were material in the first quarters of 2018 and 2017 . The amounts from cash flow hedges included in accumulated other comprehensive income (loss) that are expected to be reclassified into earnings in the next 12 months were also not material.


Equity Plans

As of November 30, 2017 , 99 million shares of our common stock were available for future awards under our equity plans.

Stock Options

Quarter ended
 
November 30,
2017
 
December 1,
2016
Stock options granted
 
1

 
2

Weighted-average grant-date fair value per share
 
$
17.67

 
$
7.66

Average expected life in years
 
5.6

 
5.7

Weighted-average expected volatility
 
44
%
 
46
%
Weighted-average risk-free interest rate
 
2.1
%
 
1.4
%
Expected dividend yield
 
0.0
%
 
0.0
%

Restricted Stock and Restricted Stock Units ("Restricted Stock Awards")

Quarter ended
 
November 30,
2017
 
December 1,
2016
Restricted stock award shares granted
 
2

 
3

Weighted-average grant-date fair value per share
 
$
39.01

 
$
18.22



18




Stock-based Compensation Expense

Quarter ended
 
November 30,
2017
 
December 1,
2016
Stock-based compensation expense by caption
 
 
 
 
Cost of goods sold
 
$
20

 
$
19

Selling, general, and administrative
 
18

 
15

Research and development
 
13

 
12

 
 
$
51

 
$
46

 
 
 
 
 
Stock-based compensation expense by type of award
 
 
 
 
Stock options
 
$
17

 
$
17

Restricted stock awards
 
34

 
29

 
 
$
51

 
$
46


As of November 30, 2017 , $348 million of total unrecognized compensation costs for unvested awards was expected to be recognized through the first quarter of 2022 , resulting in a weighted-average period of 1.2 years.


Research and Development

We share the cost of certain product and process development activities with development partners. Our R&D expenses were reduced by reimbursements under these arrangements by $56 million for each of the first quarters of 2018 and 2017 .


Other Non-Operating Income (Expense), Net

Quarter ended
 
November 30,
2017
 
December 1,
2016
Loss on debt repurchases and conversions
 
$
(195
)
 
$
(2
)
Loss from changes in currency exchange rates
 
(9
)
 
(12
)
 
 
$
(204
)
 
$
(14
)


Income Taxes

Our income tax (provision) benefit consisted of the following:
Quarter ended
 
November 30, 2017
 
December 1, 2016
Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW
 
$
(26
)
 
$
(13
)
Other income tax (provision) benefit, primarily other non-U.S. operations
 
(88
)
 
(18
)
 
 
$
(114
)
 
$
(31
)

We have a full valuation allowance for our net deferred tax asset associated with our U.S. operations. The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases. Income taxes on U.S. operations in the first quarters of 2018 and 2017 were substantially offset by changes in the valuation allowance.

We operate in a number of tax jurisdictions, including Singapore and Taiwan, where our earnings are indefinitely reinvested and are taxed at lower tax rates than the U.S. statutory rate and in a number of locations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements, which expire in whole or in part at various dates through 2030, reduced our tax provision by $391 million (benefitting our diluted earnings per share by $0.32 ) for the first quarter of 2018 and by $40 million ( $0.04 per diluted share) for the first quarter of 2017 .

19





U.S. tax reform legislation, if enacted on terms similar to current proposals, could reduce the U.S. corporate income tax rate and significantly affect how income from foreign operations is taxed in the United States. U.S. tax reform could subject a significant portion of cumulative and future foreign earnings to U.S. income taxes. We will assess the impact of U.S. tax reform on the realizability of the net deferred tax assets of our U.S. operations, which as of August 31, 2017, were reduced by a full valuation allowance of $1.52 billion . In addition, the reduction of the U.S. corporate income tax rate could have the effect of reducing the value of certain of our deferred tax assets in the United States. U.S. tax reform may have an adverse effect on our provision for income taxes and could cause a significant increase in our cash tax liabilities in the near term. We have available net operating loss and tax credit carryforwards that may partially offset taxes that result from U.S. tax reform.


Earnings Per Share

Quarter ended
 
November 30,
2017
 
December 1,
2016
Net income attributable to Micron – Basic and Diluted
 
$
2,678

 
$
180

 
 
 
 
 
Weighted-average common shares outstanding – Basic
 
1,134

 
1,040

Dilutive effect of equity plans and convertible notes
 
91

 
51

Weighted-average common shares outstanding – Diluted
 
1,225

 
1,091

 
 
 
 
 
Earnings per share
 
 
 
 
Basic
 
$
2.36

 
$
0.17

Diluted
 
2.19

 
0.16


Antidilutive potential common shares that could dilute basic earnings per share in the future were 2 million and 64 million for the first quarters of 2018 and 2017 , respectively.


Segment Information

Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:

Compute and Networking Business Unit ("CNBU") : Includes memory products sold into compute, networking, graphics, and cloud server markets.
Storage Business Unit ("SBU") : Includes memory and storage products sold into enterprise, client, cloud, and removable storage markets.
Mobile Business Unit ("MBU") : Includes memory products sold into smartphone, tablet, and other mobile-device markets.
Embedded Business Unit ("EBU") : Includes memory products sold into automotive, industrial, connected home, and consumer electronics markets.

Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating expenses (income) are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. 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.

20




Quarter ended
 
November 30,
2017
 
December 1,
2016
Net sales
 
 
 
 
CNBU
 
$
3,212

 
$
1,470

SBU
 
1,383

 
860

MBU
 
1,365

 
1,032

EBU
 
830

 
578

All Other
 
13

 
30

 
 
$
6,803

 
$
3,970

 
 
 
 
 
Operating income (loss)
 
 
 
 
CNBU
 
$
1,914

 
$
204

SBU
 
400

 
(45
)
MBU
 
505

 
89

EBU
 
342

 
178

All Other
 
(4
)
 
12

 
 
3,157

 
438

 
 
 
 
 
Unallocated
 
 
 
 
Stock-based compensation
 
(51
)
 
(46
)
Restructure and asset impairments
 
(6
)
 
(29
)
Other
 
(3
)
 
(4
)
 
 
(60
)
 
(79
)
 
 
 
 
 
Operating income
 
$
3,097


$
359




21




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended August 31, 2017. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Our fiscal 2018 and 2017 each contain 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 is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. This discussion is organized as follows:

Overview : Overview of our operations, business, and highlights of key events.
Results of Operations :  An analysis of our financial results consisting of the following:
Consolidated results;
Operating results by business segment;
Operating results by product; and
Operating expenses and other.
Liquidity and Capital Resources :  An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and liquidity.
Recently Issued Accounting Standards

Overview

Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands – Micron, Crucial, and Ballistix – our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash, and 3D XPoint memory, is transforming how the world uses information to enrich life. Backed by nearly 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, and mobile.

We manufacture our products at our worldwide wholly-owned and joint venture facilities. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions, expansion, and various partnering arrangements.

We make significant investments to develop the proprietary product and process technology, which is implemented in our manufacturing facilities. We generally increase the density per wafer and reduce manufacturing costs of each generation of product through advancements in product and process technology, such as our leading-edge line-width process technology and 3D NAND architecture. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, reduced package size, lower power consumption, improved read/write reliability, and increased memory density. Storage products incorporating NAND, a controller, and firmware constitute a significant and increasing portion of our sales. We generally develop firmware and expect to introduce proprietary controllers into our SSDs in 2018. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and target high-growth markets.

We market our products through our internal sales force, independent sales representatives, and distributors primarily to original equipment manufacturers and retailers located around the world. We face intense competition in the semiconductor memory and storage markets and, in order to remain competitive, we must continuously develop and implement new products and technologies and decrease manufacturing costs. Our success is largely dependent on market acceptance of our diversified portfolio of semiconductor-based memory and storage solutions, efficient utilization of our manufacturing infrastructure, successful ongoing development and integration of advanced product and process technology, return-driven capital spending, and successful R&D investments.

To leverage our significant investments in R&D, we have formed, and may continue to form, strategic joint ventures that allow us to share the costs of developing memory and storage product and process technology with third parties. In addition, from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetize our investment in intellectual property through partnering and other arrangements.

22





Results of Operations

Consolidated Results

 
 
First Quarter
 
Fourth Quarter
 
 
2018
 
% of Net Sales
 
2017
 
% of Net Sales
 
2017
 
% of Net Sales
Net sales
 
$
6,803

 
100
 %
 
$
3,970

 
100
 %
 
$
6,138

 
100
 %
Cost of goods sold
 
3,056

 
45
 %
 
2,959

 
75
 %
 
3,026

 
49
 %
Gross margin
 
3,747

 
55
 %
 
1,011

 
25
 %
 
3,112

 
51
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative
 
191

 
3
 %
 
159

 
4
 %
 
193

 
3
 %
Research and development
 
448